Build Your Start Up Dream Team
[The following is an edited excerpt from David S Rose’s book The Startup Checklist: 25 Steps to a Scalable, High-Growth Business.]
Starting and building any business other than the very tiniest one-person shop is a complicated task. Thus, the majority of businesses that aspire to become high-growth companies of the future—are launched by a founding team of two, three, or more people. Combining the strengths, insights, experiences, talents, connections, and resources of a few people often gives a new business a greater chance of success than resting entirely on the shoulders of even a highly talented single individual. That said, there is a real difference between “founding a business” and “being part of the founding team.”
The Crucial Talents Required To Launch a New Venture
Since Bill Hewlett joined with Dave Packard in 1939 to create what is today the world’s largest personal computer company, there has arisen among the denizens of Silicon Valley an evergreen debate as to who is more important in starting a tech company: the techie or the business guy? Steve Jobs or Steve Wozniak? Bill Gates or Steve Ballmer? Jim Clark or Marc Andreessen?
Tech ventures represent just a fraction of the thousands of new businesses launched every year, and a similar debate exists in most other business arenas, pitting the creative partner against the business-oriented partner. In the world of fashion, it’s the designer vs. the marketing and manufacturing expert; in the food business, it’s the chef or flavor expert vs. the processing and packaging expert; in tourism or hospitality, it’s the front person who can charm high-rolling guests vs. the back room person who can handle logistics, facilities management, and other unglamorous details.
My response to this debate is to propose that it is time to reject the notion of the business guy or business gal entirely. The problem is that there are really three different components here—and like the classic three-legged stool, they are all essential for success, albeit with differing relative economic values. What makes for confusion is that the components can all reside in one person, or in several. What gets people upset is that there are different quantities of those components available in the economic marketplace, and the law of supply and demand is pretty good about assigning a value to them.
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Surprisingly, the components are not the traditional coding/business pieces, nor are they even coding/user interface/business/sales. Rather, the way I see them—from the perspective of a serial entrepreneur turned serial investor, listed in order of decreasing availability, are:
The Concept. A given business starts with an idea. While the idea may (and likely will) change over time, it has to be good on some basic level for it to be able to succeed in the long run. How excited am I likely to be when I see a plan for a 21st century buggy whip or yet another me-too social network? The base concept has to make some kind of sense given the technical, market, and competitive environment, otherwise nothing else matters. Good ideas are not hard to find. Not at all. There are millions of them out there. The key to making one of them into a home run success brings us to:
Execution Skills. It is into this one bucket that all of the traditional pieces fall. Here is where you find the superb Rails coder, the world-class information architect, the consummate sales guy, the persuasive business development gal, and the brilliant CFO. Each of these functions is necessary to bring the good idea to fruition. In our fluid, capitalistic, free-market society, the marketplace is generally efficient about assigning relative economic value to each of these functional roles, based upon both the direct result of their contribution to the enterprise and their scarcity in the job market.
That is why it is not uncommon to see big-enterprise salespeople making high six-figure or even-seven figure salaries or commissions, while a neophyte coder might be in the low five-figure range. Similarly, a crackerjack CTO might be in the mid six figures, but a kid doing inside sales may start at the low end of the spectrum. Coding, design, production, sales, finance, operations, marketing, and the like are all execution skills—and without great execution, success will be very hard to come by.
As noted, each of these skills is available at a price, and, given enough money, it is possible to assemble an all-star team in each of the above areas to execute any good idea. That, however, will not be enough. Why? Because it is missing the last vital leg of the stool, and the one that will ultimately reap the lion’s share of the benefits when success does come:
The Entrepreneur. Entrepreneurship is at the core of starting a company, whether tech based or otherwise. It is not any one of the functional skills above, but rather the combination of vision, passion, leadership, commitment, communication skills, hypomania, fundability, and, above all, willingness to take risks that brings together all of the forgoing pieces and creates from them an enterprise that fills a value-producing role in our economy. This function that is the scarcest of all.
It is thus crucial to note that the entrepreneurial function can be combined into the same package as a techie (Bill Gates), a sales guy (Mark Cuban), a user interaction maven (Steve Jobs), or a financial guy (Mike Bloomberg).
For a successful company, one needs to bring together all of the above pieces, to realize that whatever functional skill set the entrepreneur starts out with can be augmented with the others, and to understand that the lion’s share of the rewards will (after adjusting for the cost of capital) go to the entrepreneurial role, as has happened for hundreds of years.
Which Pieces Do You Have? Which Pieces Do You Lack?
