Part Three: Your Team
by Demetrios Sapounas
In the past decade and a half, I have had the opportunity to work on several new ventures and advise and mentor numerous entrepreneurs on their journey to building a successful company from an idea. Recently, I also began working as a business coach with the Small Business Development Center (SBDC).
A common theme with all these interactions is the emphasis on building a product. This includes: raising capital, developing detailed revenue models, recruiting a team and getting customers – not necessarily in this order. This is the “classical” approach of going about launching a new venture where the belief of “build it and they will come” still seems to influence early- stage activities.
Your Team
One of the most important tasks you will do as a founder will be to build the initial team to help you move from an idea to something tangible. It is very important to have a good idea of what skill sets you need and what personalities. You are not only building a team; you are also creating the company culture. They should be comfortable wearing multiple hats and doing whatever needs to get done, instead of working within well-defined roles and responsibilities. They should be willing to learn new skills and they should be cognizant of their limitations, willing to ask for help and be receptive of constructive feedback.
Building a team with complementary skills is the best approach to covering your initial needs. For example, if you are working on a technology idea and you are not technical, one of the first skills you want to add is technology expertise. This person should not be a pure technologist who will spend their time in the code, building what is understood as your vision. The person you should be looking for would be a true partner, having technical expertise and business acumen. It is someone with whom you can discuss the idea, the market and business potential, options, alternatives, and someone who can take the business concept (functional requirements) and distill it into technical concepts (technical requirements). This person should also understand the development lifecycle and various methodologies (for a start-up adopting Agile is probably the best option), be able to work with you to define components and priorities and be strong enough to resist ad hock scope creep, which can lead to unusable results or never-ending development. This person should also be flexible, a good communicator, comfortable in front of customers or doing presentations, a good leader capable of attracting, establishing credibility with, and leading a technical team.
If you are a technical founder who prefers to be in front of the computer making ideas come alive, you will need to build the business side of your venture, with at least one person who can be seen as a credible business leader in the face of potential customers, investors, business partners. You need a person who can be the initial “sales team” and if they bring expertise from the market you are looking to serve, so much the better.
As you assemble the team, you need to determine what skills and roles you definitely need as part of your company and which ones could be engaged as consultants or outsourced. You should also keep an eye on the costs, assuming you are bootstrapping the venture. If you cannot pay salaries, the only currency you have available is equity, so use it wisely, to attract the people who can help you succeed. Until you have some investment in the venture, you probably do not need a CFO. You can use an accountant for any company needs, including taxes. In this case make sure you are keeping good records of expenditures and other uses of cash, plus any income. The accountant can file the necessary forms and provide any financial information requested by potential investors.
Another important person is a lawyer. This is not someone who needs to be part of the team, but having a relationship with a good lawyer who can timely respond to your needs is important. Your legal needs should not be extensive. The most common needs would be agreements and contracts, including non-disclosure and non-compete agreements, contractual agreements for consultants, employees, vendors. You can certainly find many templates on the Internet, but having documents that have been reviewed by a lawyer will reduce the likelihood of gaps or future issues. If there is more than one founder or you bring people in the team, put agreements in place up-front, so you do not get into conflicts and difficult negotiations later. Formalize the relationship between founders and the company, including equity stakes. If you issue stock and want to award options to people you bring on the team, establish a stock option plan and clearly specify what is awarded to team members and how it vests. Any corporate lawyer should be able to provide you the documents you need. There are law firms that specialize working with start-ups, so you should research what they offer and whether one of them may be best for your needs, instead of an independent lawyer or a smaller local firm. Irrespective of which way you decide to go, you should interview them, meet the person(s) who will work with you and ensure you are comfortable working with them. It will cost some money, though you should be able to control these costs, and it will be worth the investment in the long run.
