Quality of company's management in determining its success

The quality of a company's management is by far the most crucial factor in determining its success

You have seen bad management mess up the most amazing opportunities where companies have failed despite having everything else going for them.

Often, the investor made many mistakes by focusing too much on the product, and not enough on the management. Good management will find a way to make their product work, while poor management can mess up good products.

Even big companies can make mistakes. Xerox had a fantastic product in photocopiers in the 1970s. They had a fantastic platform to expand into the technology market, by developing printers and similar devices, yet a few years ago, the company was struggling for survival. They've had a very tough time after never really grabbing the opportunity. It does seem to have been a management problem.

On the other hand, good management can often build something out of almost nothing. They are good at developing the business in the right direction. They spot opportunities, and have creative solutions. If their products are not selling, they may find ways to improve the product by research and development, or by buying or merging with other companies. They can weed out the wrong people and they face up to difficulties early.

It is easier to assess the management of smaller companies than larger ones.

There is a much greater variation in the level of talent within smaller companies. Just about all managers of big companies are very talented, even those who fail. Unfortunately, for smaller companies that is not always the case.

During the tech wreck, many small tech companies fall while others somehow survive. The survivors generally had good management. They weren't necessarily those with the best product, but they were those that cut expenditure when times were getting tough, and made plans for keeping the business alive for three or four years until the market recovered.

The track record of the managers is also very useful. Sometimes the managers are very appealing because previously they have taken a company all the way from nothing to good valuation. They may have built up a good reputation and made money for themselves in the process, and you know that they have choices apart from working for the company in which you're potentially investing.

Management strategy can also reveal a lot about their quality. Many investors focus too much on current revenue and profits while ignoring strategy. It's this that can be vital to a company's future, particularly with smaller companies that have fewer resources to recover from mistakes.