Chapter 8
Management Team and Company Structure
Key Words
Options pool—an inventory of company stock, usually around 15 to 20 percent of the
total stock, which is set aside for future employees
Board of directors—a panel of individuals elected by a corporation’s shareholders to
oversee the management of the firm
Chapter Overview
This chapter describes a start-up’s management team and company structure. This part of
the business plan is divided into five sections: management team, board of directors,
board of advisors, other professionals, and company structure.
Chapter Summary
1.
business plan. Many investors and others who read business plans look first at
the executive summary, and then go directly to the management team section to
assess the strengths of the people who will be starting the firm.
The management team and company structure chapter is a pivotal chapter in a
2.
firm. Second, as you write the management team section of your business plan
you should clearly describe how the management team will evolve.
There are two issues that you should be particularly sensitive to as you write the
management team and company structure section of your business plan. First,
3.
There are three major parts to the management team portion of this section of the
business plan: management team personnel, management team ownership and
compensation, and common mistakes to avoid.
4.
A good way to describe the gaps that exist in a management team is to develop a
management team skill profile.
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5.
It is necessary to fully disclose the ownership structure of the new venture and
the compensation of the members of the management team in the business plan.
6.
There are a set of common mistakes to avoid when putting together your initial
management team and writing your business plan. These common mistakes
7.
A board of directors is a panel of individuals who are elected by a corporation’s
shareholders to oversee the management of the firm. Many firms have active
boards of directors that provide guidance and lend legitimacy to the firm.
8.
provide counsel and advice on an ongoing basis.
9.
assume important roles in a new venture’s success. These individuals and firms
its business plan.
At times, professionals, such as attorneys, bankers, investors, and consultants,
10.
The most effective way to illustrate how a company will be structured and the
lines of authority and accountability that will be in place is to include an
organizational chart in the business plan.
Chapter Outline
I. Introduction
II. Management Team
a. Management Team Personnel
III. Board of Directors
a. Provide Guidance
b. Lend Legitimacy
Chapter Notes
I. Introduction
A table should be created that shows the names of each of the owners of the
firm, along with their age, their percent ownership in the company, and their
compensation if they work for the firm.
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• Many investors and others look first at the executive summary, and then
go directly to the management team section to assess the strength of the
people starting the firm
seeking
• The best candidate for investment resides in Box 2 of the 2 x 2 matrix—an
untested idea and a tested management team
• The management team section should be crisp and to the point, with
material such as resumes of key employees placed in an appendix
• The way your management team is assembled provides an indication of
the extent to which you’re open to advice and you’re able to generate
enthusiasm for your firm
II. Management Team
• The management team of a new firm typically consists of the founder and
a handful of key management personnel
• The description should be largely factual but should be presented in a way
that makes it easy to visualize where the firm is today and where it plans
a. Management Team Personnel
o A brief profile of each member of the management team
should be provided starting with the founder or founders
• Title of the position
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• Duties and responsibilities of the position
• Education background
o Certain attributes of a management team should also be
highlighted if they apply in your case
• Team members who’ve worked together before are
• The next step in describing the management team is to identify gaps that
exist
b. Management Team Ownership and Compensation
o You must also fully disclose the ownership structure of the
new venture and the compensation of the members of the
management team
c. Common Mistakes to Avoid
o Do not place unqualified friends or family members in key
management positions
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III. Board of Directors
• If a new venture organizes as a corporation, it is legally required to have a
board of directors, which is a panel of individuals elected by the
corporation’s shareholders to oversee the management of the firm
a. Provide Guidance
o Providing guidance and support to the managers of the firm
is the most useful role of the board of directors
o Boards can also help fill competency gaps within the
company
o If a firm gets investment capital, the investor will normally
occupy a seat on its board of directors
b. Lend Legitimacy
o Providing legitimacy for a firm is another important
function of a board of directors
a board of directors at some point in the future
IV. Board of Advisors
• A board of advisors is a panel of experts asked by a firm’s managers to
provide counsel and advice on an ongoing basis
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V. Other Professionals
• At times other professionals, such as attorneys, bankers, investors, and
business consultants, assume important roles in a new venture’s success
VI. Company Structure
• Even if you are a small firm, you should outline how the company is
currently structured and how it will be structured as it grows
• Company structure is a “nuts-and-bolts” type of issue that deals with the
inner workings of a firm
Review Questions
1.
Why is the management team and company structure section referred to as a
pivotal chapter in a business plan?
Answer: Many investors and others who read business plans look first at the
assess the strengths of the people who will be starting the firm.
2.
