Why your founding team matters more than your market and product du jour
Part 1 of 3 in a series on why we, Playfair Capital, back people above all else.
Part 2 of 3 on why we hired a Head of Talent to help our portfolio build enviably strong teams.
Part 3 of 3 on how we did it, along with some top tips I learned in the process.
If you’re familiar with the gospel of the key variables that modulate the probability of building a brilliant company in the future (a unicorn, if you so wish), you will know that they are team, market, and product. Data compiled by CB Insights on the quoted reasons why 101 startups failed drives this point home. The top three reasons in order of priority were: 1) no market need, 2) ran out of cash, 3) not the right team (see Figure below).
Now, various industry thought leaders had chimed into this debate years ago. Notably, Marc Andreessen of a16z, inspired by the thesis of Andy Rachleff of Benchmark, and Jeremy Liew of Lightspeed, separately argued that market currents dictate outcome. Marc summarises below:
When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.
There’s no arguing that building a product that no business or consumer would like to use and pay for (in some way) will leave a company dead in the water.
However, there is an important nuance in this argument that I see. Team strength and cohesion should be highly weighted amongst market and product because it’s a variable that has to perdure. When it avails that the market presents insurmountable challenges, the team must reformulate a hypothesis and steer the course of the ship to attack a new market. If, instead, the product is ill suited for a presumed high value use case, the team must study user behaviour and psychology in as granular detail as it takes to iteratively develop a product that can’t not be loved.
If the founding team isn’t willing or capable to tackle big changes in the market or product to pursue a new compelling direction armed with a competitive advantage, they might as well respectfully pack up and go home. Without a team, there’s no product to build and no market to shake up.
The way I see it, the earliest iterations of a product are inspired and built by groups of talented people who are emotionally connected to a vision for a better world. These organisations consist of a few renegades and dreamers rather than well oiled operations we later on refer to as Companies. The environment in which the founding team works is often informal and their style can be scrappy more than it is formulaic. What’s more, the culture of the group results from the idiosyncrasies of each individual character and the ways they interact with one another while overcoming hurdles. New members are attracted as a function of the aggregate passion, conviction, and talents displayed by the group.
I posit that people are the key to success. People come up with ideas. People analyse markets, user behaviour and chart a plan of attack. People build and iterate product with feedback from their users. People distribute product to market to creatively acquire and delight users. And people find, hire, and retain other talented people.
As such, a founding team must consist of tenacious people who buy into the long term, unrelenting pursuit of success. If a lousy team wins thanks to a hyper growth market that carrier their mediocre product, I don’t see how that’s any different from winning the lottery. I’ve never taken much to casinos and I don’t reckon that gambling in the venture industry is the best place to start.