How to Choose the Ultimate Founding Team for Your Startup
Picking the right team is far more important than having a great idea. Use this formula to set your business up for success from the start.
When it comes to choosing the ultimate founding team, there are some big things to consider that can make or break your startup before it even has a chance to get off the ground. Don’t be fooled, your founding team is your secret sauce and here are four critical factors to consider when choosing your team:
- Who is a Co-Founder?
- Values-Based Founders
- Three’s Company — Don’t Solopreneur
- True Talent to Match the Tasks at Hand
I have lead two separate technology organizations. In both cases, I have had the pleasure of working with great founding members and also the displeasure of toiling with those that constantly halted the momentum we were building. We have moved on, despite and in spite of the later group. After ousting two co-founders and creating a team with great potential that never produced any results, I hope to provide you with a glimpse inside what makes an all-star founding team so you can create the team that will propel you on to massive success!
Who is a Co-Founder?
First off, we need to be very clear about who a co-founder is. I have my own take, but some venture capital teams see it a different way. Sean O’Sullivan wrote about co-founders in early 2017. I agree with his summation about what co-founders are and are not depending on the age of the business:
“[Co-founders are] people who are working on the business full-time, who are not engaged in multiple businesses at the same time. Anyone not working on the business full-time is not a co-founder, and should not receive founder-level equity. A co-founder is the first to go without pay, and even when the business is properly funded, co-founders will continue to receive under-market wages, up until the company is profitable.”
So that about sums it up. If you aren’t working full time, don’t consider being a co-founder with the equity that would follow that type of commitment. He goes on to say,
“In my book, a co-founder who leaves the company before profitability is not really a co-founder of that company…unless, of course, the company dies and the co-founder was there until the bitter end. The real founders of a business are the ones that make the business work, not just the ones that initially got it funded, or the ones that shipped the first non-profitable product.”
But is that really the final, end-all definition? I’d like to think that in the very early stages, long before you have a product that people are actually paying for, few people have the luxury of working on their product full-time. In that case, having a co-founder might be just a simple as, “Hey, I’ve got an idea, can you help me out with it?” and you get together to hash it out.
“You will need people to keep you motivated, to hash out ideas, to challenge you, and make you think outside your own box.”
You will quickly find who is passionate about what your plans are, and who falls off, but initially, when you are still in the planning stages and defining your assumptions, a co-founder can be whoever the leader of the group wants to include. Later on, I really like Sean’s take on it — cut and dry.
Slicing Pie
I love the methodology of “Slicing Pie” by Mike Moyer that doesn’t divvy up the equity until a later date. All parties that put in time, energy and resources are rewarded with a piece of the equity pie that correlates to the calculation. There’s nothing subjective about that approach, and no one gets anything until you have a predetermined event or date. You can slice the pie a bit more fairly using that method, but the most important aspect is finding founders with values that match.
Values-Based Founders
Now, I’ll admit, I’m a bit biased toward “successful” companies. What I define as success might be a bit different than others, but I follow the tenets of Conscious Capitalism. An article on Forbes defines the term by Whole Foods’ CEO John Mackey as, “businesses that serve the interests of all major stakeholders — customers, employees, investors, communities, suppliers, and the environment.”
This isn’t the “fluffy” side of business that only looks good on your powerpoint presentation. This business structure ensures a win-win situation for everyone involved. In the end, it really pays off. Forbes and other leading firms have published the data Raj Sisodia found and how it relates to conscious companies. His “research [found] that these brands’ investment returns are 1,025% over the past 10 years, compared to only 122% for the S&P 500 and 316% for the companies profiled in the bestselling book ‘Good to Great.’”
According to Nielsen’s “Global Survey on Corporate Social Responsibility,” 43% of global consumers said they are willing to spend more for a product or service that supports a cause.
So what does this have to do with founding team members? Well, these successful “conscious” companies are lead by their values. They are what people call “values-based organizations,” and these values aren’t just hung on the wall, they dictate everything the leadership and employees do on a daily basis.
Because of Values
A founding team that can come together because of their values, convictions, passions, and talents to solve a problem will go a long way. Founding teams that form because the team can see the talents and passions of other members might get close to big success, but more often than not, place themselves in a dangerous position that could mean the end of the organization (or even friendships.)
Locating an ideal founding partner can prove to be difficult, although not impossible. It all has to do with where you look.
A savvy investor will ask how long the founding team has been together, how long have they known each other, and what difficult things have they done together. If the answer to any of these questions is “soft,” you can bet you’ll have an uphill battle with many investors. They ask these questions for the assurance that you can do hard things together — things that won’t make you crumble at the drop of a hat.
Investors want low-risk startups. They will deem your startup as less risky if you already have a set of values that has been months or years in the making. This means you can work quickly and efficiently now. They don’t want the team management issues. Bruce Tuckman’s team model of forming, norming, storming, and performing will kick in with every team, and frankly, I wouldn’t invest in you until you’re already at the “performing” stage.
So how many should you recruit to be on your founding team? The magic number is three.
