I can’t stress enough how important the founding team is. If I have to name one thing that causes most startups to fail, I would say it would be issues within this team.
Let me list a few factors that are vital to building a strong team:
This is the first and foremost amongst the core principles of a founding team. When you are building your business, you will go through a lot of financial and emotional ups and downs. One moment you will feel like you can take over the world and another moment you feel like the competitors will eat you up. There will be a lot of anxiety and stress.
Founders will need to be around for each other to support themselves through the good and the bad times.
What will hurt them the most if if they do not completely trust each other. You’re going to be dealing with a lot of challenging external forces. If you are also doubting each other, it will be very toxic for your business. You will constantly second guess each other’s actions and doubt each other. This alone will handicap or just plain stop progress altogether. Either you will all part ways or run the business straight into the ground.
I am an advisor to a startup that went through rough patch for almost a year before they were able to resolve it. The two founders, Tim and Peter (names changed to protect anonymity) hadn’t know each other before they started their company. Their investors had known them individually for a long time and introduced them. Tim was managing Engineering and Peter was managing product and was the CEO. Peter was from business background and didn’t have much prior product experience. Because of that, product development became their joint responsibility.
Unfortunately, they never got on the same page on what the product should be. They spent almost an year arguing about it and the investors and advisors had to intervene. Peter ended up leaving the company and Tim starting acting both as the CEO and CTO. A year later, Tim led his company to a successful exit.
Alignment on priorities and outcomes
Next thing I would like to touch upon is having alignment on priorities and outcomes. Founders often have different personalities or life situations. One may be much more financially well-to-do than the other. One of them might have a completely different idea of what a “successful business” looks like.
This is where being on the same page is really important. Someone who already has millions in the bank might have a very different plan for exit versus someone who doesn’t.
One of my close friends faced this when he was looking to sell his company. It was a two person startup with a very successful product, where my friend handled technology and product development, while the other founder handled business and sales. They were featured in many prominent publications including Techcrunch hackathon. They had always bootstrapped their company and were using their personal finances to pay themselves.
While the other founder was really rich, my friend didn’t have much in savings. Eventually, they got a good acquisition offer from a bay area based company, around 5 million USD. My friends tried to convince the rich founder to take the offer but he wanted to try longer for a bigger exit. Ultimately, my friend left the startup and took a direct job offer to join the company.
The outcome might have been likely different if they both had similar situations on priorities and outcomes.
Covering all bases
Depending on the type, two or three functions tend to be critical for every business. For some businesses it is product and technology. In other cases, business skill is added to the mix.
It is really important to get good coverage on the core skills required for your business with the founders. If there is a severe gap on one of the core skills in the founding team, you will face severe obstacles to the success and viability of your business.
If there is a skill set missing, you should prioritize either finding someone trustworthy who has the skill set or one of the founders should start working actively on getting better at it. It also helps if the founding team is A+ on the skills required for core business functions. That increases your chances of success and helps avoid the need to hire more people.
You will also find that it helps to team up with co-founders who have a lot of breadth. The breadth could be across functions – Engineering, Operations, Testing, Product, Design, Business, Sales, Customer Support; or within function – backend, frontend. This would also help you with multitasking and avoiding to hire more people for some time.
This can be a thorny topic. Some people believe that the equity split should be based on experience or how much before someone started working on the problem, or based on the amount of money put in by the founders.
I believe that there should be an equal equity split between founders at the start of the company.
If one of them is putting a lot more money, it also means that they might have a different expectation of the outcome. If some of the founders were working on it for a long time, it depends on how successful the product is. If it is already successful, new members can’t be considered founders. If the product isn’t already successful, it doesn’t matter a lot how long others were already working on the problem. As far as experience is concerned, there is no easy way to quantify this. Every function is important for your business. For that to happen, each one of you will need to bring your A game to the table.
Most of the time, if a disparate equity distribution is on the table, it is a warning sign for deeper issues on the team and the team should work on taking it head on to resolve it and get on the same page.
Wrapping up the points mentioned above, do not hire anyone else apart from the founding team until you are sure you are going to be successful. And if you are going to spend some of the most productive years of your life building a business, make sure that you take building the founding team very seriously. Give as much thought to this as you would when you are looking for a life partner.