A startup’s management team is its lifeblood… no amount of awesome ideas will ever overcome a fundamentally flawed management team. In the early stages of any startup, it is all about the people.
But what makes up a good team? How do you know if you have a good team, if you are a good team member, and if an investor will perceive you the way you perceive yourself?
Perhaps it is best to then approach this question from a different point of view…
A startup is fraught with challenges from day one. These include commercial, HR, and technical hurdles of all sorts, to name a few. These generally require a certain attitude and personality attributes from the founders for the startup to have a chance at surviving.
These personality attributes include a combination of confidence, stubbornness, individuality and a sense of self without arrogance, curiosity, humility, energy, maturity, and an eagerness to learn. I have found that founders that share many of these characteristics tend to fare better over the long run than those that do not share these.
While the above are just personality attributes of a likely ‘good’ founder, the equation is in fact far more complex. In addition to the above, I also believe you need to include the following variables as well when doing an analysis:
1) The technical or commercial competency (depending on their focus) of the founding team. This can either mean the founder(s) have the relevant experience from either having done a startup before (or the relevant role) or they have developed the appropriate skills necessary to execute on the stated vision of the company.
2) The ability to resolve conflicts quickly and constructively within a team. As most teams will likely hit road blocks when they can least afford them, an ability to either insert humor at the right time, or to divide a problem into parts, or know when to take a break, can all be really important skills to demonstrate the longer term likelihood of a team staying together and working well in spite of the inevitable conflicts that will arise. Although I have heard of some investors doing an artificial ‘stress test’ during investment reviews, it isn’t standard practice for you can usually tell just from spending time with a team, when a team may have potential internal personality issues.
3) Intuitively know when to persevere and when to quit (on anything). Some people just quit too early, others keep on going too long beyond the point when a strategy is the right one to use. Although harder to evaluate when meeting a founder or their team, this is an important attribute to have internally so as to use an investors time and money most optimally.
4) The team understands the assumptions and metrics about the market they wish to operate in, or have at least an understanding on how to research this information (the Lean ‘Build Measure Learn’ loop is a good example of a framework that is applied). An airplane pilot can fly an airplane through the dark and through really bad weather because he understand where he was, where he is going, and what he needs to be keeping an eye on the dashboard during the flight. Every great team I’ve ever met always understood the dynamics of their market well enough, knew what they needed to find out as part of what their startup was attempting to do, and knew how to measure it so as to know if they were going down the right ‘flight path’.
5) The team or founder can articulate their thoughts and plans. Communication both internally and externally is the most important thing to get right within an organization. It makes absolutely no sense if you have an awesome coder who can put out some amazing things if they are wrong because he didn’t get specificity from management or didn’t understand what he was supposed to be working on. Also, it is pointless if the founders of a company are awesome at building product, but then are entirely unable to communicate their vision to the outside world to both interest others to join their business and also to raise more capital.
6) Although defined as ‘working together to achieve a common goal’, I believe you could argue that collaboration can be summarized as a combination of both conflict resolution skills and communication skills. A team’s ability to collaborate both internally (with team members) and externally (with biz partners, investors, and the media), I believe, greatly increases the chances that they will succeed.
7) The geographical spread of a team is also something to be considered. This has mostly to do with the dynamics of working as a team. Yes, Skype has done marvels to revolutionize the way we communicate, but for the necessary ‘collision’ of ideas (borrowing from Steven Johnson’s book on Where Good Ideas Come From) to occur repeatedly, close physical proximity is an asset for any new team.
8) The equity spread between founders. Although generally speaking most founding teams have an equal equity spread (50/50, 33/33/33, etc) an investor will take note if there is an equity imbalance that makes for a key hire or co-founder to feel unmotivated.
So, when I meet a startup’s management team… aside from looking at the attributes I’ve listed above, I generally ask myself three questions:
- Does this team have the necessary experience it takes to deliver what they have set out to do? (Teams with technical founders are of particular interest to me).
- Does this team have the insight to identify their own weaknesses and hire good people to complement them?
- Can this team constructively deal with all the challenges that are and will occur during the life-cycle of a company?
