FOR INVESTORS
Can Future Startup Success Be Predicted?
Yes, Measure Human Capital.
If you’re an investor — venture capitalist, angel, or private equity — data that can be used to predict the future success of a prospective company is invaluable. However, there are so many factors related to success that sometimes it’s hard to filter through all the data.
Focus on the Difficult-to-Change Characteristics
Many factors that lead to failure are fixable or addressable while growing the company. For example, bad marketing or customer neglect can be improved by adjusting operational forces. One thing that is frustratingly difficult to change, however, is the people. People are thought to be “hard-wired,” and even if they are not (that’s a blog for another day), changing how someone behaves is a challenging, long-term endeavor.
Industrial-organizational psychologists, such as myself, are experts in predicting job and organizational performance. When selecting people to join organizations, we focus on the human capital characteristics that cannot be changed easily (e.g., personality, temperament). Characteristics like skills or knowledge can be developed once the person is on the job and, therefore, should not be the focus of evaluation during the hiring process.
The same applies to selecting startups for investment. When gathering data about the founding team, focus on measuring things that are difficult to change later. If a founder doesn’t have knowledge or experience managing a team, that is something you can teach them easily through training, reading, and mentoring. However, if they lack some of the deeply ingrained traits that are needed, such as being assertive and sociable, it’s much more difficult to train. Changing deeply ingrained traits takes a lot of intentionality, practice, effort, and time.
Use Psychometric Assessments
While human capital traits such as personality, thinking styles, and motivation are difficult to change, they are great predictors of future behavior and, in turn, future performance. That’s why 80% of Fortune 500 companies use psychometric assessments to measure human capital traits during their selection and hiring process. Using psychometric assessments not only provides a means to predict who will be a high performer, but it also speeds up the hiring process and saves the company money.
When evaluating companies to determine their investment potential, investors should apply similar methods as Fortune 500 companies. So many Fortune 500 companies use assessments because they work, and they continue to see a return on their investment in them. Identifying who will be a high performer in the future requires the same approach regardless of whether you select a single person for a job or a team of founders. The question is the same: Will the person (or people) behave in a high-performance manner that will impact the bottom line?
Human Capital Data is Predictive
Predicting people and their future performance starts with understanding people. Psychometric assessments are a great tool to understand and predict performance. Skip the warm introductions and reference calls and jump straight to evaluating the factors relevant to future performance.
In my next blog, I’ll discuss social capital, another predictive factor of startup success. Stay tuned.
Want to know more? Put your questions in the comment section below.
Need Advice or Have Questions?
Blackhawke helps investors and founders put the right people in the right seat at the right time. In other words, we help those in the entrepreneurial ecosystem leverage human capital data for growth and success. Schedule a free 15-minute consultation with a Blackhawke I-O psychologist. We’ll happily provide advice or answer your questions, no strings attached!
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