The Founding Team
Building a startup team is essentially important.
Starting your own business and carrying one hundred percent of the burden is a lonely and isolating undertaking.
Being an entrepreneur is often a thankless job.
- Long hours,
- investing revenues back into the business instead of taking a salary,
- and endlessly networking
…is less draining when shared among a team.
But building a startup team comes with its own set of challenges, so when considering the path that is right for your business, keep both the benefits and the detriments in mind.
The benefits of using a team to get your startup off the ground:
A team shares in the effort of running a startup.
Getting a startup off the ground involves managing a wide range of moving pieces, and this task is made much easier when the burden is shared by members of a team.
Consensus decisions are better than decisions made by individuals.
If two heads are better than one, then a decision that has been reached by team consensus is much stronger than one made by an individual.
The best teams have a diversity of experience and background, a circumstance that leads to the analysis of issues from every angle and to solutions that may not have been reached by an individual.
It goes without saying that you have to be open to hearing different opinions!
Team members bring complementary skills to the table.
Often, an entrepreneur has a narrow focus in a single skill set or technical specialty.
There’s nothing wrong with that, though it can mean that other areas of the business that fall outside that specialty could be weak.
For example, a talented programmer may not be an experienced marketer or salesperson.
In that instance, a team member who has strengths in those areas would be a good fit to improve the health of the business.
A new venture led by a team has more credibility with investors.
Keep in mind that, once your business leaves the startup phase and begins courting investors, a complete team will project more soundness and stability than a business that operates under a single decision maker.
A team has access to a larger professional network.
Think about the number of people within your personal and professional network.
Imagine if that number was doubled, tripled, or quadrupled.
Networking, talking through your business concept with others, and forming mutually beneficial business relationships is much easier when more people are doing the talking.
Team members share the burden of fundraising.
In the same way that many hands make the colossal task of managing a startup lighter work, the burden of fundraising can also be spread across multiple team members.
Despite the significant benefits that having a founding team brings to the effort of getting your startup off the ground, working with a team isn’t a silver bullet scenario.
Nothing can throw a wrench into the works of a successful startup faster than “people problems.”
The first question to ask when forming a founding team concerns the formality of the team’s formation.
A casually formed team may be more comfortable and may have more room to maneuver, but what happens when the business takes off and it is time for founders to start paying themselves?
Members of a casually formed founding team have few legal guarantees regarding
- profit sharing,
- and business responsibility.
What this means for founding teams is that the sooner the details of the team’s arrangement can be formalized, the better.
While it may not be a comfortable conversation for some, having enforceable protections in place is preferable to surprises down the line.
The goal of this conversation is to have an open and honest discussion of the…
- and aspirations
…of each of the team members.
The conversations that are required to formalize the founding team require…
- and honesty
…from all parties.
If prospective team members are unable or unwilling to discuss these aspects, then they may not be a good fit for the business in the long term.
Formalizing the relationship between team members protects everyone involved if it is carried out in a fair and equitable manner.
The agreement that results from these conversations generally covers four key issues:
- and operating procedures
Though the more facets that are addressed, the more protection that is afforded to each member of the team, and to the business as a whole.
Formalize These Aspects
Because these aspects are so important to ensuring that the formation of your founding team goes smoothly, let’s take a deeper dive into each.
Roles and Responsibilities
This portion of the conversation/agreement determines the answers to three questions for each team member:
- What will this individual do to contribute to the success of the business?
- What sets of activities, processes, and other functions will this individual be responsible for?
- To what extent is this individual responsible for accomplishing their assigned actions and functions?
Despite the fact that founders often fill a number of roles and have broad responsibilities during the early days of a venture, putting specific responsibilities down on paper has a focusing effect on the team.
For example, designating Founder A as the venture’s development manager doesn’t mean that Founder A can’t contribute to any other area of the business; it means that Founder A owns development and focuses his or her efforts.
Decision-Making and Operating Procedures
The roles and responsibilities of each team member should be defined and formalized when you select the members of your founding team.
The same goes for the process by which decisions are made.
When to put it to a vote
The decision-making process exists as a series of questions.
- What decisions can be made by an individual without input from the team?
- What criteria define when a decision must be put to a vote?
- And when decisions are put to a vote, does every member of the team have an equal say, or is the vote weighted based on each individual’s proportion of equity?
