Most deals don’t work. That’s not surprising. And, of course, hindsight is 20-20; i.e. it’s usually pretty easy to say a deal was bound to fail after it has failed. Still, there are patterns of failure that seem to recur with enough frequency that you would think investors would learn to avoid that pattern right from the start. But, seemingly, they don’t.
The pattern I am talking about here is the deal led by a team playing in a sport it has no inside knowledge about. I am sure you can think of some examples. You know, the … hmmm, discretion being the better part of valor perhaps I ought to disguise my examples…. Say, the team that wants to make hay in the educational software space that doesn’t include anyone who has any actual experience in the education market. Or the team that has a new ecommerce technology that it wants to employ in the pharmaceutical space but doesn’t have anyone who has substantial experience in the pharmaceutical business. It’s like having a great team of football players deciding to apply their admittedly top tier athletic skills to – soccer. They would not get very far.
Now, I am not saying that teams that don’t include key players steeped in the market they are attacking – who know from experience that the problem they are solving is real, and their solution compelling to the target audience – never work. Just almost never. Entrepreneurial teams should stick to markets they understand from actual experience – and investors should stick to investing in teams that include members with that kind of experience.