Published in New Media Age
By Daniel Lopez

VC’s are constantly asked what they look for in companies, and the answer typically boils down to strong management and a big market opportunity. Ultimately, these are just different ways of saying focus and vision.

Entrepreneurs need several different kinds of focus to navigate a company on a day-to-day basis. Developing only those products that customers will find immediately valuable, carefully watching every penny of expenses, and dexterous delegation are diverse variations on the theme. The first involves consistently making the company be customer-facing. The second involves personal diligence on cashflow issues. And the last involves knowing what to do yourself and what to give to others.

There is a cacophony of noises distracting managers from the important issues. The major pitfalls are fairly well known, but often repeated. Most famous among them in our sector is the pursuit of cool technology for its own sake—instead of trying to provide solutions that people will pay for. During the dotcom boom in particular, many companies who had no business in the Internet pursued ambitious Internet strategies. Open-mindedness and well thought-out experimentation are good; lack of focus is bad.

Attention to detail is critical if a CEO is going to be able to make payroll every month, and personal determination will get them through hard times. In today’s difficult environment, VC’s have a heightened appreciation for an entrepreneur’s focus on the short-term survival of the company. Investors have to know that the company is in a safe pair of hands that can be trusted in the stretches of time between board meetings. This trust frees managers to manage—and investors to provide strategic guidance with only occasional tactical support.

A person with focus can run a very successful coffee shop, but that clearly isn’t enough to attract the attention of investors. Add some vision—perhaps enough to imagine the growth of the coffee shop into a ubiquitous global chain of high-end coffee shops—and suddenly the venture capitalists come running.

VC’s need to believe that a start-up is pursuing a BIG opportunity. A venture fund may have a given target return—say, for example, 40%—but that doesn’t mean it will invest in companies with an expected growth rate of 40%. Since most companies in their portfolio are bound to be complete failures, the successful bets have to bring the average up to 40%–so they have to aim for 300-400% across the board. Some firms aim even higher.

Visions of grandeur provide the rocket fuel for entrepreneurs: it’s what gets them up in the morning and keeps them working late into the night. Vision is also what lets entrepreneurs blaze new trails by identifying an opportunity before it gets big. Vision enables a CEO to change the course of a successful company while it’s still successful. And vision is what gives good entrepreneurs the contagious enthusiasm that motivates their teams and converts their customers. Vision is ego, energy, courage, and leadership all wrapped together.

Entrepreneurs with vision but no focus are great evangelists but usually very bad CEO’s. Those with focus but no vision are solid managers—and can make fair CEO’s—but are probably going to have limited lifespans leading companies in dynamic markets.

When you talk of the truly great CEO’s who have been able to grow extremely successful companies over a long period of time—the Jack Welch’s and Bill Gates’s of the world—they inevitably have both vision and focus in abundance. But this is a very exclusive group, and while all CEO’s should try to have a bit of both, the reality is that few people are suited to lead a company in all of its stages of growth. Even Welch and Gates couldn’t lead forever.

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