In the previous chapters, we discussed taking a startup from zero to achieving product/market fit. You might be thinking that there is a lot to do and it’s not easy (at least we think so). For many, having a founder team makes the task a bit easier.
Let’s begin with a statistic: According to the recognized book The Founder’s Dilemma, 65% of startups fail due to problems within the startup’s management team. Ed Catmull, a Pixar executive, echoes this in his book Creativity Inc., “Give a good idea to a mediocre team, and they will screw it up. But give a mediocre idea to a great team, and they will either fix it or come up with something better.” On the other hand, you have venture capital-juggernauts like Marc Andreessen, who in his famous blog post from 2007 emphasized the market’s role in predicting the success of startups. Jeremy Liew from Lighthouse Ventures agrees in his post titled “A rising tide lifts all boats”.
We don’t think it’s just a case of one or the other. Wasserman’s and Catmull’s insights are especially true for companies at the earliest stages, when a strong team with vision and ambition is needed to explore the product/market fit and carve a space for themselves amongst the competition. When scaling, the size of the market and the defensibility of the product become the main drivers, and the team needs to adapt from visionary planning to systematic execution. The team plays a crucial role across the company lifecycle, but the emphasis on certain team dynamics changes based on the stage the startup is in.
Searching for co-founders
In the startup world, many argue that the founding team should have worked together previously. There are many reasons why this makes sense. You can rarely know what it’s like to work with a person before you have actually done it. And a startup founding team should be ready to work a lot together and for a relatively long period of time.
But knowing your co-founder beforehand doesn’t guarantee success. You can also find someone you didn’t know previously to found the company with, but then it’s good to somehow test working together. There are events and online platforms to help you search for co-founders.
When searching for co-founders, think about what you are good at and try to find people that complement your skillset. For example, if you don’t like doing sales, you should find a co-founder who does. Your skills should complement each other, but if your values are different, working together might be hard. The founding team lays the foundation for your company culture, so you should discuss with the co-founding team what kind of a company they want to work at.
Insights from an entrepreneur – Supercell
Ilkka Paananen is the CEO and co-founder of Supercell, a mobile game development company that has created the popular Brawl Stars, Clash Royale, Boom Beach, Clash of Clans and Hay Day mobile games. He shares with us his thoughts about establishing a successful company culture.
What is your company culture like?
“We founded Supercell with six people who had been in the game industry for 10 years. We had seen several game companies, both successful and unsuccessful, big and small. We had a very clear idea of what makes a good game company. Traditional game companies are pyramids where the business and marketing people find their way up – people who are not close to the actual game development but still they want to have creative control, make decisions and tell the game makers what kind of games the company should make. And that doesn’t make any sense. We wanted it to be the other way around. Instead of management owning the product vision, the teams who make the games would have ownership. When we first met with all the co-founders, we talked a lot about what kind of a company we wanted to create. We talked at least as much about the culture as about what type of games we wanted to make.
“Company culture is not something that the founders or the management team can create by meeting somewhere offsite after thinking about it for a few days and then creating some fancy slide deck and implementing it. Culture is what people do every day, and you can sense it best when you go to the office and talk to people there. What you do on a daily basis is culture – it is not something you say.
“Because your culture is what you do, it of course springs from the people doing the things you do. So how can you affect company culture? Well, you have to have the right type of people. If someone doesn’t fit the culture, they shouldn't be at the firm. You can easily destroy a company culture by letting someone stay at the company who does something that isn’t according to your company values. It’s a very hard discussion when you have to tell someone that this is not the right place for them – but you have to do it.”
Choosing your founder team is a huge commitment, meaning it’s not something the entrepreneur-to-be should rush. Changes in the founding team structure are among the biggest crises a early-stage company can face, as they require the entire team to temporarily switch their focus away from the market and product. From an entrepreneur’s perspective, identifying and addressing gaps in the core team is always easier than replacing a founder.
The people you want on your founding team depends on what you’re creating. If you’re building an app, you should probably have a person who is capable of creating it in your founding team and not just people with business skills. So you usually have to broaden your normal horizons when looking for your co-founders as our circles tend to be quite small and filled with people who have experience in the same area or function of a company.
