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Building the Perfect Startup Team - It's More Than Employees and Founders

Guest post by: cynthia kocialski

Article Overview: When investors evaluate a start-up company, they report about 25% of the final decision is based on the team. Even if external funding isn't in the start-up's future plans, it's a good idea to consider the criteria used by investors; they have seen many startups come and go. So what makes an effective team? How do you build one? The success of any venture hinges upon the strength of the team and this is never more true than a company at its beginning. And the team is not just the company's founders and employees.

Building the Perfect Startup Team - It's More Than Employees and Founders

When investor groups evaluate a start-up proposal, they report about 25% of the final decision is based on the team. It is a good idea to look at the criteria used by investors, even if external funding isn't in the start-up's future plans. Investors have seen thousands of start-ups flare up and flame out quickly, and they've seen the stellar successes that have become household names. Investors look at a start-up with an objective eye. They aren't emotionally attached to the company or the product concept.

A team is an organized group of people working together to achieve a goal. Many of today's hi-tech products are so complex that no one person is capable of understanding every aspect of the product or how to successfully bring the product to market. The success or failure of a start-up hinges upon the team assembled. Having the right combination of people at the right time is the key to success. A start-up team can be more than the founders and the employees; it is also the corporate advisory board members, mentors, and customer advisory board.

The Founders and the Start-up Team

Why is the founding team so important? At the beginning, there is nothing but an idea. Investors are funding a team and a belief that they can do what they say they can do. Not only does everyone need to perform a diverse range of functions, they all need to work in concert with each other to achieve the end goal.

People hire people like themselves. if the founding team isn't a good team, it not likely to get better. Three roles are the most important roles to fill. The chief technologist leads the product development effort. The chief marketing person leads the effort to understand the customer, promote awareness for the product, and figure out how to make money with the product. The visionary has the ability to influence the skeptics among the customers, market, and investors. In the early stages, the marketing person may be the same person as the visionary, but this eventually diverges as the workload increases.

Experience is of the utmost importance when there is only one person to perform a job function in a start-up. Never confuse the number of years someone has worked with years of experience. A candidate may have worked for 15 years, but that does not necessarily imply that they can perform at a level beyond someone with only a few years of experience. Credibility is based upon accomplishments, not years worked. Whoever is on the team will come under scrutiny by investors, and sometimes also partners and customers. Investors always ask who is the team, why they are on the team, what role each is playing, what they've worked on in the past, and most importantly, what they accomplished in previous positions. Because of the small size of a start-up, employees may participate in many aspects of the business.

Management and leadership is another area where there can be shortcomings in the team. Just because someone has years of experience performing a specific skill does not mean they can lead a team. Nor does giving someone a managerial title make the team follow that person's direction. Start-ups thrive with experienced staff members. Seasoned employees will not follow someone's lead without believing in the task and the direction in which the project is going. Start-ups need to attract and build small, highly effective, performance oriented teams.

Advisory Boards and Mentor Capital

Advisory boards can fill in the gaps with the direct team. Mostly, they advise the company on management or technology issues. Many investors believe an advisory board should be less than six people. These are usually term board members because who is needed to advise a start-up today is not necessarily who will be needed in the future. In order for an advisory board to be effective, the start-up needs to keep in regular contact with the board members. This contact can be through email updates and monthly lunches to discuss what's going on with the company. It doesn't have to be a formal board meeting. These advisors will implicitly act as references for the start-up with potential investors because investors will contact them to find out what they think.

Mentors are people you can go to for advice or who will act as sounding boards, but they don't want to formalize a relationship with the start-up. Start-ups can have informational meetings with venture capitalists to get feedback about their proposals without asking for funding. Likewise, start-ups can have meetings with executives of companies to discuss various aspects of their business proposal. Many times, there are similarities between businesses in different industries, and a start-up may want to transfer a methodology from a seemingly unrelated business. A mentor may not want to commit a certain amount of time to the start-up, but is willing to be an advisor on a casual basis. Another form of mentor is a stake advisor; these are mentors who place a small amount of funds in the company in exchange they promise to advice the company whenever they request it.

