Management and Support Talent

By Michael T. Childress and Michal Smith-Mello; Peter Schirmer

One of the most important factors in generating entrepreneurial activity is the quality of management and support talent. According to Ralph Shelton, president of Southeast Fuels and former chairman of North Carolina’s Minority/Women Economic Development Council, investors make decisions about business investments based on the management teams that will run those businesses.(1) Many in the financial community echo the sentiment that good management is the key to successful entrepreneurial ventures. Presenters at a June 1996 Southern Growth Policies Board Conference, Capitalizing the South, cited managerial talent as the principal factor for success. In fact, according to Pratt’s 1994 Guide to Venture Capital Sources, a venture capitalist would prefer a grade A entrepreneur with a grade B business idea to a grade B entrepreneur with a grade A idea.(2) And for good reason. The most often cited cause of small business failure, after the lack of access to capital, is the lack of managerial expertise.(3) The ability of a state to cultivate successful entrepreneurs, therefore, largely rests on its ability to propagate, attract, and retain people who possess grade A qualities.

Our 1997 survey of Kentucky bankers confirms that these traditional lenders also consider "strength of management" the most important factor to consider when evaluating a loan for a small business start-up.(4) Fully 92 percent of Kentucky bankers rated "strength of management" as a "very important" criterion to consider in the loan process. Similarly, 68.6 percent of respondents rated "experience starting/running business" as "very important." Only "strength of business plan," which is clearly related to managerial expertise, was rated more highly; 77 percent of respondents ranked it as "very important."

The immediate question that arises is where such a "ready-made" pool of experienced managers can be found. Unfortunately, fewer Kentucky citizens are employed in the fastest growing privately held firms than in nearly any neighboring state. Figure 1 illustrates the level of Kentuckians employed at the entrepreneurial Inc. 500 firms compared to the contiguous states. While, as we will further explore in this chapter, Kentucky’s poor performance here is largely attributable to the concentration of Inc. 500 firms in urban areas, the consequences remain the same. Fewer entrepreneurial role models and, in this case, fewer beneficiaries of high-growth firms are present in the state. However, the state is taking important steps to enhance the overall level of human capital as discussed in the previous section on education and intellectual capital. Over time, these steps will likely elevate the availability and quality of the state’s management talent.

Figure 1: Inc. 500 Employees by State

The availability and quality of support talent is also vital for a robust entrepreneurial climate. Results from our Survey of Small Business Owners suggest that, in general, this sample of entrepreneurs is satisfied with the quality and availability of professional services. As Table 1 illustrates, the quality and availability of professional services ranked relatively high with 35.5 percent of the small business owners assessing the quality as "good" and 32.1 percent assessing the availability as "good."

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Footnotes

1. Shelton, 1996. Return to text.

2. Dingee, Haslett and Smollen, 1994. Return to text. 

3. The lack of managerial expertise was also the most cited reason that institutional sources denied businesses access to capital in the first place (Walker, 1996). Return to text.

4. Bankers’ survey (Q-18): How important are the following items when deciding whether to lend to an entrepreneur starting a new business? Respondents were asked to rate the degree of importance of the following items: Proximity to Your Institution; Strength of Business Plan; Experience Starting/Running Business; Collateral; Strength of Management; Other. Return to text.