How to avoid start-up failure: Not the right team

CB Insights lists not having the right team as number 7 on its list of twelve reasons Tech Companies fail. 14% of founders included this as the reason why their company did not succeed

Building the right team requires correctly identifying the skill sets you need in-house, and understanding which can be outsourced. Then you must find and hire them. All while working within your start-up’s budget.

Let’s consider what an ideal founding team should look like. Ideally, it comprises The Visionary, The Hustler, and The Hacker. Sometimes this combination is referred to as the golden triangle.

The visionary, often the CEO, is the person who sees the future of the company. They are probably not good at details but see the big picture. An obvious exception to this generalization is Steve Jobs, who could not only see Apple’s future but was very much into the details of product design. The most important role of any visionary is to inspire the team. To take the team on a journey to find ways to do what is currently not possible

Howard Schultz, wanted Starbucks to be more than just a seller of coffee. He had the vision that Starbucks would be the third place. That is the third place, beyond the home and office, where people could meet in a convivial atmosphere. That vision persists to this today. A few years ago now I met with some of Starbucks’s Asia Pacific senior managers, and they often referred to the “third place”. 

Although we are looking at start-ups, an important longer-term role for the visionary is to ensure the company will be able to continue should they no longer be available. Apple survived the death of Steve Jobs, but a start-up, Stratolaunch, could not continue after the death of Paul Allen. Failory.com a website that examines start-up failures, opines “It became clear that Stratolaunch had been powered only by the vision of its founder, which was not necessarily shared by those left in charge”

The hustler is the team’s doer and taskmaster. The hustler holds people to account for their roles within the organization by setting the pace and ensuring everyone keeps up. This is not a defined position but an attitude. It is most closely aligned with the COO role, but it can be any role where the incumbent has a “we can do this” attitude. The hustler simply gets things done by effectively coordinating the resources available within the team.

The word hacker has become associated with folks who try to penetrate your computer systems. Our hacker focuses on the product. If you are a software company, your hacker is that amazing programmer, if you are a restaurant, your hacker is the talented chef. The hacker has the ability to take the CEO’s vision and conceptualize what the product will look like and why it will be amazing. The hacker lives and breathes the product. And without a product, there is no business so this is a critical hire.

With luck, you have these three skills within your founding team. This is possible even if you have only two cofounders as one of you may have the ability to fulfil two roles. But if you are a sole founder, you need to identify which of these skills is your strong suit and hire to fill the gap. Whether to go alone or with co-founders is not as clear-cut as it might seem. Do not go it alone is a common piece of advice. But there is an alternative path; find co-creators to work with you on your vision.

He had several co-creators including employees such as Paul Davis who was responsible for the back-end development. Tom Sconhoff would build Amozon’s customer service department from the ground up. And Shel Kaphan whom Bezos has described as “the most important person ever in the history of Amazon.”

Hiring is challenging for start-ups.

If you are well funded, either because you have access to venture capital. or you have funds from selling an earlier business you will be able to pay market rates to attract the talent you need. But most start-ups are strapped for cash.

Such start-ups often cannot afford to pay the same salaries as more established companies. This makes it harder to recruit senior staff. When they pay market rates, the offset may be that they can hire only one person rather than two. 

In response to this inability to pay market rates, start-ups offer equity or stock options to early staff. Unfortunately, many start-ups do not succeed, and potential hires are well aware of this. So, they will discount the value of equity programs. They will also be cautious about leaving their present position for an uncertain future.

Start-ups do not have brand recognition, at least not yet. It can be difficult to convince a potential employee to join an unknown company versus one with a more prestigious brand. It is a common practice for job seekers to put Ex-Google or other leading-edge companies on their resume believing it will give them an advantage. Whether it does or not depends on the attitude of the hiring company, but it cannot hurt.

What a start-up can offer is an attractive work environment. And I do not mean having a games room, sleeping pods, or free beer.

Some concepts that you would do well to embrace include:

Flexibility – Will you support employees who seek flexibility in their working hours? Such as parents with children, or people who are disabled.

Performance incentives. Will you recognize and reward employees who deliver more than their job description? The employee who goes the extra mile to satisfy a customer.

Skill enhancement. Will your employees get the opportunity to grow their skill set? Keep in mind that only about 10% of development comes from outside training; the balance comes from mentoring and on-the-job experience. This important benefit can cost you almost nothing, but it does require proactive management.

Your vision. Will you communicate your vision for the company with passion? People follow people with passion. Last week marked Martin Luther King day in the US. MLK had passion and attracted millions of followers long before social media was born.

Develop a hiring plan

Understand the costs. Costs go beyond salaries, you may incur payroll taxes, statutory benefits, and other industry-standard benefits. Also, you need to assess holiday pay, sick pay and possibly overtime. These can add 30% to the salary number.

Remember that you may need to supply tools such as computers, screens, workspace, etc.

A start-up is different because often you are hiring your executive team first. Unlike an established business that hires to replace gaps or to expand.

Be honest – you cannot do it all yourself. Assess your skills and identify gaps that must be filled before launch. Industry knowledge should be acquired if needed.

Timing:  Identify when the skills you are seeking will be needed and factor in hiring time. You do not want to hire earlier than necessary but not having an employee on board when required will put additional strain on the rest of your team.

Start-ups are hard work. You need folks who are willing to pitch in and do whatever is necessary to get the business off the ground. Beware of corporate types who have been used to having a support network. They may be more reluctant to work beyond their job description as Quincy Apparel, the case study we covered last week, found out to their cost.

Pay for the talent you need, but as we discussed earlier, get creative in packages. Consider people embarking on a second career.

Identify essential workers, the “must hires”. This will vary by your business but would include people such as production staff, programmers, waiters, etc. Research the costs of the “must hires” for your market and availability. These roles often have a market rate. As a start-up your business’s future is uncertain; you may have to pay a premium to encourage staff to join you. Especially if skills are in high demand which is quite likely; in several major economies such as the US, UK, and Singapore there are more job vacancies than there are job seekers.

Consider hiring fractional professionals such as your CHRO and CFO. Until you get much larger, there is no need to fill these roles on a full-time basis. A fractional professional will meet your needs and cost you about the same as a junior employee.

Remember, hire slow and fire fast; hiring the wrong person can cause severe disruption to your business. And hire A-grade talent, companies get into difficulties when they try to cut corners on the quality of their staff. Getting your hiring right means you will never have your business fail because you had the wrong team.