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Reviewed by听Kathryn Uhles, MIS, MSP, Dean, College of Business and IT
Starting a successful company听requires vision, courage, energy, grit and a variety of practical business and technical skills. Some entrepreneurs succeed on their own, but it can be a good idea to start with at least one co-founder to ensure all the necessary traits and skills are in place from day one.
Some founding teams occur naturally, as when two friends develop an idea and decide to give it a try. Other times, one person鈥檚 dream becomes compelling enough that, to get it off the ground, they seek the help of others.
Here are five important factors to consider when building an effective team for a new business.
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It can be tempting to think of starting a business as an administrative process. In my experience, it鈥檚 much more nuanced in the early stages. If you鈥檙e gestating an idea or investigating or testing the market, you may not yet need a co-founder or other team members. In these early days, it can be quicker to stay solo and avoid formally establishing a company until you鈥檝e figured out key details about how your business will work.
Can you听create a basic version听of your product or develop a simple framework for your service without filing paperwork with the government? Can you land a couple of early clients on your own to test the market? Can you enlist the help of a trusted friend, mentor or consultant to make a little progress before formally bringing them in as a co-founder? (It can be helpful to have a sounding board who can provide objective and constructive feedback.)
Spending some time in听lean-startup mode听can help you to better understand your market, selling proposition and vision before taking formal team-building steps that may be hard to unwind later on.
Likewise, working informally with other potential team members can help you understand whether they鈥檙e the right people to build a business with.
As the saying goes, 鈥If you want to go fast, go alone; if you want to go far, go together.鈥 Going it alone in the beginning can help you quickly determine whether:
Just be aware that moving too quickly can lead to problems if you鈥檙e not careful. Getting too far along in your plans without formally enlisting a founding team can lead to questions about ownership, business structure, regulatory paperwork, and salaries or consulting fees.听
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Finding the right team members who can set your idea in motion boils down to skills and personalities that vary with what your business is all about. But there are a few key qualities听every听team needs.
When team building, trust should be your No.1 priority. In a 2018 study,听听were among the听top factors leading to startup failure.
If you don鈥檛 know someone well or have misgivings about their trustworthiness, work ethic or abilities, think twice about entering into a co-founder relationship with them. Many effective teams are formed by friends who already trust one another implicitly, which gives them some comfort when they encounter difficulties while building their business.
If you鈥檙e not building your business with an old friend, you should spend time getting to know your potential team members and ensure that they鈥檙e reliable and that you听understand and share their values. This helps build your trust that they will stay true to their commitments as the partnership progresses.
Even if you鈥檙e a well-rounded person with business and technical skills, it鈥檚 important to know which are your听core strengths听and which you should try to听augment through team building.
Any business is likely to need a leadership team with expertise in creating and selling products, delivering services, handling finances and running operations. It鈥檚 rare to find top-notch abilities for all those things in a single person.
In my own case, I love developing and delivering services to customers, and I鈥檓 fairly technical, but I鈥檓 not as enthusiastic about, nor as expert at, selling. This kind of听self-knowledge听can lead you to identify the traits you鈥檒l need in a co-founder.
Particularly in the tech industry, it鈥檚 not uncommon for a couple of technically minded people to develop a novel concept together and found a business on it. In these cases, founders typically need a lot of help from people with business expertise.
Fortunately, investors tend to help fill those gaps, using their networks to align additional executives to the business.
This scenario presents a chicken-and-egg problem, though: If your founding team is one dimensional, and you鈥檙e counting on investors to fill in the gaps,听what do you do before you have investors?
Moreover, since the lack of a market fit is the single biggest determinant of success or failure for a new venture, it鈥檚 essential to have the right team in place to both identify the proper market and create the right product or service to fit that market.
By building a team that听covers the major domains听of the business (at least the broad categories of business, legal, marketing and technical concerns), you鈥檒l be better equipped to objectively assess the market and come up with a concept that meets current demand. This, in turn, should help to position your startup to secure funding from investors.
When founding a new venture, it can be tempting to simply shake on splitting the equity and responsibilities evenly with your team members and then get started. In practice, however, it may be better to delay assigning at least a portion of the founders鈥 shares until the business has made some headway and the value of each co-founder鈥檚 contribution has been demonstrated.
There are two basic approaches to distributing founders鈥 equity:听equal splits and dynamic splits.
In an equal split, each founder gets the same amount of equity on the same terms.听听because they听preserve a spirit of fairness听and avoid a common source of disharmony among founding teams.
鈥淒ramatically unequal founder equity splits often give undue preference to the co-founder who initially came up with the idea for the startup,鈥 Seibel writes, 鈥渁s opposed to the small group founders who got the product to market and generated the initial traction.鈥
In a dynamic split, equity is distributed听according to the work each founder does听and its value for building the business. This process can be highly nuanced or fairly simplistic, depending on the attention applied to it, but the basic premise is that certain activities in building the business are critical to success, and the founder who achieves them should be compensated with additional equity.
So, for instance, securing funding, building the initial product, landing early customers and other milestones in the business could each have a bundle of stock shares attached to them. This approach helps founders avoid feeling as if they鈥檙e doing all the work while others receive equal shares of equity for lower levels of contribution.
Carta, a software company that helps businesses manage their equity, offers听听as you go through the process of defining splits. Founders can sign up for a free Founders Studio account to try it out.
Whichever type of equity split you use, you will want to听draft a founders鈥 prenup, a document that outlines the terms and conditions of the founders鈥 relationship to the company and provides mechanisms to remove founders who do not live up to the agreement.
, one of the premier venture capital firms in Silicon Valley, puts it this way: 鈥淵es, breaking up is hard to do 鈥 whether in love or in business. But, at least in business, there are some things founders can do proactively to lessen the pain. Think of it as a common sense prenup to protect your company.鈥
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Robert Strohmeyer is a serial entrepreneur and executive with more than 30 years of experience starting and running companies. He has served in leadership roles at three successful software startups over the past decade, and his writing on business and technology has appeared in such publications as Wired, PCWorld, Forbes, Executive Travel, Smart Business, Businessweek and many others. He lives in the San Francisco Bay Area.
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