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Chapter 6 Building the Founding Team

Chapter 6 Building the Founding Team. The biggest challenge. “There’s plenty of entrepreneurs, plenty of venture capital. What’s in short supply is great teams. Your biggest challenge will be building a great team.” John Doerr – Partner, Kleiner, Perkins, Caulfield, & Byers ( kpcb.com ).

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Chapter 6 Building the Founding Team

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  1. Chapter 6Building the Founding Team

  2. The biggest challenge “There’s plenty of entrepreneurs, plenty of venture capital. What’s in short supply is great teams. Your biggest challenge will be building a great team.” John Doerr – Partner, Kleiner, Perkins, Caulfield, & Byers (kpcb.com)

  3. Revenue derived Size of the company

  4. Anchoring vision in team philosophy and attitudes • The most successful entrepreneurs seem to anchor their vision of the future in certain entrepreneurial philosophies and attitudes: • What a team is • What its mission is • How it will be rewarded • Unwritten ground rules, rewards, compensation, and incentive structures rest o these philosophy and attitudes

  5. Anchoring vision in team philosophy and attitudes “The capacity of the lead entrepreneur to craft a vision, and then to lead, inspire, persuade, and cajole key people to sign up for an deliver the dream makes an enormous difference between success and failure.” Jeffrey Timmons

  6. Advantages of having a team for a start-up

  7. Things to keep in mind when creating a start-up Evaluate your skills Use your strengths Ask for feedback of your actions

  8. Building a powerful team Create a staffing plan Find people to fill positions Your personal network Your advisors’ Network Your extended Network • Professors • Alums • Friends • Family

  9. Attributes of successful teams • Cohesion – “We’re in this together” • Teamwork – make others’ job easier; no individual heroes • Integrity – hard choices and trade-offs based on what is good for the customer • Commitment to the long haul – no one benefits by signing up now and bailing out early • Harvest mind-set – capital gain is the goal, not a paycheck

  10. Attributes of successful teams • Commitment to value creation – making the pie bigger for everyone • Equal inequality – democracy does not work well in start-ups (more on next slide) • Fairness – rewards are based on contribution, performance, and results over time • Sharing of the harvest – 10 – 20% of “winnings” is frequently set aside to distribute to key employees; characteristic of the most successful entrepreneurs

  11. Equal inequality • Company A - 4 employees • 34% to president, 23 % each for marketing and technical VPs, 6% for controller

  12. Equal inequality • Company B – 7 employees • 22% to president, 15% each for four VPs, 9% each to two other contributors

  13. Filling the gaps • “Successful entrepreneurs search for people and form and build a team based on what the opportunity requires, and when.”* • Team members contribute high value when they complement and balance the lead entrepreneur and each other • The process of evaluating and deciding who is needed, and when, is dynamic and not a one-time event * Timmons, 1975

  14. Filling the gaps • The founder • Every team starts with the founder (aka, the lead entrepreneur) • Founder determines whether team is needed, assesses talent, skills, track record, and contacts of possible members • Founder needs to determine what the venture requires in order to succeed

  15. Filling the gaps • The opportunity • Whatever the team needs are depends on the fit between the lead entrepreneur and the opportunity • Entrepreneur must clearly define: • the value added and logic of business model (revenues and costs) • Critical success factors • Extent to which s/he has access to critical resources and relationships

  16. Filling the gaps • Outside resources • Gaps can be filled by external resources: • Boards of directors, accountants, lawyers, consultants, etc. • Entrepreneur must consider: • Whether need is specialized, one-time or part-time or a critical continuous need • What trade secrets might be compromised if external expertise is used

  17. External Team Members

  18. Do Nots of double employment • Do not use your employer’s resources • Do not expropriate intellectual property from your current employer • Do not solicit your employer’s customers until you quit the job • Do not conceal the fact that you are founding your own venture

  19. Types of Compensation

  20. Problems that new venture teams face

  21. Slicing the founder’s pie • Making the pie as big as possible is the primary consideration • The ultimate goal of any VC-backed firm is to realize a 5x to 10x ROI, usually via IPO or acquisition by larger company • “Work backwards” from IPO capital structure to determine what will happen and who will get what

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