Answering these questions will tell you what kind of people are the ideal partners to help you launch your business. The single most important question to ask is: Are you The Entrepreneur? While in our fast-moving, high-growth world many people would like to think of themselves as entrepreneurs, in reality, only a tiny, tiny percentage of people truly are. Despite the glorification of entrepreneurs on TV shows and in the blogosphere, there is absolutely nothing right, wrong, good, or bad about being—or not being one. They’re just…different. The crucial thing is that you be honest with yourself, because correctly answering this fundamental question will let you know the type of cofounder(s) you are seeking, and will set up the venture for success. Getting it wrong, however, will at best cause seriously painful restructurings down the road, and at worst doom the enterprise from the outset.
The best description of what the life of the entrepreneurial founder is really like, I’ve ever seen was written as a Quora answer by Paul DeJoe, the founder of Ecquire.com:
Very tough to sleep most nights of the week. Weekends don’t mean anything to you anymore. Closing a round of financing is not a relief. It means more people are depending on you to turn their investment into 20 times what they gave you.
It’s very difficult to “turn it off.” But at the same time, television, movies and vacations become so boring to you when your company’s future might be sitting in your inbox, or in the results of a new A/B test you decide to run.
You feel guilty when you’re doing something you like doing outside of the company. Only through years of wrestling with this internal fight do you recognize how the word “balance” is an art that is just as important as any other skill set you could ever hope to have….
You start to respect the duck. Paddle like hell under the water and be smooth and calm on top, where everyone can see you. You learn the hard way that if you lose your cool, you lose.
You always ask yourself if I am changing the world in a good way? Are people’s lives better for having known me?….
You start to see that the word “entrepreneur” is a personality. It’s difficult to talk to your friends that are not risking the same things you are because they are content with not pushing themselves or putting it all out there in the public with the likelihood of failure staring at you everyday. You start to turn a lot of your conversations with relatives into how they might exploit opportunities for profit. Those close to you will view your focus as something completely different because they don’t understand. You don’t blame them. They can’t understand if they haven’t done it themselves. It’s why you will gravitate towards other entrepreneurs. You will find reward in helping other entrepreneurs….
You have to be willing to sleep in your car and laugh about it. You have to be able to laugh at many things, because when you think of the worse things in the world that could happen to your company, they will happen. Imagine working for something for two years and then having to throw it out completely because you see in one day that it’s wrong. You realize that if your team is having fun and can always laugh, that you won’t die, and in fact, the opposite will happen: You will learn to love the journey and look forward to what you do every day, even at the lowest times. You’ll hear not to get too low when things are bad and not to get too high when things are good, and you’ll even give that advice. But you’ll never take it because being in the middle all the time isn’t exciting, and an even keel is never worth missing out on something worth celebrating. You’ll become addicted to finding the hardest challenges because there’s a direct relationship between how difficult something is and the euphoria of a feeling when you do the impossible.
You realize that it’s much more fun when you didn’t have money, and that money might be the worse thing you could have as a personal goal. If you’re lucky enough to genuinely feel this way, it is a surreal feeling that is the closest thing to peace because you realize it’s the challenges and the work that you love. Your currencies are freedom, autonomy, responsibility, and recognition. Those happen to be the same currencies of the people you want around you.
You feel like a parent to your customers, in that they will never realize how much you love them, and it is they who validate you are not crazy. You want to hug every one of them. They mean the world to you.
You learn the most about yourself, more than any other vocation, as an entrepreneur. You learn what you do when you get punched in the face many many times. You learn what you do when no one is looking and when no one would find out. You learn that you are bad at many things, lucky if you’re good at a handful of things, and the only thing you can ever be great at is being yourself, which is why you can never compromise….
You become incredibly grateful for the times that things were going as bad as they possibly could. Most people won’t get to see this in any other calling. When things are really bad, there are people that come running to help and don’t think twice about it…. You will forever be in their debt, and you can never repay them, nor would they want or expect to be repaid.
You begin to realize that, in life, the luckiest people in the world only get one shot at being a part of something great. Knowing this helps you make sense of your commitment.
Of all the things said, though, it’s exciting. Every day is different, and so exciting. Even when it’s bad, it’s exciting. Knowing that your decisions will not only affect you, but many others, is a weight that I would rather have any day than the weight of not controlling my future. That’s why I could not do anything else.
Does this resonate with you? Or does this seem somewhere between scary and masochistic? If the former, then you may indeed be The Entrepreneur, and the partners you need to find are those whose strengths are in execution: coding, design, sales, marketing, and operations. But if you are the latter, you may find that you are better suited to the role of a co-founder, and the partner you need to find is the crazy entrepreneurial CEO. In either case, as founder or co-founder, you had better be prepared to sacrifice just about everything else in your life for the years it will take to establish your company. Remember, no one ever promised this would be easy.
