Finding and building a founding team

Starting a successful company 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’s 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.

It can be tempting to think of starting a business as an administrative process. In my experience, it’s much more nuanced in the early stages. If you’re 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’ve figured out key details about how your business will work.

Can you create a basic version 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 lean-startup mode 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’re the right people to build a business with.

As the saying goes, “If you want to go fast, go alone; if you want to go far, go together.” Going it alone in the beginning can help you quickly determine whether:

• You could actually go it alone the rest of the way
• You need just one co-founder
• You need several team members with specific abilities to get your business moving

Just be aware that moving too quickly can lead to problems if you’re 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. 

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 every team needs.

When team building, trust should be your No.1 priority. In a 2018 study, CB Insights found that problems with the founding team were among the top factors leading to startup failure.

If you don’t 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’re not building your business with an old friend, you should spend time getting to know your potential team members and ensure that they’re reliable and that you 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’re a well-rounded person with business and technical skills, it’s important to know which are your core strengths and which you should try to 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’s 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’m fairly technical, but I’m not as enthusiastic about, nor as expert at, selling. This kind of self-knowledge can lead you to identify the traits you’ll need in a co-founder.

Particularly in the tech industry, it’s 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’re counting on investors to fill in the gaps, 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’s 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 covers the major domains of the business (at least the broad categories of business, legal, marketing and technical concerns), you’ll 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’ shares until the business has made some headway and the value of each co-founder’s contribution has been demonstrated.

There are two basic approaches to distributing founders’ equity: equal splits and dynamic splits.

In an equal split, each founder gets the same amount of equity on the same terms. Michael Seibel, of the startup incubator Ycombinator strongly reccomends equal splits because they preserve a spirit of fairness and avoid a common source of disharmony among founding teams.

“Dramatically unequal founder equity splits often give undue preference to the co-founder who initially came up with the idea for the startup,” Seibel writes, “as opposed to the small group founders who got the product to market and generated the initial traction.”

In a dynamic split, equity is distributed according to the work each founder does 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’re 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 a tool that lets you experiment with ways of assigning equity 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 draft a founders’ prenup, a document that outlines the terms and conditions of the founders’ relationship to the company and provides mechanisms to remove founders who do not live up to the agreement.

Scott Kupor, of Andreessen Horowitz, one of the premier venture capital firms in Silicon Valley, puts it this way: “Yes, breaking up is hard to do — 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.”

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