While many startup entrepreneurs have experience in a corporate setting, few have had experience actually running an entire operation on their own. In a corporate setting, there are already established relationships, financial resources, and managerial depth across other key functional areas of the business. Usually, in a corporate setting, the functional areas are also managed by different people. For example, human resources handles hiring and staffing issues, accounting handles the financial aspects and bill paying, the marketing department handles the marketing, and so on. The entrepreneur who has come from the corporate world has likely been predominantly working in their own functional area with their unique and specialized responsibilities (except in some instances when they have been a high-level executive with full P&L responsibility). In the entrepreneurial setting, however, they typically must wear several different hats, handling and overseeing sales staff, the accounting function, marketing, etc. Those entrepreneurs who do not have significant cross-functional experience are often starting their business at a disadvantage, which may be evident in the lack of a business plan, financial projections, and other factors as previously discussed. While startup ventures often require the entrepreneur to be the “chief cook and bottle washer,” no one can do it all; in most cases, it cannot be a one man show (with the exception being some professional services). The most successful entrepreneurs have a solid understanding of all functional areas, but also surround themselves with other individuals who may have more experience in particular key aspects of business operations. For example, a restaurant owner who is also a chef may have a mastery of back of the house operations but limited experience with front of the house operations, necessitating an individual with a skill set to fill that gap.
The business appraiser will typically consider the entrepreneur’s experience or lack thereof in valuing the business. Individuals with little or no experience are usually considered much more risky than individuals with extensive business backgrounds, particularly if their experience is in the same industry of the new startup. A higher entrepreneurial risk profile stemming from lack of experience will likely result in a lower value for the business. While it is not always the case, a more extensive background and level of experience may tend to reduce the risk profile of the startup and increase the value, all else being equal.