In our first lesson for this module, I'm going to discuss Team Building. How can you go about recruiting and motivating the kind of team that it will really take for your startup to be a success? Here's the word cloud for this lesson. We'll be talking about co-founders, advisers, and employees, and the need for the team to have a shared vision and a passion for success. I've been teaching, advising, and investing in entrepreneurs for many years now. I can't tell you how many times I've listened to a panel discussion or presentation and heard of venture capitalists say that he or she would rather invest in an A team with a B idea, than the other way around. It's the golden rule of venture capital investing. Actually it's not, the golden rule of venture capital investing is whoever has the gold makes the rules. But it's still a pretty important rule, the reason for that should be obvious. Entrepreneurship is hard, most small businesses fail. A team, that makes a big mistake about its target market, its technology, its value proposition, its revenue model, or its spending priorities, will have a hard time recovering from that mistake. A team that makes more than one big mistake, will almost certainly fail. The fact is that average teams, teams that lack experience, teams that don't work together well, teams that have a hard time setting and achieving milestones, they make mistakes: lots of them. On-the-job training can be very expensive. On the other hand, great teams can sometimes find a way to make something out of nothing. By focusing on the customer, they can pivot to a different revenue model or an improved pricing strategy. By designing and carefully monitoring key performance indicators, they can spot and take action to correct problems before they get out of control. By understanding their costs and their market dynamics, they can make plans to ensure that the business will have the financial, technology, human, and other resources it needs to accomplish its objectives. But what makes a great team? When you're just getting started, all you have is your idea and your own skills and experience. Maybe you've got a co-founder who's working with you. Ask yourself if this is a foundation you can build from, if not, you're probably not ready to launch. That's not to say you can't make progress, talking to customers, understanding their needs, and designing your product or service to meet those needs. At the same time, you should be looking for ways to build a team that has the ability to execute. At the start, most investors want to see that there are at least two or three people who are truly committed to the project. One of them is the person I'll describe as the domain expert, this might be the CEO, or it might not, it should certainly be someone who interacts with customers. This person must have a deep understanding of the market, the customers' needs, and the real benefit that the company's solution can provide to them. He or she should also understand the channels that are best for reaching these customers and how they'll ultimately make their purchase decisions. This person is all about the value proposition, the solution to the customer's problem. The second person is the product expert, in a technology company, this is probably an engineer. He or she will probably be the startup team's CTO. This person must be able to design and build, or make arrangements to build, the product so that it meets the customer's needs and expectations. He or she must be able to design and build it so that it can be sold at a price that makes sense. The third person could be the CEO or the COO, this person is the one who has management talent or experience. He or she must be able to build the company around the domain expert and the product expert, ensuring that the company has the resources it needs to be successful. Those of you who are taking this course as part of your online MBA program need to pay special attention because this person just might be you. As I mentioned before, startup companies have a hard time recovering from big mistakes. This is the person who can be trusted to manage the company, making efficient use of resources and avoiding big mistakes. The founding team also has to have something else, it has to have chemistry. The team members need to have a shared vision, a shared sense of purpose, and a shared passion for success. Every company has a culture no matter how small, the team members need to buy into and represent that culture. Chemistry does not mean that everyone has the same frame of reference, in fact, this can be counterproductive. I've seen entrepreneurs who are engineers, try to build founding teams that are made up entirely of engineers. Why? Because they communicate well with each other, they understand each other, and can probably work well together. But, because they all have the same frame of reference, the team isn't able to bring different perspectives to solve problems. I'm not trying to single out engineers here, Michael Fertik wrote an excellent article in the Harvard Business Review in 2013, titled "Don't Start a Company with Your Business School Pals." It's rare to see a successful startup, where the founders were strangers before they got together to launch the business. One of the most successful companies that I've ever invested in was started by two brothers. They were more than brothers, they were great friends and they had a deep level of trust in each other. They had different backgrounds: one in technology, and the other in marketing and sales. They understood each other's roles and they didn't second guess each other. They knew that they could count on each other. That's the level of trust you want to have in your co-founders, and they should have it in you. With the nucleus of the team in place, you can start to build the broader team. That's what these two brothers did, they went out to recruit the strongest people they could find for the roles that needed to be filled, people who would be strong in areas where they were weak. If your business is like most startups, you're going to want to get someone on board who is a sales, or sales management rock star. Someone who can help the company start generating meaningful revenue as soon as possible. Product development and engineering talent will probably be early priorities. After that, you're probably going to want to focus on operations, marketing and then finance. In the early going, you probably won't have enough money flowing through the company to justify hiring a CFO. You'll want that person to come on board when you're positioning the company to raise larger amounts of capital. A lot of startups wait too long to reach out to advisers. One way to address experienced gaps in a startup team, is to recruit