If you have intellectual property (IP) that will need to be protected, a lawyer is important. Some of the initial work and preparation for patent applications can be done by you, but when it is time to file a utility patent, working with a lawyer should speed the process and ensure the work is done right. Patent applications can be costly and if you decide international patents are needed, those costs could skyrocket. Ensure you get sound advice from your lawyer and also determine whether you need to do the patent work before you get funding or you can wait until after you have secured funding. Many investors like to see companies hold issued patents, because that increases the value of the investment. Others understand the costs involved and are more flexible for when you file. The work and filing a provisional patent could be done by you or for nominal cost, so that may be a good alternative. Just remember that you will need to file a utility patent within a year of filing the provisional application.
If you need a team to build your MVP, if it cannot be built by the people on the founding team, outsource it to a group that can work with you to deliver the MVP and beyond. It may seem cheaper and simpler to hire a few independent consultants for the MVP, but having continuity and the ability to go back to the team for additional work is worth some extra cost; it will be less costly in the long run. Taking the outsource route ensures that you specify, in detail, your requirements, insist on documentation, and establish a regular cadence for progress status and adjustments. You need to be certain that what is being developed aligns with your vision and the results match your expectations. You should approach it as if you are developing the actual product, instead of your MVP. In many cases it is very common for the MVP to become the initial version of the product, which can cause issues. Approach the MVP as if it is the actual product, because even if the plan is the develop a throwaway MVP, there will be the pressure to evolve it into the initial product. Thus, follow proper development practices and create the customary artifacts to make future enhancements and maintenance easier, but realize it will take a little longer and will increase the costs. It is all about how much risk you are willing to assume and how much cost to take on now, as opposed to deferring for later, when it will most probably will be much higher. As things progress successfully, the product will be inherited by an internal team, which will then be responsible for addressing any shortcomings.
Other roles may include sales and marketing. Many people use “sales” and “marketing” interchangeably. But this is not correct and the skills for each role are different. Marketing usually precedes sales and defines the activities to promote the buying or selling of a product or service. It is the process of spreading the word and building awareness and demand about your offering and continues throughout the lifecycle of your offering. Sales is the process of delivering your products or services to your clients and getting compensated for them. It is effectively the process of engaging with potential customers and concluding with a transaction, converting the potential customers to actual customers. Unless your offering is only available online and does not require human interaction to generate revenue, you will need salespeople to prospect, engage with potential customers and work with them to convert them to paying customers.
The first salesperson is you, the founder! You are best suited to explain your offering, to exhibit your passion for what you are offering, to outline your vision of its potential and the value it can deliver. In the initial phase you are the only person who can convert prospects to customers. As sales start increasing, recruiting a good salesperson who can learn from you and then independently generate sales, is crucial. You do not scale (cannot be cloned) and getting the right person to join your team could quickly propel you to the next level. That is when market penetration, capturing market share and revenue growth become critical to the success of your company. Good salespeople are not easy to find, and they are not cheap. You will need to be prepared to structure a good compensation package to attract and retain the right person. You should also be prepared to make changes if the person does not work out. Adopting metrics to measure results and milestones for objectives, will objectively determine progress.
I have seen founders hire executive assistants as part of the initial team! That is pure overhead and could be seen as a red flag by potential investors and other third parties. In a start-up you, the founder and CEO, should be able to manage your time and calendar, schedule your own meetings, do research, promote the company, clean the dishes. Unless you are independently wealthy and money is not an issue, your start-up should be lean and much of the focus should be on conserving cash. This means you should be prepared to do whatever is needed, yourself, or delegate to the team you have assembled.
Many times, you will feel the urge to hire a recruiter or a human resource person. You have tried to find people for your team, but you are not finding what you are looking for. You should carefully evaluate what is needed. First, consider your requirements for people you would like to join your team. Are those requirements a wish list or a realistic description of what is needed now and for the next year or two, to get the company where you would like it to be? I have seen position requirements listing skills and knowledge commonly found in people with 15+ years of experience. Some other irrational requirements listed expert-level knowledge or numerous technologies and 10+ years of experience working with them, even though a few of the listed technologies had been around for less than three years! And after all these requirements, the compensation package offered was representative of an entry level position and did not include a reasonable amount of equity!