Establishing Expectations Among the Members of Your Founding Team
Before you and your would-be cofounders embark on a new startup together, you’ll face some tough challenges that are as much personal, psychological, and emotional as they are business-related.
If you are hoping to launch your new business in partnership with one or more people you consider friends, here is a hard truth you need to face: Be prepared to lose the friendship. Starting a business is one of the most emotionally draining activities you can possibly engage in, right up there with marriage and parenting. Given the odds that the new startup will fail (a majority do), try to envision whether or not your friendship might be able to survive a bankruptcy. It’s not necessarily essential that it can (we’re not talking about going into business with your spouse), but understand that it is a real possibility.
For the rest, do your best to ensure that everyone is coming to the table with identical expectations. These expectations should include answers to the following questions:
– What kind of business are we launching? What is our profit-making model? What kinds of growth expectations do we have?
– What role will each member of the founding team play in building the business?
– How much time will each member of the team be expected to contribute? Is this a full-time work commitment for all of the team members?
– What other resources will each member of the team contribute? These resources could include specific talents and skills; individually owned pieces of intellectual property (such as product designs, software code, written documents, patents, copyrights, trademarks, and so on); personal contacts and networking abilities; access to physical assets (such as work spaces, machinery, or tools); and financial resources.
– How will decisions affecting the business be made? Ultimately, even in equal partnerships, one member of the founding team will need to have the ultimate decision-making authority, otherwise the company risks being locked in indecision…and that is the one thing it cannot afford. So which member of the founding team will be the entrepreneurial CEO?
– What personal goals does each member of the founding team bring to the business? How many months or years does each member expect to remain engaged in the business? How do the team members’ personal life goals fit with the growth expectations for the business?
In addition, you’ll need to develop a clear understanding about how the rewards from the business will be divided among the founding members. In particular, you’ll need to decide how equity in the business will be shared. We’ll discuss equity allocation and the company’s capitalization in more detail in Chapter 5, but for now, think of equity as “ownership and control of the company.” So dividing up equity in a way that is fair and creates effective incentives for all members of the founding team is one of the toughest challenges you’ll face in the early days of your business.
Caution: It is absolutely imperative that all co-founders have “reverse vesting” on whatever equity they are allocated. This means that even though ownership of the company starts out being divided up among the founding team, if one or more of them leaves the venture before it reaches its full flowering, the company is able to recapture part of their equity. While this may initially seem unfair to the founders, I have seen more companies blow up because they didn’t have this in place than for any other reason.
In considering the questions of time commitment, compensation, equity, and other contributions, everything needs to be thoughtfully and honestly customized for each member of the founding team. Everyone can have different goals—that’s fine—but those differences need to be laid on the table and discussed fully and openly. Once the business is underway, if the team members are surprised to discover that one person is working at the new business 24/7 while another is working only four hours a day, the team is likely to quickly fracture into arguments and recriminations. So, possible founders of a startup need to work hard to be honest with one another about what exactly they are willing to commit.
At the same time, it’s desirable at this early stage of the process to leave room for some flexibility in your founding plans. The necessary balance is complicated and tricky to reach. On the one hand, if you don’t make things explicitly clear up front, you are just begging for a future disaster by “kicking the can down the road.” On the other hand, if everything is locked in stone before you even start, you may find yourself with a completely untenable structure even 6 or 12 months out, when it becomes clear that not everyone is contributing as much as you all envisioned at the outset.
One of the best “agreements to agree” for co-founders that I’ve seen so far is the Founder Accord from McCormick & O’Brien, which is included, with their permission, in Appendix F. It is intended to provide entrepreneurs with the comfort they need to take risks, while sparing them the effort and expense required to complete a customary corporate formation and capitalization before knowing that they actually have a viable business, or have even formed a company. Note, however, that it should not be viewed as a substitute for the long form legal documents that would memorialize the points sketched out in it (any more than a term sheet is a substitute for customary financing documents). It is a temporary fix—the intermediate step between the proverbial handshake and a stack of legal documents. It may help to create the conditions necessary to set the larger company formation process in motion, but it is not a substitute for that process.
Once you are clear that your business idea really has the potential to turn into a company (instead of just a fanciful project), you absolutely, positively need to legally incorporate and structure a real company, as I’ll discuss in Chapter 9.
This post is part of the “Launch” series of the Gust Founder Curriculum. Gust’s Founder Curriculum is a roadmap for founders navigating every stage of the founder journey. Check out our event series and follow along with expanded resources here.
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This article is intended for informational purposes only, and doesn't constitute tax, accounting, or legal advice. Everyone's situation is different! For advice in light of your unique circumstances, consult a tax advisor, accountant, or lawyer.