How to build a business: Founding team

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.

Equity sharing
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.

How to build a business: Learn on the job

When you are working on a new business, you are going to have a large volume of day-to-day tasks. Some would be tasks you have done before and in many cases really good at. However, a big part of your duties may be activities you’ve never done before.

These tasks could be directly related to your core function, e.g. if you are an html engineer and have never built a subscription payment system before, it could be a new type of challenge. It could also be outside your core domains — even if you are an engineer, you may have to dabble in product domains.

When you are faced with a situation like this, you will need to move fast. However, you also want to learn optimal ways of doing your tasks and keep getting better and better at them. There’s a very fine balance between these two things. While you want to be moving fast, you also want to work in a way that you are constantly finding time to improve.

Working on your own business is one of the best learning experiences in the world. When you work for a big corporation, most of your time is spent dealing with processes and repetitive tasks. Use this incredible opportunity you have right now to learn as much as you can.

One trick that helps with growth is setting really high expectations for yourself. If you are able to do that, even when you have to move quickly, you are always subconsciously thinking about what you could have done better. This helps you improve your performance, the way you look for obstacles, and the way you look for opportunities.

I have a very high-level guideline, which helps you internalize this and make it a part of your personality. If at any point of time you look back at yourself two years ago and think “wow, I was really stupid then!”, you are following this path. Otherwise, there is room for more learning and improvement.

When I started my first job at Webaroo back in 2005, I was just out of school. I knew basic algorithms and data structures, but that was nowhere enough to help me succeed at my job where we were building web scale products.

The main product of my startup was an offline search engine. To be able to build that we were required to crawl billions of pages, build a distributed file system (like HDFS), build a map-reduce system (like hadoop) to process them and then build a search engine on top of that. By the way, this was in 2005 when most of the open source tools like Hadoop and HDFS were not available, and computing capacity was scarce. Universities were just starting to add parallel computing to their courses. My college education couldn’t have helped me here. There weren’t enough tools available in the public domain. You couldn’t go to Google groups or Stackoverflow to ask questions.

At that point I made it a priority to work really hard and carve out some time to learn new technologies every day. I averaged 16 hours of work every day for 3-4 years. At the end of it all, we had achieved all the objectives we had set for yourselves and I was a Principal Software Engineer responsible for all their backend products. The work I did during this phase has helped me throughout my career, and it has given me confidence to take on really tough problems.

Working on building a business is one of the most incredible experiences you can have. Focus as much as you can on learning on the job. We will talk more in the last section about how this can help you in the long run.

How to build a business: Have Fun

Unfortunately, this is one thing many entrepreneurs tend to ignore or completely forget about. Either they take their jobs too seriously or feel that work should not be fun at all. All of the challenges of business building aside, we only have one life. If you aren’t having fun doing what you are doing, you will start to feel bored, exhausted, frustrated, and even angry at work. And since Entrepreneurs tend to spend many hours on their businesses, it’s a terrible way to go through life.

Find more ways to have fun in your business. Remember why you’re doing it in the first place. Here are a bunch of factors to help you determine whether you are having fun at your job:

Are you excited about what you are working on?

This is probably the most important thing when you are trying to work on your business. You need to be really excited about it.

You might be developing a solution to a problem you’ve faced yourself. One of the most popular software people use, Dropbox, was built the for that reason.

Drew used to commute on a bus and would struggle with keeping files synced across his computers. Many SaaS (Software as a service) companies have been created the same way, where founders faced an annoying issue and then decided to build a company around solving that specific problem. Uber was formed founded because Travis couldn’t hail a taxi when he was in Paris.

This doesn’t apply just to Technology sector, it works all over. For example, the popular mattress company Tuft and Needle was formed because the founders were frustrated with the high prices and shoddy quality of mattresses on the market.

Perhaps you relate to a problem facing other people. Many times workers in a given industry realize an issue their customers are facing, so they go ahead and create a separate company which solves those specific problems. Salesforce is one example of this.

Before starting Salesforce, Marc Benioff was a star executive at Oracle but he grew tired of the big company culture and saw that customer needs could be served better by a different company. That led to him starting Salesforce which is now worth more than 50 billion dollars.

Another case is people working with low-income groups coming up with solutions to improves their lives. An example would be Arunachalam Muruganantham from India who was from a poor background and discovered his wife couldn’t afford sanitary napkins, so she used rags and newspapers. Through his research, he found sanitary napkins cost as much as 40 times the value of the raw materials used to make them. So, he set out to build a low-cost manufacturing process to dramatically reduce the costs. He never would have done this had he not faced the problem in his family, especially for subject a taboo subject in India.

Do you enjoy the day-to-day tasks?

For a technology entrepreneur, this could mean the languages and frameworks that they are using. Developers tend to be opinionated on this front and if they do not like the language or framework they are using, they might hate their job.

If the business is building restaurants, this might mean the kind of food they like to cook. If they love BBQ, they might hate making pancakes.

Someone who likes meeting people might like a business that involves a lot of face time with clients over being stuck in a cubicle.

Make sure you’re building a business around day-to-day tasks you actually enjoy doing.

Do you like the people you are working with?

