When looking at the viability of a start-up, it’s easy to focus solely on the company’s product and financials. But investors always look beyond this, because the success of a startup isn’t built on just the product. It is built on the team.
In fact, 60% of new ventures fail because of problems within the founding team. This could be due to communication, poor alignment with the business’ goals, gaps in skills sets and knowledge or differing visions.
Plus, products and services can pivot. Startups may change direction depending on market demand. But the team who works behind-the-scenes are critical to the company’s DNA. That’s why the people you choose for your founding team are so important.
As Paul Graham of Y-Combinator explains: “Individuals play the game, but teams beat the odds – Navy SEAL saying.”
The relationships within the founding team deserve as much investor scrutiny as the financials.
Indeed, founders who choose to go it alone are seen (by some investors) as having a disadvantage right from the get-go.
Drew Houston, founder and CEO of Dropbox, has an interesting analogy to explain the drawbacks of being a solopreneur. He says: “…it’s possible to raise a child as a single parent, but vastly more challenging and personally taxing to get the same outcome.”
In fact, according to the Startup Genome Report, solopreneurs take 3.6 times longer to scale compared to startup teams with two or more founding members. Because of this, they were also more likely to attract investors and have a higher likelihood of success.
For investors, failing to appoint a founding team can be perceived as a vote of no confidence. If nobody else has bought into your idea by becoming part of the founding team, it’s hard to attract investment. Especially when equity is on the table.
Plus, without a team around you, it’s easy to spread yourself too thin. Founding teams work best when each member brings different skills and experiences. An effective founding team is one with complementary resources.
Whereas Steve Jobs became the face of Apple, he was helped by Steve Wozniak and Ron Wayne to get it off the ground.
Likewise, Bill Gates had Paul Allen and Richard Branson had Nik Powell.
Now that you understand the importance of your founding team, you might be wondering about the perfect number of teammates. Sam Altman, president of Y Combinator recommends between two or three.
He says: “In the YC experience, two or three co-founders seems to be about perfect. One, obviously not great, five, really bad. Four works sometimes, but two or three I think is the target.”
Beyond this, it’s vital to understand other factors that contribute to your founding team’s success. A HBR study discovered that experience isn’t the be-all for founding teams. It discovered that the team needs soft skills to thrive, notably a shared entrepreneurial passion and strategic vision.
Researchers found that companies which reported high levels of experience but average to low levels of passion and vision, had lower performance. They were less innovative, had a weaker team dynamic and poorer customer satisfaction.
Teams that reported average experience but expressed high levels of passion and collective vision enjoyed a stronger performance. They had better cost control and anticipated higher sales growth.
According to Foundr, the ideal founding team should fulfil three roles: the visionary, the hustler and the hacker. That doesn’t automatically equal three team members - if you can find someone who can complete two of the roles.
Any other roles in the early stages are surplus to requirements. As your startup scales and needs arise (for example, in marketing) you can always recruit new team members.
The visionary is what many people think of when they see the stereotypical startup CEO. They are someone who comes up with ideas, innovations and are seeking to disrupt the status quo.
The hustler is someone who walks the middle road. They are a jack-of-all-trades and are able to quickly step into roles that urgently arise. Hustlers can temporarily plug a critical skills gap until a suitable replacement is found.
The hacker is all about the product. Their entire job is to ensure that your startup’s technology, processes and hardware are robust and fit-for-purpose.
Having a well-balanced founding team pays off. Those with one business-minded and one technical founder have 2.9 times more user growth, raise 30% more investment and are 19% less likely to scale prematurely.
In the early stages, you only need your founding team. But as your startup grows, as customers are on-boarded, investors are attracted and the product evolves, you’ll need to recruit team members. This can be tricky in today’s competitive climate.
But there are talented people available who are attracted to the high growth prospects (and rewards) of start-up life. One way to find these people and retain them is to offer equity.
Choose your first hires wisely. Again, the make-up of your team will set the standard for your company in the future. The growth of your business depends on the knowledge, skills, attitude and aptitude of your team - both founding and first hires.
They also shape the culture of your startup.
Running a startup is not a one horse race. It’s a relay. You cannot realise your vision without a strong team behind you. One that complements your skills, shares your vision and will graft to meet milestones.
Savvy investors always invest in people, rather than ideas or products. To gain an edge, invest in your team first and the innovations will come naturally.