Do you know what is the major reason why startups fail? The founding team is either ineffective for the challenge or breaks up due to conflict. Who would have normally thought it was a major and critical reason why startups fail. If one would ask this question to a lay person – usually the reply will be that either the product idea didn’t fly or the founders didn’t find clients for their business before their funding ran out etc., which are also important reasons why startups fail, but almost never do the people state it was due to either ineffective founders or founder conflicts as one of the top reasons.
Founder conflicts or disagreements, which is another way of saying the founding team is a group of misfits, is one of the top quoted reasons for a startup failure (link to Harvard business review https://hbr.org/2021/05/why-start-ups-fail). After all, the team has to survive the trough of sorrow to figure out the product market fit.
In fact, top VCs rarely are concerned about the team’s idea that they are being pitched to. They are aware that the customer or the product discovery is an iterative process and will almost definitely involve pivoting. They are rather interested to know how solid the team is, not only in terms of skills needed to effectively meet the challenge but also how aligned they are towards the mission. They want to know if this team has it in itself to find that next successful idea and to do ‘whatever it takes’ to make it happen.
Phases of a great team building
At this point, let us take a step back and attempt to see the slightly bigger picture by dividing the evolution of the startup team into two phases of team building:
- core (founding) team,
- first hirings.
Core team building
This phase, i.e., building the founding team, is undoubtedly the most important one. Paul Graham of Y combinator has famously said that the best places to find great co-founders are in colleges and universities. But that’s not all, great co-founding teams also come from well established professional relationships but it’s relatively rare.
So what does a great founding team consist of? There are many aspects to a great founding team. I guess the best people to ask are the people who have either built successful startups and people, i.e., successful founders, or who invested in such startups at an early stage, i.e., VCs or early stage investors. Rest all tends to be speculation.
But if one listens to what the best investors or successful startup founders say about a great founding team, usually the key measurable traits a solid founding team must have can be boiled down to the following:
- the ability to do sales,
- engineering skills needed for the challenge
- and the ability to execute swiftly.
The three traits are not only important but necessary. If the founders cannot sell their idea or their product they aim to build, the project will be jeopardized. Likewise, if the founders don’t have the required engineering skills (either among themselves or through an assistance from a reliable external team) and the ability to swifty execute, the project will definitely be jeopardized. These are of utmost importance specially because during the early stage almost all of the 100% of the startup are just the founders.
However, there is one critical component missing. And that is of alignment between the founders and the ability to solve conflicting disagreements in a fair and objective manner in order to effectively work together. In many ways, this is the most important trait that any great founding team must have. A founding team can have all the expertise and execution power in the world; it will not be ultimately successful if they cannot align themselves and quickly resolve their disagreements in a fair and objective manner to work effectively. In other words, the team will not be able to survive through the trough of sorrow.
Investors usually have their ways to dig deeper into the history of co-founders in order to determine what they have accomplished together before, how tough were those accomplishments and of course how long have they been doing things together. They also look at how the equity is divided within the co-founders in order to ensure if there is a balance of power and the founders are treating each other fairly.
Where to start to find the right co-founders
But what about if you haven’t built your right co-founding team yet. A simple but reliable way is to find people in your network and do small projects with them together. See how effective you are as a team in executing and coming through the obstacles for this small project. One could even start with a weekend project, just to quickly know if there are any fundamental misfits. A lot of the people prefer to date before spending any time working together. For that there are many tools that could be helpful such as asking your co-founder to fill out a relevant questionnaire (link: https://cdn.filestackcontent.com/xLA3fXhISPG4Biph1TGR).
Once the founders are committed to the project and they are ready, the startup is essentially founded. But the journey starts now. (If you have reached this point, huge congratulations on that, by the way.) After the initial pre-seed or seed funding is accomplished, their immediate and an important priority usually is to hire first engineers.
An important thing to realize here is that in effect the first engineers are almost like co-founders – meaning that they will have substantial impact on the product life cycle and they will get reasonably substantial equity for the risk they are taking. Therefore, first hires should be treated more like a family member than a colleague, and it is best to keep the hierarchy out of the scene and have as much flat structure as possible with the possible exceptions to a few key decisions. It is also best to not hurry up during this process no matter how big the pressure is to grow from the investors. Airbnb co-founder Brian Chesky is famous for taking almost a year to hire the first employee, and he was funded from the top VCs and had access to top candidates within the silicon valley network.
If the founding team gets this step right, usually the road ahead gets a bit easier. Great hires usually draw in other high performing individuals from their network. Also, great hires who are aligned on a mission usually create a buzz from the quality of their work in their field and this usually does not go by unnoticed by other great individuals who want to achieve things within the larger community.
How to find first hires
So how does a founding team find their first hire?
Reaching out your network
Well, the first thing the team needs to do is to reach out to suitable high performing individuals within their network if they can. This is where the sales founder has to jump in and sell their idea to the potential great hires so that they will quit their high salaried jobs and join the startup’s mission to change the world. Most silicon valley investors (and usually top investors in any other part of the world) help the founding teams they fund during this step by introducing the founders to the potential great hires in their network. Otherwise, the founding teams usually do it themselves and reach out their immediate and extended networks.
Reaching out your ‘extended’ network
Another common way is to explicitly reach out to experts in large organizations and competing startups who are working on solving similar problems. This trick works better with young employees as they are more prone to take risks.
In either case, the most important thing for the first hire is to balance the pressure to hire someone quickly and getting lost in the search to find a perfect match. The answer is clearly not on either extreme, but it is less costly to err on the side of the former. If a startup does not get the phase of first hires right, it can easily get into a spiral of flailing.
Let us recap
To summarize, a perfect startup team is not only about a solid co-founding team but also how the co-founding team addresses the problem of the first hires. Therefore, a lot depends upon the founding team, and the seeds of a successful startup are sown when the right kind of founders come together to create magic – which is usually even before the right product idea hits the team.