Once I feel like I’ve been able to answer these questions while also keeping an eye out for the attributes I’ve listed above, then I feel comfortable in appending the arguably overly-simplified statement of “they have a good team” when speaking about a startup.
So, some parting thoughts and advice for anyone evaluating their own team in the context of forming a new startup or raising money:
- Get a co-founder that complements your skills
- Understand what skills you lack as a team and hire them
- Research the hell out of your market & understand your customers
- var stated_vision = (think_big) * 2; -> multiply your vision by two.
- Rehearse your pitch A LOT
- Don’t be arrogant, but also add some spice and humor to your presentation
John W. Mullins, PhD, Associate Professor of Management Practice, Marketing and Entrepreneurship at London Business School has kindly offered for download chapter 7 of his book titled The New Business Road Test.
In my experience, the more subjective a subject matter is, the better off you are by getting more opinions to ‘triangulate’ around a ‘right answer’. To that end, I asked some friends of mine what their thoughts were around this topic. I have included their thoughts below:
In my view, I look for three things:
(i) Leadership: a CEO who can articulate a vision that excites and imbues a sense of mission in his team is very important. This is often evidenced by the calibre of team he is able to recruit around him [when he has nothing else to offer].
(ii) Self Awareness:
a) Breadth: businesses need ‘flour to balance the yeast’. The great teams have a balanced breadth of expertise and experience, not just one hero.
b) Evolution: as a business grows, so the team must evolve. A willingness to embrace this change is critical.
(iii) Openness: We look for teams who are willing to consult and collaborate. We are not good passengers and we wish to work closely with and assist teams wherever possible.
“I look for founding teams with a balance of skills in the following three areas:
1) design / ux,
2) marketing / distribution and
However the skills are distributed amongst the founders, they need to be present. I don’t worry too much about traditonal management skills, other than the founder who is the CEO showing a desire to learn them.”
“When we look at very early start ups, there is not much to judge, but the story and how it is told. The delivery of the story is as important as its content. The founder(s) have to be credible. One of the issues is that technical founders are proud of their technical competence and tend to overdo it on tech and lose the perspective of the other side of the table, that is thinking “are these guys going to make me money?” That is the bottom line, but it is not a question you can ask directly. The first attempt to answer comes out of the observation of the team during the first hour of meeting (it then needs more time to confirm it, but if the first impression is negative, there is the end of the journey). Are they passionate? Competent? Ambitious? Do they come across as honest and dedicated? Is this “a project”, or is this the thing they will be doing 22 hours a day for the next years? how is the team dynamic? Do they complement each other or are their duplication of the same guy. Is there a decision making process, or is it one guy that decides. Do they argue against each other (bi no-no during the pitch) or they have built a good delivery of the pitch so that it shows maturity and collaboration. “
1) Balance: product, technology, market/commercial.
2) A Leader [in the team].
3) Good mutual respect for one another.
“Eden likes to invest in a team. That is NOT one founder who has hired a group of employees but still holds all the equity him/herself. To us, a team is a group of like-minded people who have come together to pursue a common vision. They are all ‘at risk’ in the opportunity and so are looking for significant wealth creation. They regard each other as ‘peers’ in the business and have comparable equity stakes.’
They have to be smart. And persistent. One good sign is where the team worked together before, it didn’t work out but here they are again on the next gig. Let’s call it ‘stickability’.
‘It’s easy to build a team once you have raised money. We often hear that ‘the team will come once the money is in’. This is not what we are looking for – we are looking for a team that has been built on a common vision through the tough times of starting a company. Where the founders have got behind the opportunity, as a team, before the cash came in.'”
“Metrics, knowing your numbers cold, measuring everything. I’m all over that stuff. Seriously. Don’t know what’s going right or wrong if you’re not measuring it.”
“There are lots of “obvious” qualities which a founder/management team should have – they must know their market, they must me smart, they must be extremely dedicated etc. This has been said a million times already of course, but that doesn’t mean it’s wrong.
To pick one quality which is particularly important from our point of view, the founders need to be able to build a kick-ass product which solves a real problem. As early-stages investors we can and love to help in many areas like sales, marketing, hiring, financing etc., but the ability to create a great product with a clear product/market fit is something we believe needs to be in the founder team DNA.”
“I look for teams that innovate vs optimize.”