advisors with deep industry technology or entrepreneurial skills. They may not be looking for a job, but they can certainly roll up their sleeves to help you reach out to customers, strategic partners, channel partners, or investors. Most startups compensate key advisors with stock options, so they're not a drain on cash. Another mistake that some entrepreneurs make is failing to get the most out of their advisors. Use them. That's what they signed up for. I think it's a good idea to let your advisors know exactly what you need from them. If you manage a meeting of your board or your advisory committee as if it's nothing more than an opportunity for you to tell them what you've been doing, you're wasting everyone's time. You could have done that with an email. Help them prepare for a meeting or an appointment with you by telling them about the decisions you need to make and ask them to give some thought to them beforehand. That way, they can actually spend their time advising you, not just listening to your management updates. Let's talk for a minute about Management Transitions. It's a fact that some people who have leadership and other skills that are perfect for getting a startup off the ground are not well suited for that same leadership role as the company matures and its priorities change. It's not at all uncommon for startup teams to be replaced as the company grows and that transition can be smooth, or it can be very painful. When is it time for a company to recruit new top management? When a job has changed and the individual is no longer a fit, when the company culture or working environment has changed and the individual no longer has the passion for the job. And, when the company is failing to perform and its stakeholders, the board of directors, and the investors who control the purse strings demand it. As the founder of your startup, you should be thinking about and planning for these transitions, even for yourself. Ask yourself, when mind it makes sense to hire a new CEO for the company? Someone who could be your boss? What role would make sense for you after that transition? And what qualifications should that potential CEO have? Can you go out and recruit someone like that before your investors force you to? To use a sports analogy, should you hire the best position players or the best athletes as you're building your team? In my opinion, you want to hire the very best position players that you can. Chemistry is important in a small company, it's time consuming and expensive to fire people and hire their replacements because they didn't embrace the company culture, or they couldn't be counted on to focus on the role that you needed them to play. Before you hire anyone, focus on the key activities that the current team is unable to perform. Design a job description that's based on that unmet need. When interviewing, look for people with previous startup experience, people who can work hard and smart, dealing with ambiguity and thriving in a startup environment. Put metrics in place so that you can quickly determine if they're able to meet the company's needs, and take action quickly if they're not. Employees who are dissatisfied can have a negative influence on the rest of the team. Better to fire when you have to and move on. I don't think I've ever heard a successful entrepreneur say that he or she regrets that they fired a team member who wasn't working out too quickly. How do you recruit great people to join your startup? Great people have great options, you have to have a plan to find them and recruit them. Although there are a lot of recruiting tools and websites out there, the best recruiting channel is likely to be your personal network. That's where you'll find people that know you, and hopefully, believe in you. Who do you know that you can reach out to personally to discuss your startup and the role you think that they can fill? Personal referrals can also be effective. Reach out to other entrepreneurs, they're likely to be able to refer people who have experience in a startup. Your own employees are also likely to be able to refer people and they already work with you, so they'll have an idea about who might be a good fit. Your customers also understand what you're trying to build, so they should be able to help you find people. You may even be in a position to hire people away from your competitors, they know the industry, and they may be willing to jump ship, especially if they can see that your startup is successful in luring away their clients. As I mentioned before, you want to look for people who will thrive in a fast-paced entrepreneurial environment. People who have qualities like these: able to tolerate uncertainty and ambiguity, willing to be creative problem solvers, they understand how their role fits into the big picture, what you're trying to accomplish in your company and in your industry, people who are willing to do new things, or to do old things in a new way. Remember Howard Stevenson's definition of entrepreneurship, the pursuit of opportunity without regard to resources currently controlled. You want to hire people who can achieve goals with limited resources and take pride in finding new ways to succeed. You should try to avoid people who don't buy into the startup culture, they will be a drag on the company and potentially a negative influence on their team members. You've heard this from me before and you're going to hear it again, but you have to understand that there are only three reasons why somebody might want to get involved with you and your startup company. This is true for investors, co-founders, employees, and maybe even customers. Let's just focus on team members here. First, they want to get involved because they think it will be a way to make a lot of money, more than they could make by doing something else. Second, they want to get involved because it's a way to help make the world a better place, to get involved with something positive that's bigger than themselves. Third, they think it'll be fun, a chance to truly enjoy their work in a fast-paced, startup environment. If you can offer potential team members away to do all three of these things at once, you're probably going to be a pretty successful recruiter. If you can only offer one, you'll probably have to offer a lot of it. Let me put it another way, in her book Lean In, Sheryl Sandberg says that the best advice she ever got was from Eric Schmidt of Google, "If you're offered a seat on a rocket ship, don't ask what seat! Just get on." If you really want to recruit A-players, try to offer them that seat on a rocket ship, give them an opportunity to be part of something special and opportunity where they can make money, make the world a better place, and have fun, all at the same time.
