BUILDING THE startup TEAM

CHAPTER 5

Explain how to effectively build a founding team. Understand how to work with professional

advisers. Discuss when to add a board of directors. Compare and contrast the pros and cons of

outsourcing with independent contractors versus hiring employees.

Learning Objectives

Why do teams lead to a better chance for success?◦ Shared intense effort required by a startup◦ Loss of one member less likely to result in

startup abandonment◦ Team concept permits expertise across major

functional areas: marketing, finance, operations◦ Skilled team lends legitimacy to the startup in

the eyes of lenders, investors, etc.◦ Diverse experience of the team allows

entrepreneur to make better decisions

Building Effective Founding Teams

The Entrepreneur’s NetworkFigure 7.1

Benchmarks for an effective team:◦ Shared vision between lead entrepreneur and the

team◦ Shared passion leads to shared hard work◦ Industry experience relevant to the new venture◦ Solid industry contacts with sources of capital◦ Functional areas of the business are represented◦ Team members have good credit ratings◦ Team members have the time and money to

endure startup constraints

Creating the Founding Team

A Founding Team Quiz

Table 7.2

Funding is through angel and venture capital. Founding team consists of scientists-engineers

with little market or business experience. The venture requires professional management

outside of the founding team. The investors help with forming this team.

Special Issues for High-Tech Teams

Virtual teams function differently and affect how the team interacts.

Synchronous-asynchronous communication media alleviate physical distance issues.

Trust is critical to effective virtual teamwork.

Unique Issues SurroundingVirtual Teams

Success in the international market depends on the skills and knowledge of the team.

Successful characteristics include: ◦ Extent to which founding team members have

traveled or worked abroad ◦ The number of languages they speak

Experienced founding teams likely to form partnerships to facilitate entering the foreign market.

Founding Teams for International Ventures

Friends/family members must possess real skills and expertise required by the venture.

They need to share the same work ethic as the entrepreneur.

The advisory board must include outsiders to balance input objectivity.

All relationships are business oriented and must be stated clearly spelled out.

Rules for Friends and Families

Outsourcing solutions for professional help:◦ Attorneys◦ Accountants◦ Bankers◦ Insurance agents

“As-needed” assistance for information, assistance in reviewing business concept, and reality checks

Seeking Professional Advisers

Building a board of directors◦ Legal form of the business influences the

decision to have a Board of Directors.◦ Boards provide beneficial expertise in

establishing corporate strategy and philosophy.◦ Boards of publicly traded companies are elected

by shareholders and represent their interests.◦ Members assist with business development, act

as arbitrators for dispute resolution, and give credibility to the new company’s image.

Seeking Personal Advisors

Considerations when choosing board members:◦ The necessary technical skill related to the business◦ Significant, successful experience in the industry◦ Experience running a company at the level the

entrepreneur wants to grow to next◦ Important contacts in the industry◦ Experience in finance, capital acquisition, or IPOs◦ A personality compatible with the rest of the Board◦ Good problem-solving skills◦ Honesty and integrity, to engender a sense of

mutual trust

Building a Board of Directors

Board Members and the Business Life Stage

Figure 7.2

Consists of a panel of experts interested in the new venture’s success

Ranges from infrequent meetings and no pay to frequent meetings and provided equity stake in company

Often used when board of directors is not required or in the startup phase

Helps the entrepreneur to overcome “tunnel vision”

Advisory Board

The entrepreneur’s personal board who serve as a sounding board, coach, advisor

A safe haven for entrepreneur’s to air their fears, concerns, hopes, dreams

Generally role models and individuals who have businesses and lifestyles like the one the entrepreneur wants to create

The Mentor Board

All team members should have the required experience and qualifications, and the same goals for the business.

Avoid using only family and friends. Only give stock incentives after an individual has

proven him or herself.

Mistakes to Avoid

Equity distribution: it is important to clearly understand what each team member is contributing and value it appropriately.

Buy-sell agreement: used to prevent an owner from selling his/her interests in company without consent of the other owners and to determine what happens should owner leave the business.

Mistakes to Avoid (cont’d)

Independent contractors (ICs) own their own businesses and are hired by the entrepreneur to do a specific job.◦ Including: consultants, manufacturers,

distributors, employee leasing firms, and professional advisers.

◦ Hidden costs: Searching and contracting ICs Transferring activities to ICs Managing IC Bringing activity in-house

Outsourcing with Independent Contractors

Consultants Professional employer organizations (PEOs) Manufacturing support Sales support

Types of Independent Contractors