I.The founding team
In the previous chapters, we discussed taking a startup from zero to achieving product/market fit. You might be thinking that there is a lot to do and it’s not easy (at least we think so). For many, having a founder team makes the task a bit easier.
Let’s begin with a statistic: According to the recognized book The Founder’s Dilemma, 65% of startups fail due to problems within the startup’s management team. Ed Catmull, a Pixar executive, echoes this in his book Creativity Inc., “Give a good idea to a mediocre team, and they will screw it up. But give a mediocre idea to a great team, and they will either fix it or come up with something better.” On the other hand, you have venture capital-juggernauts like Marc Andreessen, who in his famous blog post from 2007 emphasized the market’s role in predicting the success of startups. Jeremy Liew from Lighthouse Ventures agrees in his post titled “A rising tide lifts all boats”.
We don’t think it’s just a case of one or the other. Wasserman’s and Catmull’s insights are especially true for companies at the earliest stages, when a strong team with vision and ambition is needed to explore the product/market fit and carve a space for themselves amongst the competition. When scaling, the size of the market and the defensibility of the product become the main drivers, and the team needs to adapt from visionary planning to systematic execution. The team plays a crucial role across the company lifecycle, but the emphasis on certain team dynamics changes based on the stage the startup is in.
Searching for co-founders
In the startup world, many argue that the founding team should have worked together previously. There are many reasons why this makes sense. You can rarely know what it’s like to work with a person before you have actually done it. And a startup founding team should be ready to work a lot together and for a relatively long period of time.
But knowing your co-founder beforehand doesn’t guarantee success. You can also find someone you didn’t know previously to found the company with, but then it’s good to somehow test working together. There are events and online platforms to help you search for co-founders.
When searching for co-founders, think about what you are good at and try to find people that complement your skillset. For example, if you don’t like doing sales, you should find a co-founder who does. Your skills should complement each other, but if your values are different, working together might be hard. The founding team lays the foundation for your company culture, so you should discuss with the co-founding team what kind of a company they want to work at.
Choosing your founder team is a huge commitment, meaning it’s not something the entrepreneur-to-be should rush. Changes in the founding team structure are among the biggest crises a early-stage company can face, as they require the entire team to temporarily switch their focus away from the market and product. From an entrepreneur’s perspective, identifying and addressing gaps in the core team is always easier than replacing a founder.
The people you want on your founding team depends on what you’re creating. If you’re building an app, you should probably have a person who is capable of creating it in your founding team and not just people with business skills. So you usually have to broaden your normal horizons when looking for your co-founders as our circles tend to be quite small and filled with people who have experience in the same area or function of a company.
The key capabilities should be in place in order to get the first things done: validating your problem, finding your target group and starting to build your solution. Keeping the key capabilities in your team is also good in order to avoid any confusion with things like who owns the intellectual property rights of things created, but a lot of things can be outsourced at first, like accounting. It’s also a good idea to keep the founding team quite small, because you need to be agile in your early days.
Often it’s said that two to three co-founders is the best amount of founders, but this is not a universal rule. There are many successful startups with four, five or even more founders and also successful solo founders.
One Nordic entrepreneur once said: “Starting a company together is like having a baby. It’s always a challenge, but think about having a baby with someone you didn’t know before. Or think that you are six people who didn’t know each other before, and now you are having a baby together.”
What makes a great co-founding team?
Identifying a winning team is difficult and is largely based on experience, emotional intelligence and intuition, but there are some common features that can be listed:
- Knowledge: Teams often have strong technical knowledge, but strong market knowledge within the founding team is also required, especially in the seed stage when product/market fit is still a moving target.
- Ambition: As a startup, you want to scale globally and disrupt an industry. A profitable company that pays good dividends to its founders but either serves a small niche market or operates in a limited geography isn’t going to be interesting to venture capital investors (VCs).
- Leadership: The CEO is too often nominated based on the idea that they are the ones carrying most of an organization’s weight (while others may focus on doing their own thing). This is a red flag. There needs to be a clear division of responsibilities and assigned areas of expertise, but everyone needs to carry their own weight and lead the planning and execution of their respective areas. All the members of the founding team should have leadership capabilities.
- Curiosity: While knowledge, ambition and leadership are very important, they can also lead to the dark side where a person thinks they know everything. Curiosity and a readiness to learn are extremely important as the market might not act as expected or the customers might want something else and adjustments will be needed.
- Diversity: Instead of gathering the founding team from a group of friends or from ex-colleagues, a diverse constellation of people with complementing characteristics and strengths is a positive indicator of the company’s potential. In a research or tech-driven company there is usually a skills gap related to commercialization (and vice versa).
- Transparency: This is a tricky one, as transparency or honesty are not statistical features and are extremely difficult to evaluate. In a small team, little things tend to gather momentum and can easily create a butterfly effect if things aren’t dealt with quickly enough. Small teams are built on total transparency, as transparency builds trust, and trust builds commitment.
- Commitment: The whole founding team should live and breathe the company and its vision. Building and scaling a company is not just a full-time job, it’s a lifestyle. Potential side hustles indicate that the team members are go-getters and doers, but with limited time and resources, that energy should be steered towards only one direction – the team and the shared goal.
- Shared targets: A huge red flag is when team members disagree on the short-term objectives. A long-term vision is difficult to achieve at the seed stage, but every founder should stand behind a shared 12 to 18-month execution plan for finding product/market fit.
- Constructiveness: Finding product/market fit is about trial and error. Success often lies in ideas that at first might sound far-fetched or just plain crazy. The team members need to respect each other and foster a culture where even the most outlandish ideas can be presented for discussion without fear of judgement.
- Culture of change: The best teams love their product but love their market even more. In a seed-stage startup, the only constant is change: no product survives first contact with customers, and the customers are never wrong. The team needs to be able to move from one go-to-market obstacle to another and find a good balance between smart iteration and panicked pivoting.
- High standards: The ability to recruit high-caliber individuals and sticking to high recruiting standards are amongst the most difficult parts of scaling a business. Smart recruiting and related headhunting require a lot of effort – but are key common denominators in successful early-stage companies. In many cases key talent must be looked for outside of your country, which adds an additional level of difficulty into the equation. High recruiting standards often go hand in hand with an ambitious vision and high-performing operations.
- Focus: When early-stage companies have found their product/market fit, the entire team’s priorities should be steered towards activities that expand on that and only that.
- Execution: This goes hand-in-hand with focus. Planning and strategizing, regardless of focus, should give way to systematic execution across sales and operations. Ideas without execution are just that – ideas.
What’s also good to keep in mind is that the team dynamics might change over time. The most innovative founders might only be interested in founding companies, but aren’t interested in scaling. These kinds of shifts in dynamics can be difficult and require effort to make them work. A visionary founder in the scaling phase can be a disaster for the company. A good team can make all the difference, but it requires some restructuring of responsibilities in the team. This is definitely not the case for all teams, but the requirements of the different stages of a growing company are good to keep in mind when growing.
No founding team has all the capabilities needed to run a business. You should also be aware of where you are leaving spaces and when would be strategically good to fill in those spaces. To fill those spaces, you’ll need to hire your first employees.
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II. Building a team and a cultureStart →
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