1. Chapter 6 Building 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. Size of the company
Revenue
derived

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 Compensation name Advantages Disadvantages
Founder Shares
Attracts co-founders
Dilutes owner’s equity
Option pool
Ties employees’ goals to those of the company
Employees may leave the company if the price falls
Restricted stock
Vested over time, expensed at current share price
Expensed at current price
Stock appreciation rights
Low cost to the company
Phantom stock
Employees do not receive equity
Needs cash to be exercised

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