The primary driving force behind a company isn’t the idea. It’s not the funding. It’s the people.
When you invest in a company, although market conditions will play a role, the chances of you seeing a worthwhile ROI rest in the hands of the individuals making the decisions.
So far in our investing 101 series, we’ve covered the problem, the solution, the market, and the competition. In this article, we’re looking at the people behind the project. Who inspires confidence? Who commands your trust? And who will ultimately deliver a worthwhile return on your investment?
Red flags to look out for in company leaders
A founder’s confidence can be inspiring and motivating. It can also be misleading.
The world of entrepreneurship is filled with big personalities. Media hype and bravado can make certain investments (a certain electric car maker springs to mind) seem exciting and appealing. Brands built on ‘cults of personality’ can succeed if balanced with true innovation and expert financial management. They can also crash and burn in the most dramatic ways possible.
Regularly hitting headlines or posting incendiary tweets are not good qualities to seek when looking at leaders to invest in. There are several metrics to take into account when looking at leaders to place your trust and investment funds with. And none of them are hubris.
Erratic spending. Making major purchases is often a strategic way of showing shareholders there’s plenty of cash in the pot. But it’s a dangerous bluff.
WeWork’s ex-CEO Adam Neumann became something of a poster child for spending mismanagement when he concluded a meeting discussing a 7% personnel lay-off with a private performance by DMC’s Darryl McDaniels. And racked up $81 million of private jet expenses.
Glitz and grandstanding can often indicate a leader is distracted, their principles misaligned, and/or their decision-making abilities are inhibited.
Green flags to look out for in company leaders
Consistently held positions, low staff turnover, and extensive industry experience are all green lights for sensible investments.
Clear alignment on vision is also essential. Every company will experience setbacks and challenges, but a team that works well together has a better chance of weathering them.
Humans are best at cooperating when they share a common goal. A company who cultivates passion and belief from the top down sets a strong foundation for success.
A well paid and well looked after workforce is also a green flag. The pressure is on for worker rights to take precedence - not just from ethical investors, but from global societies at large, as is being exemplified currently by the Amazon unionisation drive.
An effective, competent, and forward-thinking team is essential. These are qualities we seek when approving the companies raising capital on the STAX platform.