‘Product v People: The investment tipping point’

Glenn Horine, a partner at global executive search and talent consulting firm SRI, considers a key takeaway from the Stadia Ventures Finalists Pitch in Texas.

It’s a classic conundrum for budget-conscious start-ups in sport as in other sectors: when to divert spending on product to investment in people.

The question of ‘people v product’ was prevalent at a recent sports tech accelerator event at which SRI was part of the judging network.

For many entrepreneurs, especially in the tech sector, the product is the company, and depriving the core asset of resource is counterintuitive. Many are not even paying themselves a salary so why would they hire expensive executives?

But there is a tipping point at which the focus on human capital can make or break a business. Most entrepreneurs instinctively know it: demand is sky high, everyone is operating at maximum capacity and there is no time to think let alone devise a talent acquisition strategy.

The setting for Stadia Ventures’ Fall 2019 Finalist Pitch was Frisco, Texas where profits from the Dallas Cowboys – the world’s most valuable sports franchise – is evident everywhere. They call it ‘Blue Star Land’ (in reference to Cowboys owner Jerry Jones’ 500-acre development) or the ‘$2bn-mile’ and it is as close to Dubai or Abu Dhabi-style urban planning as you will find in the US. A little over five years ago, it was farmland and cattle ranches. Today, in one of America’s fastest growing metropoles, the local high school football team plays in a $70m stadium.

Inspired by the backdrop of uber-investment in sport, the 10 finalists – whittled down from 300 applicants from more than 50 countries – pitched to be among the four companies awarded a coveted place in Stadia’s 9th cohort. Think ‘Dragon’s Den’ or ‘Shark Tank’, the latter featuring local celebrity investor Mark Cuban, owner of the Dallas Mavericks.

Over two days, the expert audience tested their business models with astute questioning of commercial strategy and deft probing of budget assumptions. In the final analysis, however, it was the people on stage we were judging. Were they credible? Did we really believe they were capable of delivering their business plan? Did we like them?

The view from investors was that while they certainly invest in product, the team behind it is critical to their decision-making.

“It starts and ends at talent for us,” David Mosse, partner and general counsel at TPG Growth, said. “No matter how great the product or value, it is equally important that there is a backable team.”

So the question is, once a start-up has passed due diligence and raised the money to scale, at what point do they invest in talent acquisition?

Most investors will encourage a company to exhaust their networks before turning to a search firm. Rhizor argues, however, that these are not mutually exclusive options and urges entrepreneurs to spend time considering their talent acquisition strategy – budget, time, outreach – do it as inexpensively as possible, but make sure to get the right person.

For first-time entrepreneurs, external recruitment can be much more important while veteran entrepreneurs should be able to rely on their network.”

While there is no cookie cutter approach surely there is a rule of thumb for finding the right talent, for the right opportunity and at the right time.

It’s more instinct than science, however. Fred Schonenberg, founder at VentureFuel, which partners corporates and start-ups, says founders need a sixth sense about capital allocation. He argues that there comes a time when they simply have to focus on the jobs that only they can do and to be nimble and resourceful to put a management team in place to free up their own time to maximise their ‘secret sauce’.”

There is general agreement that companies – even pre-revenue – should develop a robust talent acquisition strategy, presenting their organisational structure and compensation needs to potential investors as part of a holistic growth plan.

As Tim Hayden, co-founder and managing director of Stadia Ventures, points out: “The real question on the back of every investor’s mind is how the company is going to grow, get to a positive cash flow and change the world. A big factor is whether they have the right people to do that.”

Building an entire team from scratch while developing a product and refining a go-to-market strategy is hard to do all at once. Start-ups need to think ahead by building in budget for people as well as product development. It’s called human capital for a reason.

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