Three’s Company — Don’t Solopreneur
Types of Founders
I have been a founder a few times over. Sole proprietor, partner, CEO — the list is long. What I’ve come to live by is one simple fact. It’s one I learned while reading a book that was assigned to us during my time in an accelerator in Tempe called MAC6. (I’ve tried to find the book but can’t seem to locate it, nevertheless the message rings true.) An all-star founding team has three key people:
- The CEO — Rainmaker, visionary and revolutionist.
- The Sales Person — Charismatic problem solver, connector and maven.
- The Technical Lead — Skills with very specific knowledge of your startup’s industry.
In the book, the author interviews a billionaire investor who opened his own accelerator. Within three years, he had four exits worth more than $2 billion dollars. The question came up, “How did he do it?” The answer, he said, was simple — provide these three founding team members and he could create a company around them and teach them how to be successful. Subtract even one of them and the chances were good they could not succeed. Therefore, he did not take on any ventures without these three key team members to start.
Can you get somewhere going it alone? Heck yes, you can! In fact, the quick decisions and velocity you can achieve is great in the early stages. Will you need help soon? Heck yes, you will! Your founding team is a great support system.
You will need people to keep you motivated, to hash out ideas, to challenge you and make you think outside your own box. You will need help getting all the “stuff” done that comes with having your own startup.
“I’ve tried to go it alone — it’s a tough road, and in the end, you usually trip over yourself, or you simply don’t have the manpower needed to get it all done.”
Lonely at the Top
On the other side, as Clate Mask, CEO, and co-founder of Infusionsoft, once told me in a down moment within my own venture, “it’s lonely at the top.” You will need people you can rely on and speak to. He told me that when things are tough, and you want to crack, you just can’t. Everyone else can crack, but you as the founder need to stay strong. If you crack, everything else around you crumbles as well. Your family will struggle, your employees will waiver, your investors will doubt. That’s why a founding team is so much more important than “just three friends” — they are three friends who rely on each other.
True Talent to Match the Tasks at Hand
The last point I’d like to make here is one that once eluded me. I’ve always been an Apple fan and knew the story of Jobs and Woz. It was amazing how much I had dismissed that relationship and why it worked so well. They were literally geniuses in their own right — the best of the best with their unique talents — and when you brought them together, magic happened! It didn’t happen by chance, it happened because they had clear roles and worked together to cover two of the three key roles that makes a startup successful.
Regarding the three types of founders above, I consider myself the CEO type and definitely not the salesperson or technical founder. Because of this, I see the big picture and how everything needs to fit into it. I also believed that by having great people around me we could overcome our own skill gap and work it out. I was wrong.
You Don’t Have Time to Train
If you are looking for a founder and you know you have what it takes in one of the three areas, don’t assume you can “train” someone into the role of the other two — it doesn’t work that way. Training will come when you hire lower-level employees and you “have it all figured out,” or you are “tuning the engine” as Eric Ries likes to call it in The Lean Startup.
In the beginning, you need to find the best of the best. Hopefully, you’re already friends with this person or have some relationship. You need to get founders on board that can hit the ground running at a full sprint and make things happen — not ones that need to “get up to speed.”
Three Supply Chain Guys
I once formed a team that was all supply chain guys. We were great friends, people I’d trust with my life, seriously. We were good at what we did, and we figured we could outsource everything else. That’s what we had always done as a career. But early on, I could tell that this approach was going to bog us down and cost us valuable time. We needed to get technical issues solved, but this took too long. We needed to growth hack and get customers, but this took too long. We needed to figure out so many things and instead of having people who knew exactly what to do (maybe not for that product but they had seen similar things in the past).
We even brought in a technical co-founder that we found on Co-founders Lab, and I was convinced we had what we needed. This also turned out to be a mistake. As a full-stack developer, he was competent, but as an innovator and creator of something that tied in two separate disciplines, he was a total failure. We got stuck for months until it came to a head and we had to get rid of him.
The fact is, there isn’t one person or a group that is going to be able to know exactly what to do all the time, but if you are getting into the medical space then one of your founding team members better be someone who knows all about medical devices, or medical software, or HIPAA, or whatever. If you are going to have a fitness app, then one of your team members better be a fitness expert, passionate about the body and the type of person who can turn someone who is fat and lazy like me into the next Mr. Universe. If they aren’t, how are you going to know what direction to go or how to tailor your value prop, etc.? Find people who are fantastic at what they do and get them on your team, ASAP.
What It Boils Down To
I’m fully convinced that subject matter experts are the true innovators, because they know the problem inside and out and can move faster than anyone else. They usually have the right connections to get things done and open doors for their team and their startup.
I know for a fact that teams with a values-based culture can outperform teams that rely on only their unique talents to get them through. I’ve felt the stress and strain of going it alone and the fun that comes with having a co-founding team. I know what it’s like to have talent gaps and constantly wish you had someone who knew what they were doing and could get the job done. In the end… the next founding team I put in place will have three simple ingredients:
- Values-Based Founders
- Three’s Company — Don’t Solopreneur
- True Talent to Match the Tasks at Hand
What do you think makes the best founding team?
