The idea needs to be good, the potential market needs to be huge, but what matters most to early stage investors is whether the founder is the right person for the job.
So concludes Innovator Mindset's Dennis Stauffer, writing very recently for LinkedIn Pulse. It is an emphasis that Stauffer claims has still not fully sunk in when it comes to corporate innovation and for businesses chasing investment opportunities.
Instead of focusing on ideas and processes, investors need to look at whether the founder his or herself is going to deliver the all important value to that business in the next phase(s).
Value can take many different forms: profits, stronger or different partnerships, 'upgrades' to improved supply chain status, growth in brand awareness, greater repeat business and better customer-experience feedback, for example.
Predicting whether a business will achieve one or more of these measures of success is the challenge. One that must begin, Stauffer suggests, with the critical question of whether the founder can deliver it.
And it's not just early stage investors who will ask themselves this question. It is the same question that many customers, target business partners (including large and established distributors), top talent under recruitment and suppliers will also be asking: how much of a risk, or an opportunity, does your business present for them? Will the person at its head be capable of sustained delivery of the high performance that they need.
So what is the measure of an investable founder?
Stauffer examines research recently published in the International Journal of Innovation Science and research conducted by the Kauffman Institute on hundreds of entrepreneurs.
For the first time, he claims, it is now possible to evaluate a founder and a business worth betting on, without resorting to far less reliable, heuristic and subjective judgments. Those who are most investable are founders with an 'innovation mindset'.
The linked article succinctly explores the basis on which Stauffer reaches his conclusions. It showcases an Innovativeness Index, used in the Kauffman Institute's research, which is apparently a powerful predictor of whose ventures will produce the most profits, revenues and jobs.
Across many diverse sectors, the results indicated a similar trend in outcome and they zone in on each occasion, to a small and focused core of identifiable businesses.
We should be looking, it seems clear, for those businesses founded by individuals with the strongest innovation mindset. Those are the businesses in whom to invest, with whom to consider partnerships and joint ventures, from whom to buy, maybe even to whom to sell.
They are the conclusions that you'll want investors, partners, customers and suppliers to apply to you. So even if you're not looking for investors, yet, if you're looking to grow, you'll need a founder who has an innovation mindset and who can competently steer you to the next level.
How to be investable and evidence (or develop) an innovation mindset
Encouragingly, Stauffer asserts that Innovativeness is not a personality or innate trait. It is instead a mindset, he claims - one that can be learned and/or changed and that is fully transferable.
In a separate blog (Innovativeness - The Ultimate Transferable Skill - Innovator Mindset®), that is also worth a read, Stauffer offers a long list of vital characteristics indicative of an innovation mindset (spanning imagination, discipline, courage, humility and people leadership, to name but a few).
He concludes that 'we are all capable of being innovative, but some of us have a mindset that enables us to tap into that capability in ways that others cannot and/or to get there faster. Yet we all have the power to make different choices - to change our mindset in ways that enhance our innovativeness - our ability to create value.'
The most investable founders are those who are fastest to develop and to practise an innovation mindset. It is no coincidence that they are also likely to have the best ideas - at least initially. But they will also be adaptive, flexible and open-minded. Because continued success in generating value and innovation comes from a dispassionate understanding that what you may have designed and built with great vision, personal sacrifice and passion yesterday, might need to change going forward.
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One of the truisms of early stage investing is that the most important criteria in making those guesses is the “who,” not the “what.” Yes, the idea needs to be good and yes, the potential market must me huge, but what matters most is whether the founder is the right person for the job. This simple reality has not fully sunk in when it comes to corporate innovation, where the emphasis still tends to be on ideas and process. Perhaps that’s because it’s been so difficult to evaluate the “who” without resorting to heuristics and subjective judgements—exactly the sort of criteria what would be immediately dismissed if someone tried to use them for any other due diligence. There simply has not been any scientifically sound metric for reliably evaluating personal innovativeness (ahem…drum roll please) —until now.