The strength of the management team is critical to the business success and bankers and venture capitalists know it! In fact a  strong management team is a key determining factor whether to invest in a business. Most businesses fail in the first five years because of two reasons: ineffective management or insufficient capital. The management plan must emphasize the experience, education, and competence of each key individual on the management team. An organizational chart should highlight the management of the business, and possibly even compensation of each person employed by the firm. Be aware that bankers and venture capitalists expect management to make sacrifices during the early years of business. If they are loaning you money they don’t expect you to be driving a Mercedes and earning $100,000 a year. However, showing that you are accepting a substantial cut in salary and that you are investing much of your time into the business is a sure way to impress the reader with your commitment to the success of your venture.

On the other hand it is also possible that as a start up company your management team  may not yet be complete. For example you may be lacking a competent CEO who has experience in starting new ventures and/or is an expert in the particular industry. If this is the case, you should acknowledge this gap in your management team section of your business plan and explain that a portion of the investor’s money will go towards attracting the most competent person to lead your company. This will show investors two things:

1. They will be impressed by the fact that you acknowledge your weaknesses and you are looking for alternatives to turn these weaknesses into strengths.
2. They will know that your ego will not stand in the way of your ability to change the direction of the business should things don’t go as planned and you will be open to new opportunities.

Many times the company’s founder may be the inventor of the product, or the technology and may not be particularly business savvy, but to my surprise, he/she still insists on managing the company on her own. This may work at beginning but if the venture is to grow, an experienced CEO is a must! This is especially true for high-growth companies, requiring a series of venture capital funding. I am always surprised by people  who are experts in one field but they believe that business just happens and not much experience or knowledge is needed. The truth is that business doesn’t just happen, it is created, and although a business degree is not necessarily a recipe for success, business experience is usually a good indicator. So if you don’t have the business knowledge, or the business experience, hire someone who does and focus your efforts on your your product/technology or whatever it is that you do best.

Pertinent information to include in the management portion of your business plan is:

• Venture management/expertise needs.
• Job descriptions for all key management employees.
• Eduction, experience, skills of the team.
• Acknowledge skills gaps and how you will overcome them – hire, contract, etc.
• Organizational chart.
• List any strategic alliances.
• Staffing plans and employment agreements.

The management plan must convince the investor that capable management team is in place and to show that your organization is set to meet the growth that you planned for.

Related posts:

1. Gaps in your management team are not necessarily a turn off. Don’t let your ego stand in the way.