I recently wrote a blog post on understanding how an investor evaluates the vision of the founders.
- With Great Startups It’s All About The Execution (startupprofessionals.com)
- There Are Alternatives When Your Startup Falters (startupprofessionals.com)
- 8 Key Questions to Break Thru Entrepreneur Hype (startupprofessionals.com)
- How to Build a Stellar Team at a High-Potential Startup | Entrepreneur.com (bjconquest.com)
- A Deeper Look At Blackbox’s Data On Startup Failure And Its Top Cause: Premature Scaling [Infographic] (techcrunch.com)
- Marty Zwilling: You Built a Great Startup, But Can You Scale It? (huffingtonpost.com)
- Adult Supervision (startupcfo.ca)
Going into any new legal agreement is scary. On the one hand, you’ve seen enough movies to know that legal documents can have all sorts of loopholes and/or subtleties that feed your paranoia about walking into a trap at some point in the future, but on the other hand, you know you need to get them done in order to move on with any deal.
Legal docs are just part of business life.
The thing is, though, that it doesn’t have to be something that is so scary that you need to be extremely paranoid about. This is particularly the case when you’ve been able to bring on a good legal firm on board. Good legal counsel can basically help you understand all the tools in the legal toolbox. What the tools are for, how they are used, when they are appropriate, and what they are protecting against, etc.
Now, when I mean good legal counsel, I don’t mean your cousin’s best friend who is a lawyer and can do it on the cheap or a favor. That is probably the single worst thing you can do in terms of starting off on the right foot with your investors, you’ll waste their time and yours. If you can’t find good legal counsel where you live or nearby, then go outside of your area or move your business (and the good thing is you may not have to do it physically either). One sure sign of a startup ecosystem being mature is the availability of top tier legal firms in the area. If you need to move the legal state of your company to get access to these… do so, you won’t regret it. If you don’t know where to start, cold-call a startup you admire and ask around.
A good anecdote always helps in illustrating the point…
A few years ago, I was working with company that had reached out to a local lawyer, but not one that specialized in venture law. After having provided the company with standard industry docs, a long, almost two week period followed where I didn’t hear back from either the company or their counsel. Then, once I did receive the documentation, it was red-lined so much that it took another week just to come up with the response. As you can imagine, every single conversation we had was tough and grueling, and the entrepreneurs, grew increasingly paranoid that we were trying to get the better of them, but it was mostly due to the lawyers providing poor advice on items that we standard across the industry. This carried on for a few weeks with volleys going back and forth and various stalemates being reached at different points. In the end, we did reach an agreement, but it was after much work and much education. The situation was salvaged in the end, but it didn’t have to start off like it had. And, as you can imagine, the legal fees were over budget.
In summary, good Legal Counsel does the following:
1) Validates your company. The best Firms will be selective of whom they work with. Their time is valuable as is their reputation. Working with a top tier firm definitively says something about your company.
2) Saves you money. Yes, it sounds counter intuitive, but whilst you may pay higher in terms of fees, you’ll spend less on legal fees in the long run with the reduced issues that you’ll have during a negotiation as well as with any future issues that are the result of poor legal advice.
3) Saves you time. As mentioned in #2 above, the time an experienced lawyer takes going through documents they’ve seen time and time again is a huge savings over a lawyer who is getting acquainted with the docs on your time and money. Additionally, that time could be better spent on helping you think of what realistic scenarios you are trying to protect yourself against rather than making mountains out of molehill standard terms.
4) Helps you consider the future. As your company will go through many permutations throughout its life, a good and experienced lawyer will not only be able to help you with your current situation, but also in preparing you for situations to come, be they setting up your company in a specific way, to how you should try and negotiate with potential investors.
5) Good counsel knows the industry players. By the very nature of being a top tier legal firm, they will have worked and will know the top tier investors first hand. The firm will know what the investors tend to offer in their deals, what to expect as being standard in their terms, and what might be out of the norm.
After considering the above, however, you do have to manage your counsel. In the end, you are responsible for every item on your documents, and only you care as much about your document as well.. you do. So as much as great legal counsel can help you on not making mistakes, don’t slack off during the process. Stay engaged, you’ll learn a lot.