This may sound obvious, but when you are spending a big part of your productive time with someone, it makes a major difference if you actually like them. If there are unnecessary conflicts, a lack of trust, or they make it very difficult to focus on work, I recommend looking into a new partnership. I will touch on building your founding team a bit more later on.

How to build a business: Getting Started

When Entrepreneurs set out to start a business, one of the first things they should finalize is the first checkpoint for the business. In today’s world it can mean one of two things:

  1. Get the first round of funding
  2. Build a profitable business

Even after you get the first round of funding, you may want to eventually have a profitable business or a successful exit. However there is a big difference between the two strategies.

When you are trying to raise funding, there are a few factors which determine whether you will be successful in decreasing order of importance:

  1. Connections
  2. Previous successes
  3. Market you’re playing in
  4. Current state of your product

Connections are of course the most important. If you already have relationships with investors who know and respect you, it will be relatively very easy for you to secure funding.

If you have had previous business success, whether on your own or within another company, it goes a long way in giving people confidence that you have a history of making money for other people and you would avoid obvious mistakes.

After the above points, one of the most important factors is playing in a field which is really hot. There was a Social wave from 2006-2010, a SaaS (Software as a service) wave from 2010-2012, a Shared economy wave from 2012-2015, and it’s looking like there is an AI wave from 2016 onwards. Investors tend to invest in a space that is gathering attention.

Finally, the most important thing is the current state of your product. The ease of funding can be determined by the current state, which for a product in the Social Networking domain might be anywhere from a prototype to a launched product which has more than 100 thousand users. For an enterprise product, it could be anywhere from a prototype to dozens of paying customers.

As you can see, your ability to raise funds for a business depends on quite a few factors. However, at the most basic level, the more predictable your success is, the more likely people will invest in you.

As a first time entrepreneur, if you’re looking to raise money and do not feel rock solid on at least one of the above points, you can expect a long and challenging path to funding, which can be very disheartening.

If you decide to go the other route and build a profitable business first, you will face other challenges. You may end up using your savings or require a loan from friends, family, or a bank. Essentially, you’ll do whatever it takes to get your business to profitability without needing funding from professional investors.

This avenue can leave you you feeling strapped financially or under pressure to return money to loved ones or a bank. All of this gives you a small window to execute and start seeing revenues.

A vast majority of the stress of starting a business comes from this step, as funding can be daunting. However, if you feel confident in the execution of your business, you may have a shot at success. Obviously, it would be wise to filter out lofty ideas like building self-driving cars, which might end up taking years to build. However, it could be worthwhile to choose an idea and scope where you can start seeing results sooner.

In my opinion, working with limited funds has benefits. It keeps you focused on the core product and idea. You’re not wasting time chasing and courting investors (which will be a lot if you do not already have traction, previous successes, or the right connections).

Limited funds adds scarcity and control to the early days of your business. You have to be judicious with where you spend and can’t afford to be distracted by shiny objects. You have to ask yourself — do you need money for building the company? Or for growth? There’s a big difference.

If you tackle business building this way, it’s a good idea to start while you have another job. Save money before you start the company. Be very cautious about spending while in business, because every dollar counts. Saving money will let you go longer without any funding at all. Raise money only if you need to power exponential growth.

Whether your goal is venture funding or making profits on your own, it is always a good idea to start building your business lean and aim for results as soon as possible. The focus of the rest of the book will be on how to create and execute a desirable product.

I would like to emphasize two important factors before getting started on the details of building your business. Many of my friends hate their jobs and have for years. When I look back on my journey as an entrepreneur, whatever be the situation financially or otherwise, I have always enjoyed my work immensely.

So the two important points to always keep in mind on your journey are:

  1. Have fun
  2. Learn on the job

How to build a business: Introduction

I have always enjoyed Entrepreneurship — building my own businesses or meeting and talking to others who do the same.

Of course, building a business means different things to different people. Some do it for the financial reward, while others want to help people solve a problem. However, most do it because they seek the independence of being in charge.

Regardless of the reason, Entrepreneurship comes with its own set of challenges. Creating and running a successful business requires a lot of hard work, a good bit of inspiration and a little bit of luck. Most of the stories people hear are about companies that achieved huge success seemingly “overnight.” The stories you never hear are about the businesses that never got off the ground.

Often, Entrepreneurs whose ventures “fail” decide they are never going to try it again. Why bother? It’s too costly, time consuming, and depressing. Others get “hooked” and keep at it until they are successful.

Frankly, I believe that the choices you make, your adaptability and how much fun you’re willing to have go a long way in deciding your success as an Entrepreneur.

When I got started, I was lucky to land a great job in the India office at Webaroo, a tech startup in Silicon Valley. My colleagues were incredibly smart and we had a good amount of funding. Our founders were serial Entrepreneurs with a track record of great success, which gave us confidence that we would be able to raise more funding if needed.

Despite all of that, our core product wasn’t taking off. So we had to change directions and try something new.

Since we had funding and a great team in place, I had the privilege of building a business within a business. As you can imagine, this was not nearly as challenging as starting from scratch, so I was able to focus on the art and science of building a sellable product. I went from having zero experience in Entrepreneurship to having a successful business.

The main purpose of this book is to discuss the core pitfalls Entrepreneurs face while building businesses, how to avoid them, how to create a desirable product, and most importantly — how to have fun and increase your chances of success.