To what degree does the way a firm assembles its management team provide an
indication of the extent to which the managers of the firm are open to advice and
are able to generate enthusiasm for their firm?
Answer: When a firm receives advice from several unpaid consultants, it shows
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3.
Why is it important to show how a company will evolve in regard to the
composition of its management team?
Answer: You should describe the management team in terms that are largely
4.
Why do investors tend to prefer management teams who have worked together
before?
Answer: Many investors prefer team members who’ve worked together before.
5.
Describe what a management team skill profile is and how it is set up.
Answer: A management team skill profile is a grid that lists the major skills
6.
Why is it important to fully disclose the ownership structure of a new venture
and the compensation of the members of its management team in the business
plan?
Answer: Potential investors should be able to ascertain the ownership structure
7.
What are some of the common mistakes to avoid in putting together an initial
management team?
Answer: The common mistakes to avoid when putting together your initial
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8.
What role does a company’s board of directors play in its overall management
team?
Answer: A board of directors is a panel of individuals who are elected by a
9.
What is a board of advisors? What role does a board of advisors play in the
management of a firm?
Answer: An advisory board is a panel of experts who are asked by a firm’s
managers to provide counsel and advice on an ongoing basis.
10.
organizational chart in the business plan.
Describe the purpose of an organizational chart.
Answer: The most effective way to illustrate how a company will be structured
Application Questions
1.
divided into five sections: a management team, which Kathy has partially
addressed, a board of directors, a board of advisors, other professionals, and
company structure. Advise Kathy that this section is particularly important
summary.
Kathy Jones, a friend of yours, just finished a business plan for a quick printing
service she plans to open. When you looked over Kathy’s plan, you noticed that
the management team and company structure portion of the plan was only one
page long. It provided a short bio of Kathy, her business partner Kay, and briefly
mentioned that the firm plans to set up an advisory board at some point in the
future. When you said to Kathy that this section of the plan looked like it was
incomplete, Kathy seemed surprised and asked you what she left out. What
would you tell her?
Answer: The management team and company structure portion of the plan is
2.
Melanie Ford has read several books on how to write a business plan. All of the
books stressed the importance of the management team section, stressing the
number one thing that investors focus on is the strength of a new venture’s
management team. Melanie can’t figure out why this is true. Recently, she wrote
a letter to the editor of Inc. magazine and asked, “Why do investors put so much
stock in the portion of a business plan that deals with the strength of the
management team? If a start-up’s product doesn’t do well in the marketplace,
what’s the value of having a top notch management team? If you were the editor
of Inc., how would you reply to Melanie’s letter?
firm.
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Answer: The management team is often the thing that wins funding among
3.
If you were one of the founders of Prime Adult Fitness, make a list of the
activities that your 4-member general advisory board and your 10-member
customer advisory board could help you with.
4.
Find an example of a firm not mentioned in the chapter that has a board of
advisors. Describe each of the members of the board of advisors and speculate
regarding the roles they each play in providing advice and lending legitimacy to
the firm.
5.
creating a strong board of directors, board of advisors, and utilizing a competent
Imagine you are starting a firm with two partners, and you are all college seniors
with limited work experience. You don’t have impressive credentials to include
in the management team section of your business plan. How can you construct
this section of your plan, and the company itself, in a way that reassures the
readers of the plan that you know what you’re doing and will get the advice you
need to launch a successful company?
Answer: Student responses will vary but should include discussions about
Additional Activities
1. Famous Founders
Purpose: to reveal the background of the founders of famous entrepreneurial ventures.
This activity works well as an icebreaker to introduce this chapter, or can be used at the
conclusion of your lecture on the management team.
In class form the students into discussion groups of four to six people. Ask them to
review the bios of these famous founders and answer the following questions:
o What level of and kind of education did they have?
competing plans versus the market or the product idea. This is based on the
prevalent belief that unless a proposed new venture has a strong management
team, little else matters. A strong management team, including the board of
directors, provides oversight and can create entrée with suppliers, investors, and
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o What kinds of industry experience did they have?
o What kinds of previous entrepreneurial experience did they have?
o On a scale of 1 to 5 (5 being high), how passionate were they about their
businesses?
2. Green Light Signals
Purpose: to identify individuals to add to a board of directors who will “signal” the
legitimacy of a high-potential venture to investors.
Prior to class, visit the website of a well-known company such as Apple Computers.
Find the list of the members of their board of directors.
Debrief this activity by asking some or all of the following questions:
o Ask students to guess what each individual’s presence on the board indicates to a
potential investor.
3. The Organization Chart
Purpose: to practice drawing an organization chart.
After lecturing on company structure, tell the students that it is now their turn to draw an