[Update] If you have a great startup idea, or want to try and hack on problems that industry players have, think about going to http://www.seedhack.com to present it.
This is a quick answer to a frequently asked question.
So you’ve come up with a good idea… you feel like you can get a lot of it going on your own, or perhaps you have another founder in your team, but both of you are not technically inclined, so key parts will need to be outsourced.
Do you need to bring in a technical founder early in the business’s life? Yes!
Do you need a technical founder to get your business idea off the ground if you don’t have one? No!
There are many people out there with great ideas that solve real world problems, but they just don’t know any good technical people. You might be one of them. That shouldn’t prevent you from getting started thinking and doing, but you will hopefully be doing an interesting enough project that you’ll quickly be able to attract top technical talent to join you. What you don’t want to do, is get a company off the ground completely based on outsourced tech help, and never really bring the tech in-house, thus being entirely at the mercy of an external shop for your core technology.
There are clear advantages to having a technical person/founder on board including:
1) A technical founder, unless they are not committed, will continue to work on beer and pizza long after cash becomes a limited resource. An outsourced development shop will probably not show the same level of commitment.
2) A technical founder will help you in creating a product/service that is architected for your specific needs and not based on (possibly) some recycled code.
3) A technical founder will be able to react to tech emergencies far faster than an outsourced shop.
4) A technical founder will help you beta test and a/b test business ideas far faster and more efficiently.
5) A great technical founder will also attract other great technical people into your team. Birds of a feather flock together, and at some point, when you have to bring the technology in-house, you’ll appreciate this.
However, even if you don’t have a technical founder, all is not lost. Viability and execution of your business idea is the most important thing to start. If you need to outsource to kick things off, do yourself and your business a favor by learning how your website/service/product works and perhaps how to modify it on the fly and in the most basic of ways. Otherwise you will always be at the mercy of your outsourcing team. If you don’t know HTML/CSS start there… it will serve you well.
Other articles on the matter:
- Getting Started as a Non-Technical Founder (startupdigest.com)
- The Seed Stage Dandelion Effect (techcrunch.com)
- Do you need a technical co-founder? (jeffreytalajic.com)
- How to evaluate a non-technical co-founder (hirelite.com)
- A note about the “Business Guy seeking Technical Co-Founder” (bigthink.com)
- How to find a technical co-founder (jeffreytalajic.com)
- Why you can(‘t) recruit a technical co-founder (launchbit.com)
- VC CONFESSION: I Have Doubts Once I Think Of Women Founders Getting Married, Having Kids, And Being Distracted From Work (businessinsider.com)
- How Much Equity a Technical Cofounder Should Get (nahurst.com)
- How To Work Better with Your Co-Founder (readwriteweb.com)
I have updated this post recently due to a meeting I took with an early-stage founder who had yet to launch, but was diligently working on creating a 100 page business plan… hopefully, this post should help founders avoid that kind of mistake.
Let’s face it, most investors don’t have time to read anything more than the executive summary of anything that is sent to them.. So, should you even bother writing a business plan? What should one look like? And what may it say about you?
First let’s start defining what a modern day ‘biz plan’ could look like – I’d say that if you can take your pitch deck and add to it the necessary text so that whomever reads it can figure out what your business is about without you having to speak to it, then you’ve hit the essence of it.
A modern ‘ biz plan’ doesn’t need to be as complicated as you think (early stage plans are clearly simpler vs later stage ones where the company has scaled operations and profits). The purpose of a “biz plan” is to help you in crafting your business as well as provide those investors that do take an interest with further ‘meat’ to evaluate your company after meeting you, but the days of the lengthy ‘formal business plan’ have long since passed. No one has the time to read them anymore, and for those investors that demand them… well, perhaps ask them which areas they’d like more meat on and you can deal with them on a case by case basis if you need to.
So if the old style has fallen out of favor, what now? From Guy Kawasaki‘s ‘Art of the Start‘ to Business Plans for Dummies there are plenty of books out there on what constitutes a good business plan / pitch deck… but what is the point of a business plan in the first place? Shouldn’t you just ‘get on’ with doing your business and worry about that business stuff later? Perhaps… but it does help to at least identify some of the key things that are typically covered in a ‘plan’, such as what is your market and who are your competitors… A company’s business plan, no matter how short it is (10 slides), is useful for investors to evaluate an opportunity, and it also offers value to the founders preparing it, to help them articulate the core concepts of what their product is, the market it addresses, the size of the opportunity, the team, and the investment proposal.