- What are the procedures for settling an impasse?
- Who has a deciding vote, or what alternative measures will be taken as tie-breakers?
The procedure for removing a team member if necessary
Despite the extreme discomfort, this conversation can produce, the removal of a team member is an eventuality that absolutely cannot be left unaddressed.
In the instance of uneven team sizes, or teams with a minority opinion, it is possible for the majority of the team to vote out or push out their opponents.
Infighting is a quick way to blow your business off course and derail your success.
Identify circumstances when, for the good of the business, the ousting of a founder can or should be considered.
- Failure to meet critical milestones,
- misuse of funds,
- or violation of other agreements
are examples of potential conditions that could trigger a vote to remove the offending founder.
Other critical considerations
- Are there any other critical concerns that should be taken into account when making decisions that are specific to your business?
For example, some industries have a much higher burden of safety, due to their inherently dangerous nature.
Instead of leaving these considerations to a case-by-case basis, get them nailed down and understood by all members of the founding team.
Define the parameters for normal business functions
- When it comes to hiring and firing, should each founder have a say, or is that not necessary?
- How about the purchase of routine supplies and equipment?
- What dollar amount triggers a group decision, and which purchases can be completed by an individual?
- How should profits be reinvested into the business, or how should they be distributed?
In addition to considerations regarding responsibilities and the decision-making process, keep these other common team-based mistakes in mind:
Hiring Team Members Who Have Divergent Goals
A team that is pulling in opposite directions isn’t really much of a team.
That’s why it is so critical for would-be teams to all be on the same page.
Remember that conversation the founding team should have regarding their attitudes, fears, and aspirations?
That is the perfect time to get to the bottom of whether or not the entire founding team can operate as a team.
Divergent or competing goals between team members are definitely not in the best interest of the business—it is exactly the kind of “people problem” that can grind progress to a halt.
This issue often arises concerning decisions about future growth.
If some team members are interested in long-term growth while others are more interested in quick financial gains, serious disagreements will soon crop up.
Using Only Family and Friends
Teams benefit from a diversity of experience and opinion.
For some entrepreneurs, the people in whom they place the most trust are their family members or longtime friends.
There is nothing wrong with that; however, there is a reason that many cautions against going into business with friends, family, or significant others.
In a worst-case scenario, your founding team may have to make hard decisions that put the needs of the business over friendships, and that is a situation no one wants to be in.
On the other end of the spectrum, the bond of friendship can add a level of implied bias that clouds otherwise uncomplicated decisions.
Incorrectly Compensating Team Members with Equity
The valuation of a new venture is a tricky business.
The firm doesn’t have a lot of assets, and financials are largely unproven, which means most attempts at valuation are optimistic at best.
Tricky valuation translates into potential issues when it comes time to discuss the equity split among founding team members.
Take the time to ensure that equity compensation is handled correctly, and view every equity decision through the lens of the two questions “Why?” and “Under what conditions?”
How Big Should My Founding Team Be?
With all of the team-based considerations out of the way, the obvious question remains:
- how many people should be on my founding team?
The answer is less about a number and more about the answer to two questions:
- What key skills are represented within the makeup of my founding team?
- Can my founding team work as a cohesive unit that gets things done?
The answer to neither question includes a number of people.
If those bases are covered by two dedicated people, great.
If more are needed, then that’s something that can be addressed.
- If a team has a minimum size of two people, then how many founders are too many founders?
There is no set upper boundary to the number of founders that can be in a founding team but remember the old saying:
too many cooks in the kitchen spoils the soup.
The two main questions that entrepreneurs should ask regarding the makeup of their founding team should probably be asked by solo entrepreneurs as well.
But instead of thinking about a team, think about the unique mix of skills that you bring to the table and your ability to make progress.
- Are there gaps in your skill mix?
- Are there weak areas that could benefit from the expertise of a cofounder, partner, or a founding team?
If the answer is yes, then you should consider the benefits of using a founding team.
There is no hard and fast rule regarding founding team size, but keep in mind that as the number of founders increases, so too does the chance that a key founder may decide to pull out of the venture.
In addition, the more founders there are, the smaller the equity shares for each team member and the more difficult the maintenance of equity sharing—especially if the members of this large team are joining after an initial equity split.