4 Reasons To Invest In People, Not Companies - Forbes

Unless youve been living under a rock, youve probably heard about the
entrepreneur who famously got a $2 million investment after showing a
presentation about nothing. Now, the same entrepreneur, Itay Adam, has created
a new model for investors that builds on the ideas he used to secure funding.
The gist of it is to invest in a team not a product.

Its a well-known practice that if you invest in a talented team and give them the
freedom to create, they will be able to test, experiment and build something
successful. However, Adams theory leverages another concept. By investing in a
team and giving them the freedom to experiment with multiple concepts for a
company, instead of focusing on just one, you can hedge your bets and spread
the risk beyond one make-or-break idea.

Italy Adam

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 Adam calls this model the StartLab.

The StartLab model focuses on angels and VCs investing in key teams of
creative entrepreneurs that have the capability to produce multiple ideas for a
company. To understand the benefits of investing in people over companies, you
need to first understand the core components of the StartLab model:

Test to Cater vs. Test to Build: Test to Cater teams will take multiple ideas and
test them out before building a team to support one winning idea. Test to Build
will produce a more detailed working pilot of an idea and look to grow it into a
successful company.

The Team: There are three core members of a StartLab: a full stack developer
capable of building products out across platforms, a designer to create and put
all the pieces together, and a director to guide and lead the entire project.

Kill or Nurture: This is a predetermined time period for development and a test
rollout to see if the idea can take. After that, the idea should be killed or nurtured
with more development.

Budget and Timeline: Adam says that an efficient StartLab can produce a test
app in three months for a budget of $120,000.

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 Heisenberg Media; Flickr

Now that you understand the various components of Adams StartLab model,
here are four reasons to adopt it and start investing in people over companies:

1. It adds diversity.

Its not a new idea or concept really: diversified investments are one of the keys
to successfully making money in what can be a risky and chaotic industry.

Of course, there are different ways to apply this concept to the world of
business. Whether its spreading your marketing budget across multiple
channels or markets, or focusing on different models and SKUs of your product,
its important to apply the idea of diversification to all areas of business beyond
investment.

Oddly enough, one industry that features a surprising lack of diversity in strategy
is the startup space. Tech startups, in general, tend to put all of their eggs in one
basket. This is revealed by the fact that, for many startups and tech companies,
the product and company name are one in the same.

Whether its apps like Pandora or Uber, or even devices such as Fitbit or Roku,

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 these companies are often synonymous with their leading product, regardless of
whether they offer anything else.

2. It gives teams a chance to learn.

Adam says the StartLab model can greatly increase the chance of investing in a
successful company, since it gives teams the freedom to learn:

The key issue here is experience. Every time an entrepreneur runs a pilot, he
gains experience. When he fails, he learns how to climb better. The industry
is losing a lot of money by overlooking this and not monetizing it. The current
model invests in companies and ideas, this is wrong. The right model should
be to invest in a team.

When you have two to three people that are funded by, say, $6 million and
have run-rate to launch at least 50 concepts, theres no launch pressures, no
panic, no BS. Theres only two to three people, working their ass off with zero
distractions and inner conversations like, Ill keep this to my next startup.
No. You dont need to. You have creative space.

3. It reduces risk.

There is of course an inherent risk in this model, or at least it may feel that way to
an investor who is looking for a company working on a specific solution. But,
Adam argues that the StartLab model actually reduces risk by giving teams the
needed space to learn and innovate:

Take a child to the fair. Hand him an air gun and tell him he only has one
chance to win the huge brown teddy bear. He will surely miss. Now, youll
start with the accusations and cripple his soul turning him to the sort of kid
who will never try this again. Both of you lose.

Take another kid, hand him the gun and tell him he has 50 attempts. He will
probably nail something on the fourth attempt. But, on the twelfth attempt he
will start aiming for the very center of the target, and by 40 he will get bored
and create a new gun. Thats life. Create an empowering surrounding and
you, too, will get empowered.

4. Its tried and true.

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 We already see companies that may have been laser-focused when they were
in the startup phase looking to expand and diversify in dramatic ways now
that they have grown to be tech giants.

The two best examples of this are Google and Facebook. While they may not
have been StartLabs from the beginning, they have developed into TechLabs,
in their own right. Both companies have expanded into new markets and
industries that take them outside of their core comfort zone.

This is most clearly demonstrated in Googles recent transition into Alphabet

(still odd to say that). What was once a very focused web company has now
expanded into multiple markets and industries. With acquisitions like Nest and
investments in projects like Google Life Sciences and self-driving cars, the
company has shown a willingness to expand far outside of its traditional
strength.

Facebook has also expanded to new markets. The company has become
something of a social media conglomerate after snapping up companies like
WhatsApp and Instagram and purportedly looking to acquire SnapChat, as well.
It seems like Facebook doesnt care what social media platform you use, as long
as it happens to be one that it owns.

Beyond that, Facebook has taken interesting steps outside of the social realm.
The most notable example is the companys acquisition of Oculus VR. While
Facebook may be looking at ways to incorporate VR into Facebook, the simpler
explanation may simply be that the company sees this as valuable, innovative
technology and a way for it to enter the consumer technology market in a whole
new way.

Whats clear from the actions of both of these giants is that they are expanding
their capabilities, diversifying and hedging their bets.

These companies have tremendous resources that allow them to acquire

companies that are already successful, so their situation differs from that of an
investor looking for a team that fits the StartLab model. But, if the result is that a
company will produce multiple concepts and products, isnt it worth it to find a
team capable of doing so from the very beginning?

What do you think? Would you invest in a talented team that didnt have a solid

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 idea for a company? Let me know in the comments.

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