Remember, a “biz plan” is about helping you organize your thoughts and then being able to convey them clearly to someone else, not about meeting some magical quota of pages with graphs and charts (although depending on the complexity of your proposition, this may be necessary).
Generally speaking I have found a company’s “plan” has allowed me to determine:
1) The company’s communication style and ability to articulate what they (their product or service) do, clearly and succinctly. Does the company rely too much on buzz words and/or comparisons to get the point across, or is it clear in articulating its objectives and vision? Is the plan well written (grammar)? Do I walk away from reading it being able to describe the opportunity in simple terms to others? How do they use visuals? What style are they?
2) The company’s ability to research their market size, competitors, and key industry players, distribution channels, etc. If a company has not adequately researched the size of their market, this can be a real deal-killer. One time I had a company come and speak with me about what they were doing. Whilst originally really excited about the potential of what their product could do, upon further probing during our meeting, they concluded that the market size was only few million in sales world wide, for the whole industry. As you can imagine, realizing the size of your market size during an investor meeting is probably not the best way to make an impression. Understand your target market.
The identification of key competitors is also an important detail to include and can actually play to your favor if you can clearly articulate how you differentiate from them. In the case of some companies, where distribution channels and key partnerships are important, identifying these and discussing them is important in providing potential investors with confidence that your team understand the challenges inherent in its industry.
3) The company’s ability to analyze their cash needs and expectations for growth. Nothing is more scary than a company whose ambitions are huge, but whose idea of cash management is not in line. You don’t need a CFO, but you do need to have thought out what key costs grow with your ambitious growth and when are the crucial cash-points are for your company. Generally speaking, investors don’t have financial discussions on the very first meeting, but if you have an understanding of your cash uses, this will make you seem far more competent.
4) The completeness and experience of the company’s team. Read my post here on how an investor evaluates your team, suffice it to say that if you have a great team, highlight their accomplishments. If you know you need to hire someone to round out the team, it’s OK to put that down as a future hire.. at least it’ll make the investor know that you know there is a weak-point in the team that you plan on solving as soon as the investment comes in.
Articulating all these points allows founders to justify all the components of a business model to themselves before really investing further in an idea. During the writing of your plan, you may find that the business model changes or even the industry focus changes to avoid some risks that you identified early on.
Now, a couple of tips… the first one being, avoid putting a valuation on your deck / plan (unless you are finalising a round). Investors may ask you this figure in person, but you are likely to prevent a future dialog if you put the valuation on paper and it is either too big or too small for the investor. By omitting it, the investor focuses on what matters: what you are trying to build and then opens up the dialog for the economics of your company once the investor is ‘hooked’. The second tip is that a cap table can be a handy thing to include in your business plan (but perhaps you won’t have space to include it in a presentation). This is useful mostly for subsequent discussions, but can greatly help the investor to understand everyone’s motivations.
In conclusion, one of the best things you and your team members can do very early on, is co-draft this pitch deck / plan, no matter how simple, that you feel can represent your company without requiring your physical presence to get the value of your opportunity across. It should, at the bare minimum (even if slides or doc), include (not necessarily in this order either):
1) An overview of who you are and what you’ve done (basically, why you and your team can make this happen..)
2) A succinct explanation of what your product/service does, screenshots if possible.. run it past a non-techie friend and see if they can explain it back to you
3) A market overview section, the market size of your opportunity, key players, competitors, partnerships, target market, etc.
4) A snapshot of your financials (which in an early stage startup will be your expectations of cash usage), if preceding a physical meeting, a cap table would be useful. If your business is about growth first, then clearly show your potential investors how much money you will need to grow it to where it hits the tipping point.
Hope this helps!
- The Difference Between a Business Plan and Planning (blogs.constantcontact.com)
- April 18, 2011 Business Plan: A roadmap to you, Necessary for Loans (learnedatscore.wordpress.com)
- Tips for writing a business plan (premierlinedirect.co.uk)