The key capabilities should be in place in order to get the first things done: validating your problem, finding your target group and starting to build your solution. Keeping the key capabilities in your team is also good in order to avoid any confusion with things like who owns the intellectual property rights of things created, but a lot of things can be outsourced at first, like accounting. It’s also a good idea to keep the founding team quite small, because you need to be agile in your early days.
Often it’s said that two to three co-founders is the best amount of founders, but this is not a universal rule. There are many successful startups with four, five or even more founders and also successful solo founders.
One Nordic entrepreneur once said: “Starting a company together is like having a baby. It’s always a challenge, but think about having a baby with someone you didn’t know before. Or think that you are six people who didn’t know each other before, and now you are having a baby together.”
What makes a great co-founding team?
Identifying a winning team is difficult and is largely based on experience, emotional intelligence and intuition, but there are some common features that can be listed:
Individual characteristics
Knowledge: Teams often have strong technical knowledge, but strong market knowledge within the founding team is also required, especially in the seed stage when product/market fit is still a moving target.
Ambition: As a startup, you want to scale globally and disrupt an industry. A profitable company that pays good dividends to its founders but either serves a small niche market or operates in a limited geography isn’t going to be interesting to venture capital investors (VCs).
Leadership: The CEO is too often nominated based on the idea that they are the ones carrying most of an organization’s weight (while others may focus on doing their own thing). This is a red flag. There needs to be a clear division of responsibilities and assigned areas of expertise, but everyone needs to carry their own weight and lead the planning and execution of their respective areas. All the members of the founding team should have leadership capabilities.
Curiosity: While knowledge, ambition and leadership are very important, they can also lead to the dark side where a person thinks they know everything. Curiosity and a readiness to learn are extremely important as the market might not act as expected or the customers might want something else and adjustments will be needed.
Group characteristics
Diversity: Instead of gathering the founding team from a group of friends or from ex-colleagues, a diverse constellation of people with complementing characteristics and strengths is a positive indicator of the company’s potential. In a research or tech-driven company there is usually a skills gap related to commercialization (and vice versa).
Transparency: This is a tricky one, as transparency or honesty are not statistical features and are extremely difficult to evaluate. In a small team, little things tend to gather momentum and can easily create a butterfly effect if things aren’t dealt with quickly enough. Small teams are built on total transparency, as transparency builds trust, and trust builds commitment.
Commitment: The whole founding team should live and breathe the company and its vision. Building and scaling a company is not just a full-time job, it’s a lifestyle. Potential side hustles indicate that the team members are go-getters and doers, but with limited time and resources, that energy should be steered towards only one direction – the team and the shared goal.
Team dynamics
Shared targets: A huge red flag is when team members disagree on the short-term objectives. A long-term vision is difficult to achieve at the seed stage, but every founder should stand behind a shared 12 to 18-month execution plan for finding product/market fit.
Constructiveness: Finding product/market fit is about trial and error. Success often lies in ideas that at first might sound far-fetched or just plain crazy. The team members need to respect each other and foster a culture where even the most outlandish ideas can be presented for discussion without fear of judgement.
Culture of change: The best teams love their product but love their market even more. In a seed-stage startup, the only constant is change: no product survives first contact with customers, and the customers are never wrong. The team needs to be able to move from one go-to-market obstacle to another and find a good balance between smart iteration and panicked pivoting.
High standards: The ability to recruit high-caliber individuals and sticking to high recruiting standards are amongst the most difficult parts of scaling a business. Smart recruiting and related headhunting require a lot of effort – but are key common denominators in successful early-stage companies. In many cases key talent must be looked for outside of your country, which adds an additional level of difficulty into the equation. High recruiting standards often go hand in hand with an ambitious vision and high-performing operations.
Focus: When early-stage companies have found their product/market fit, the entire team’s priorities should be steered towards activities that expand on that and only that.
Execution: This goes hand-in-hand with focus. Planning and strategizing, regardless of focus, should give way to systematic execution across sales and operations. Ideas without execution are just that – ideas.
