An age-old adage from investors and entrepreneurs is they’ll always take an “A-quality person with a B-quality idea”, and not the other way around.
This means I’ll happily invest in a person or team I believe can produce a successful business. The business idea itself? Less important.
Because whether you realize it or not, business is all about things like execution and the ability to adapt to change. Not a phantasm that solves the world’s problems like a lightning bolt.
Ask most angels about their mistakes and the answer is usually people-centric. They lament investing in the wrong person, not the wrong idea.
Look at these key characteristics of a successful business relationship. Each is tantamount to a profitable and enjoyable experience, long before any dollar is made or lost.
Trust. Communication. Leadership. Determination. These plus the aforementioned Execution and Ability to Change are what make a business successful over time.
As an investor, you want the opposite of the guy who’s chasing a lifestyle business. You want the most determined business leader you can find to lead your investment to the promised land of a 10x exit.
Why Does the Idea take a Backseat?
Because most businesses start off doing one thing, only later to figure out what really works.
It’s more about talent, determination, and adaptability to change than the million-dollar idea. Everyone knows this by now.
Personal Investment Contracts
One cool concept that exemplifies this point in the extreme is a ‘Personal Investment Contract”. Compliments of Rafe Furst and EmergentFool, a PIC is when an investor offers a cash payment to a promising individual in return for a % return on their individual income in subsequent years.
In English (and in Rafe’s example), they gave $300,000 to a promising young mind in a lump sum payment. In return, this budding star has to forfeit 3% of their income each year so long as the contract remains in place. Read more about it here.
What’s crazy is I almost like this concept better than a traditional angel deal or investment. It doesn’t have a single pesky business idea getting in the way.
Our Success has Come from People
When I look back on the past 8 years of businesses I’ve been a part of, here’s what I see:
-A few successes.
The very reason that we’ve been able to do “growth partnerships” and other investments is because we have a team of people that exemplify the traits I listed above in bold. (It’s also why you should team up with us!)
As an investor, look past the idea, and see only the people behind it. That’s what you’re after.
(pic from Cybernet)