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Stay out of the day-to-day
Staying out of the way
Running a business day to day is very different from what Mitch Rales and his brother Steve do, or from his private investing. The job is to find great talent with great learning agility and help them, kick them in the butt if they drift off the straight and narrow, and pat them on the back when they do great things. The fault line starts when an investor gets into the deep details of managing them day to day.
What experience adds
What he brings is 40 years of experience. He has seen a lot, and passing along those judgments is the real opportunity he can contribute. Help includes organizational design, strategic planning, funnel and channel management, and policy deployment, and it also means helping founders avoid the big mistakes, which matters as much as making high-quality decisions.
Why he enjoys it
He finds it thrilling. Many people want to play 18 holes every day in retirement, while his definition of that is 18 holes once a month, and he gets energy from young entrepreneurs who want to be great. If the rest works, the investment side takes care of itself.
Why do boards stay out of daily management?
Corporate governance separates oversight from management. A board hires, advises, and holds the chief executive accountable, while executives run operations. Managers hold detailed information about customers and operations that directors lack. In the UK, the 1992 Cadbury Report urged boards to separate the roles of chair and chief executive for the same reason, and many countries have since adopted governance codes based on it.
Why does experience help founders avoid mistakes?
Paul Gompers, Anna Kovner, Josh Lerner, and David Scharfstein studied venture-backed entrepreneurs in a 2010 paper. Founders who had succeeded before were more likely to succeed again than first-time founders or those who had failed. The authors attributed part of the gap to skill. The paper, titled Performance Persistence in Entrepreneurship, appeared in the Journal of Financial Economics.
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