Building The Right Team and Letting Them Do Their Job

Every successful transaction — whether a capital raise, a sale, or a strategic merger — is ultimately a judgment on the team behind the business. Investors and acquirers buy futures, not histories, and they do that by placing confidence in the people they believe can execute. Understanding how to build, align, and present that team is one of the most durable competitive advantages a business owner can develop.

When deciding whether to invest in a company or not, the venture capitalist will invest eighty percent in the entrepreneur and management team while only about twenty percent is invested in the product. The reason I am telling you this is to show you how important it is to build the right team that can really take the company forward. This is where it might have actually been better to get a bachelor of art in business administration rather than a bachelor of science, because it really is an art.

And once you have the right team in place you can rest assured that if the product or service you are selling can move forward, then it will move forward.

Why Team Composition Shapes Valuation

From a transaction standpoint, the quality and depth of a management team directly affects how a buyer or investor underwrites risk. A business that depends entirely on its founder to generate revenue, maintain key relationships, or make operational decisions carries a concentration risk that sophisticated acquirers will price into their offer — often through earn-outs, escrow holdbacks, or a lower headline multiple. A business with a capable, incentivized team that can operate independently of the founder commands a structurally cleaner exit and a stronger valuation. If you are planning a transaction, reviewing your sell-side preparation through the lens of team depth is one of the highest-return exercises you can complete before going to market.

Letting the Sales Team Do the Selling

One of the common mistakes that an entrepreneur makes is thinking that he has to do everything because no one else can do it right. While this is completely blunders it also limits the amount of work that can be done.

I once went to a venture capital conference in Utah where various investors had the chance to meet with business owners and listen to their pitch or presentation and decide if they wanted to invest. One of the presenters who presented, he was the CEO, talked about how great the product is and how great of a sales team he had and how everything else involved with his company was so great; but he was not very good at selling the business himself.

My colleagues and I wondered why he was the one presenting and not this amazing sales team. Sometimes being the best business manager means stepping out of the way and letting those who are the best at something do the thing they are best at.

How to Structure a Winning Management Presentation

When a business advances to the later stages of a capital raise or sale process, the management presentation becomes the single most important live event. Investors and buyers are not just evaluating slides — they are assessing whether the people in the room can execute under pressure, communicate clearly, and lead an organization through change. A few principles that consistently distinguish effective presentations:

• Assign speaking roles by functional expertise. The CEO should set context and strategy; the CFO should own the financial narrative; the head of sales or operations should demonstrate domain depth. Do not allow one person to carry every section.
• Anticipate the hardest questions. Customer concentration, key-person dependency, competitive threats, and margin trajectory are standard lines of inquiry. Prepare substantive answers, not deflections.
• Show the system, not just the outcomes. Investors want to see that results are repeatable — that they flow from a process, not from the founder's personal effort on any given quarter.

The management presentation guide covers these mechanics in detail, including how to structure the narrative arc and what materials to prepare in advance.

Getting Some Skin In The Game

Many business owners want to keep everything to themselves without giving any portion of the business to the management team. Venture Capitalist and Private Equity groups see things a little differently, they usually give some sort of equity or structure in some sort of compensation package that will provide additional motivation to the management team to get things moving forward.

Whenever you can get the team to invest or take on some sort of risk themselves then you can view it as a good sign that you are starting to get the right people on board. Once you have established the capable team you need to ensure that a form of accountability is in play that will let the team do their job and make sure that they don't fall behind. Once you have these structures in play then you have established a system that will be particularly eye-catching to investors or others looking to acquire a business.

Setting us a system and getting the right people on board is one of the hardest aspects of starting a business. In fact it is probably one of the biggest reasons businesses fail in the first place, regardless of finances and demand.

Equity Alignment: What Buyers Actually Look For

Private equity acquirers and strategic buyers routinely conduct management interviews as part of due diligence. One of their core questions is whether key managers have a financial stake in the outcome — and whether that stake is structured in a way that aligns their interests with the new owner post-close. Common alignment mechanisms include:

• Equity participation or phantom equity. Grants that vest over time tie a manager's wealth to the company's growth, reducing the risk of departure after a transaction.
• Management rollover. In private equity deals, founders and key managers are frequently asked to roll a portion of their equity into the new ownership structure rather than taking 100% cash at close. This signals conviction in the forward business plan.
• Performance-linked bonuses. Annual incentive plans tied to EBITDA or revenue milestones create a shared scoreboard between owners and managers, which buyers view as a governance positive.

If you are preparing a business for sale, documenting these arrangements clearly — and being able to explain the rationale behind them — will strengthen how buyers perceive the durability of your team. Learn more about how team and operational readiness factors into a broader investor readiness assessment, or explore related considerations in building a business with the end in mind.

Frequently Asked Questions

Why do investors weigh the management team so heavily relative to the product?

Products evolve, markets shift, and the original concept rarely survives contact with customers unchanged. What remains constant is the team's ability to adapt. A strong management team can pivot a mediocre product into a market winner; a weak team will often squander even a genuinely differentiated product. Investors underwrite the people they believe will navigate uncertainty effectively, which is why team quality carries disproportionate weight in early and growth-stage investment decisions.

What does “key-person dependency” mean in a transaction, and how can I reduce it?

Key-person dependency refers to the degree to which a business's revenue, relationships, or operations are concentrated in one individual — typically the founder. Buyers and lenders view this as a risk because the departure or incapacitation of that person could materially impair the business. Reducing it involves systematically transferring relationships to the broader team, documenting institutional knowledge, and ensuring that customer contracts and vendor agreements are held at the entity level rather than tied to an individual. This is best addressed well in advance of any transaction process.

How should equity be structured for a management team ahead of a sale?

The right structure depends on the type of transaction anticipated. In a full sale, managers may receive a cash bonus at close, a rollover equity stake in the acquiring entity, or both. In a recapitalization, managers often retain equity alongside an incoming financial sponsor. The goal in any structure is to ensure that managers have a meaningful financial incentive to support the transition and continue performing post-close. Transaction counsel and an experienced advisor should be involved in designing these arrangements before a process begins.

What accountability structures do investors look for in a management team?

Investors look for clear reporting lines, documented performance metrics, and a track record of management actually using those metrics to make decisions. Board or advisory oversight, regular operating reviews against a budget, and a defined decision-rights matrix — meaning clarity about who can authorize what — all signal that the business is run as a system rather than an informal operation. These structures reduce perceived risk and make the business more transferable, which directly supports both valuation and deal certainty. For more on how buyers assess these factors, see common merger and acquisition killers.