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June 13, 2005

MYTH: Great Management is King

REALITY: Great Strategy is King

Most VCs will respond with knee-jerk affirmation to the statement “Great Management is King”.   But what VCs really mean is that Great Management is a necessary but insufficient condition for them to invest.  Clearly, the company must also be in a desirable industry and demonstrate scalable growth characteristics.  But these too are necessary but insufficient

In reality, Great Strategy is both necessary AND sufficient. 

With Great Strategy, Great Management isn’t even necessary, let alone sufficient.

Two Rules must always be kept in mind when building companies —

RULE #1:

Behind EVERY Successful Company lies an ACCURATE Market Hypothesis.

RULE #2:

1 X 10 >> 10 X 1

 

Rule #1 is a given — if your market assumptions are wrong, you’re cooked.  Management, Strategy, Finance, Execution, etc. are all irrelevant if you are wrong about the market.

Rule #2 is the one rule many smart people overlook  — 1 X 10 is always much greater than 10 X 1.”    In other words,

a Mediocre Management Team with a Great Strategy

will ALWAYS out-perform

a Great Management Team with a Mediocre Strategy.

And I have, over the years, noticed a very important corollary to the “1 X 10 >> 10 X 1” Rule

A competent move in the wrong direction

destroys a company much faster than

an incompetent move in the right direction.

Again, this all makes much more sense once you have dispelled one of the most lethal business myths of all time —  the “Great Management Team” Myth.  

GreatMgtTeamMyth 

I’ve written a lot about the “Great Management Team” Myth elsewhere but let me just make two points here —

1) A Mediocre Management Team with a Great Strategy is called a “Great Management Team”

2) A Great Management Team with a Mediocre Strategy is  called a “Mediocre Management Team” 

So even if there were such a thing as a “Great Management Team,” how would you know if you found one?

 

Posted by cmayaud at 03:25 PM | Permalink| Comments (2)
Del.icio.us Tagging | Digg This | Posted to Business Strategy | Entrepreneurship | MYTH of the Week | Political Economy | Venture Capital Process

Comments

Sir, I agree completely with your assessment. In fact, I'm banking my whole company on a 180-degree market turn and strategy.

Posted by: Michael Werner at June 14, 2005 03:14 PM

I agree that accurate market hypotheses and great strategies are the key to success. However, I would argue that neither of these are static and that "great" teams can adjust to changes in both better than poor teams. A competent team is more likely to make a move in the right direction.

Posted by: Matt Carbonara at June 23, 2005 11:49 PM

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