When looking to entice people to join your team, you need to be rational in your expectations and you need to really identify what is the value proposition and why would someone want to join you. This process is very similar to customer discovery. You see your venture as the greatest opportunity in the world, the next unicorn, a certain path to success. But a start-up represents a high-risk, high-reward potential situation, where nothing is certain. You need to determine what is it you are offering, which will be of high value to people you desire to attract. More importantly you need to consider why would someone who most probably is compensated much better than what you are able to offer, would want to leave that behind and join you. Whatever your beliefs are, you should consider that people are driven by compensation (cash), challenge, flexibility (especially after what we experienced in 2020), good culture and people to work with, potential for future rewards. There are certainly those who will take the risk, though they would be either more junior to your desired profile or compensation is not important to them, for whatever the reason. It is best to have realistic expectations for the type of people you can attract.
It may be valuable to engage with human resources (HR) as a service organization, which can work with you to source the talent you need. This approach does come with a cost, but it can achieve positive results much faster than working through your network and the Internet to find the talent for your team. The other benefit of working with a retained HR group is the ability to put in place the HR policies and procedures representative of larger companies, which will serve you well, as you grow. As a third party, they can objectively evaluate your requirements and work with you and leverage their network to source talent for your company. Early in the start-up journey this may be the better approach, compared to hiring a recruiter or HR professional to be part of your team.
In addition to people who you recruit to your team and who will work with you to grow the company, you should consider forming a Board of Advisors (BOA) and a Bord of Directors (BOD). The BOA should consist of industry experts who can advise and guide you and who will be willing to reach to their network, to help your company. The BOA can be extremely valuable early on, providing advice, guidance and knowhow for your target market(s) and can help open doors to early adopters of you offering. They can also provide critical direction on how to structure your offering to meet specific market needs. Engaging with your BOA on a regular basis and having specific requests of them is the best approach to getting good value.
The BOD can be assembled more slowly than the BOA. When you bring outside investors in your venture, they will expect a sit on the BOD, so being comfortable engaging with a BOD before you absolutely have to form one, will give you the experience working with them effectively. Early on you may feel that you do not need a BOD and you may feel that having one will lead to you relinquish control of your company. That is not true. The BOD is a group of strategic advisers you can use to help guide the company and help with strategic decisions. Recruit people for the BOD carefully. You would like to have experienced individuals who have had success running companies, people whose backgrounds cover the functional areas of a company, e.g., finance, operations, technology, sales. These individuals should be independent, i.e., not your friends or family, so they are not biased by a relationship with you. You would like them to be objective in their interactions with you and when they are critical of your decisions or direction you are taking the company, pay attention and explore with them their perspective and any guidance or advice they have to offer.
There are also delicate topics to discuss with the BOD. Not all founders make good CEOs. It is often the case that the founder is best suited for a different role than CEO and this can be discussed in confidence with your BOD. The BOD can take an objective view, assess your skills and where you can provide the best value to the company and provide recommendations. This discussion is best to take place early in the development of the company, instead of after outside investors come into the company and demand change which would not be favorable for you, the founder. The BOD would be looking for what is best for the company, and the investors would be looking at the best way to get a reasonable return on their investment.
I have known a company where the founder and CEO was running, for many years. The CEO raised a substantial amount of capital and formed a BOD made primarily by people he knew well. He burned through all the capital without having anything to show for it, other than brochureware and rosy projections of how big of a unicorn the company will become. The BOD would rubberstamp the CEO’s decisions and take no action in the interest of investors and the company. The CEO’s inability to deliver value resulted in a lot of personnel turnover and no continuity. This is the worst possible situation, where the BOD failed to challenge and hold the founder accountable, establish milestones and metrics and ensure the productive use of investor funds.
There are many examples of BODs forcing the founder out of the company. A well-known example is Steve Jobs, who was forced out of Apple by the BOD in 1985. Jobs’ story is an exception, because he returned to Apple in 1997 and built the company to the valuable brand it is today.
In the next segment we will discuss leadership and how critical it is at sculpting the company’s vision, culture and employee engagement.
Resources
Steve Case on what he looks in a pitch: https://www.youtube.com/watch?v=7Z1BDBDAZXQ
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