Customer Advisory Boards

Customer advisory boards bring the end user into the team. This advisory method has been used to great success; for example, Mexico's Grupo Reforma newspaper uses citizen editors and community boards in the "ultra-local" concept. This approach allows newspapers to be embedded in communities. The newspaper has created 12-14 editorial boards, corresponding to every section of the newspaper. The community board terms are for one year, and these boards guide the issues and stories covered by the sections.

Myths and Common Mistakes

A START-UP OF ONE. The slogan "Army of One" didn't work for the military, and it doesn't work for investors either. A team is not one person. No one can do it alone. Investors are willing to help you build a start-up team, but not the whole team needed to move the start-up forward. Investors don't want to invest in one person shows. If the founder can't convince other people to join in the company, why should the investor believe the founder could convince customers to buy the product? A start-up needs to demonstrate the diversity of roles needed to make a company successful and appreciation for those other necessary skills.

RIGHT PEOPLE AT THE WRONG TIME. Hiring a great experienced person at the wrong time during the corporation's life cycle is a misstep. You shouldn't hire an experienced senior executive from a large, established company for a seed stage start-up. Often, the executive's best skills are making incremental process improvements, driving efficiency into an organization, and expanding an established market presence. They are often like fish out of water in a start-up - trying to build a team, a product, and market presence from nothing.

THE LOPSIDED ORGANIZATION. A recipe for failure is when the founders build a lopsided team, heavily weighted to one specific function, and neglect other functions. Often, this mistake occurs because founders stick with what they know best and trivialize the importance of the other functions in making the company successful. Some technical founders believe "if you build it, they will come." Unfortunately, they often learn the hard way that products don't sell themselves. Sales founders believe "if engineering can build it, we can sell it." Sales people can be eternally optimistic and can often be heard saying, "If only the product were ready, I could have closed a multi-million dollar deal today." Then when the product is complete, the deals don't materialize. Marketing founders believe "it is technically impossible not to develop the product." What they mean by impossible is they believe product development is a short and easy task.

A TEAM IS NOT A COLLECTION. A team is not a random group of individuals who simply are willing to work on the project. This may seem obvious, but it is amazing how many times a group of disparate people form a start-up with no rhyme or reason as to what roles they play within the organization or whether their skill sets even make sense. Every team member serves a purpose and should have an area of expertise and a focused job function. Often, this means a team member performs a needed job function and not necessarily what he wants to do.

THE LOW COST EMPLOYEE. If you only have a lone attorney, human resources, finance, or marketing person, it's crucial they know what to do and how to do it without any help. When there is only one inexperienced person in a job function, many mistakes happen and cost the company valuable time. Even though this is a low cost employee for the job function, it's better to hire a part-time or interim person through an outside firm.

BOARD MEMBERS FOR FUTURE POTENTIAL. While some advisors may also be investors, it is not recommended that an advisor be placed on the board because of a potential future investment, particularly if the advisor represents a venture capital firm. If the venture capitalist doesn't take a stake in the next funding round, then other investors may shy away from the company because the obvious question will be why this board member didn't invest.

OVER EXTENDED BOARD MEMBERS. One consideration for naming someone to an advisory board is whether they have enough time to devote to your project. If a potential advisor is already guiding 12 or more companies, he/she probably doesn't have the time to take on another and be an effective advisor. Most advisors feel they lose their effectiveness when they exceed five board positions.

A hi-tech start-up team is an entrepreneur team embarking upon a high risk adventure. To be successful at all, regardless of whether it's the next multi-billion dollar company or just a few million, means you've won against extraordinary odds. The team is one of the top reasons for success. It should be chosen wisely.

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Article Tags: advisory boards, customer boards, founders, investors, mentors, startup team



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