book.chapter Limit management team

The long-term growth and profitability of any new business venture hinge significantly on the decisions made by its management team. It's essential to restrict shareholder and management roles to individuals who can directly contribute to the company's goals. Involving people without proven experience or those with divergent visions can lead to a lack of unified direction. Often, in the excitement of starting a new venture, friends or long-standing service providers such as lawyers and accountants are invited to join, potentially leading to conflicting ideas about the company's future. A common error is compensating these individuals with shares instead of salaries, complicating their removal if they become a hindrance. Early shareholders who become disgruntled may sell their shares inopportunely, usually to unsuitable buyers. It's advisable to limit early share ownership to those actively involved in operations. Furthermore, establishing an effective Board of Directors with real-world experience, beyond just the founder's circle, is crucial. The Board should offer seasoned advice aimed at enhancing shareholder value and act as a sounding board for management. New companies encounter numerous philosophical questions affecting their direction and priorities, such as the choice between high capital growth and moderate sustainable income. With many potential judgment calls, aligning efforts is simpler when decision-making is concentrated among a small, invested management team. This approach helps in maintaining focus and successfully establishing the company's direction, especially vital for aspiring high-growth companies.