Conclusion 33
without restrictions that may hamper its effectiveness. No topic should be off-limits, including how the firm designs products, to whom it sells, or how it conducts its business.
By the end of the seed stage, does the board include members who have appropriate operational experience related to product and market development in addition to the investor representatives?
At the seed stage, the board is likely to be overstaffed with investors whose only function is to keep an eye on their money. An ideal board would contain no more than two investors, the CEO, and one or two outsiders. The two investors should have previous operational experience in related businesses. The outsiders should have experience in the product, service, or market area and should have invested enough through sweat or equity to ensure that they are involved and concerned.
In 1990, most venture capital companies are staffed with people who have had successful operational experience. This reflects a change in the composition of these firms that occurred in response to the often-expressed criticism that they were staffed with fresh MBAs who had no previous experience in operations or in the industry. Although being lucky in a few previous deals is a necessary prerequisite, it is not in itself a sufficient qualification.
CONCLUSION
The CEO of a new start-up was lamenting to his board about the difficulty of hiring. A wise venture capitalist advised: "It's not only hard; it's your only job, because if you are successful, everything else is easy." The top-level people-the CEO, the team responsible for carrying out the major functions, and the board of directors-constitute the start-up's three most important dimensions.
The CEO establishes the standards for the company and serves as its team leader. The vice presidents for engineering, manufacturing, marketing, and sales are the "CEOs" for their respective functions. This top level of management must operate as an integrated team and "drive" the organization to achieve its business plan and establish a healthy company culture. The CEO reports to the board of directors, where the ultimate fiduciary responsibility for the venture rests. In the ideal firm, the board merely helps and advises the CEO and company rather than participating actively in the start-up's management.