What’s also good to keep in mind is that the team dynamics might change over time. The most innovative founders might only be interested in founding companies, but aren’t interested in scaling. These kinds of shifts in dynamics can be difficult and require effort to make them work. A visionary founder in the scaling phase can be a disaster for the company. A good team can make all the difference, but it requires some restructuring of responsibilities in the team. This is definitely not the case for all teams, but the requirements of the different stages of a growing company are good to keep in mind when growing.
No founding team has all the capabilities needed to run a business. You should also be aware of where you are leaving spaces and when would be strategically good to fill in those spaces. To fill those spaces, you’ll need to hire your first employees.
Insights from an entrepreneur – Videoly
Nora Huovila is the CEO and co-founder of Videoly, a startup that automates the use of user-generated and brand videos for retailers. She discusses with us about founding and recruiting people for a startup.
How did Videoly get started?
“Sergey, the co-founder of Videoly, had a hunch that the popularity of e-commerce was growing along with video consumption. So what if there was a search engine that searched only for product videos – could that have business potential?
“At the time, I was working in a Finnish technology company in the UK and kind of starting to look for new possibilities. When I met Sergei, I was ready to make the change. Of course, there were a lot of uncertainties, but from day one I had a good feeling about the idea. I also had a good feeling about Sergei as a person even though we’re quite opposite – he’s a super-smart, introverted engineer. However, we were very much alike when it comes to the big picture and we had the same strong values.”
How do you take the leap?
“You just need to tolerate uncertainty to take the leap to become an entrepreneur. When you take the leap, you also move away from the feeling of safety. Regular income and an employment contract are a safety net for many and, by giving it away, you face the primitive fear of ‘how can I afford food or apartment for myself?’
“I had a good situation with my previous job, so for many people it didn't make any sense for me to leave. Even my parents were wondering what I was doing, had I lost my mind. However, the job I had wasn’t feeding my soul.
“The process was an emotional rollercoaster and a personal learning journey. But once you’ve done it once, other upcoming uncertainties won’t feel that overwhelming. The most important thing is to trust in the future – people leave things undone because they are scared. If you don’t let that fear take over, you can do what your heart desires.”
How do you find a good co-founding team?
“When building the team, the key is to have complementary skills and strengths: you don’t want to only have copies of yourself. Even though you end up having very different kinds of people and personalities, you should all have the same core values. So as a founder, you need to value diversity and be aware of your strengths and weaknesses.
“For example, Sergey is very detail-oriented, while I think about the big picture. So when I want to move forward fast and unfinished, we also have a counterforce in the team to take care of the details.
How did you make the first recruitments?
“We have tried to recruit people who have different strengths and competencies, but who still have the same values. That's my vision of a perfect team. In principle, people enjoy using their strengths and it’s the most valuable thing for the organization as well. In a startup, you’re never in your comfort zone, but you can still operate in your strength zone. When hiring people, we want to know what makes you spark and can it be achieved in that role.
“We want to hire builders – people who are entrepreneurial and get excited about the fact that things aren’t ready and you have to build from scratch. We need these people because, as a startup, we still need to build.”
How do you convince people to join an early-stage startup?
“I think the best way to convince people to join is your motivation and the way you communicate about it. I’ve been selling Videoly as an opportunity where you can put your learning into actions and build things yourself.
“So basically, we have tried to convince people to join by selling a better work-life situation – no more bad days at work. It resonates with our generation who might have already spent some time in big corporations and have gotten frustrated.
“We might not be able to convince people with good salaries, but we can give freedom. In our team, you have a chance to be yourself, use your strengths in the right role, and therefore live a better life.”
What about letting people go?
“Recruiting is hard, and firing people is even harder. The thing is that even you when you think you have found the perfect match, you don’t know it before you have worked with them on a daily basis and whether their behaviour in everyday life matches your values. For example, although you have experience in operating the machine, you don’t necessarily know how to build the machine – you cannot always see these things beforehand. But as soon as you realize that you don't have the match that you expected, it's better to let people go than to keep people in the team that you cannot 100% stand behind. Because it's not fair for them either. Everyone deserves to be in a team where they are 100% respected and valued.
“It’s good to be aware that startup life is not for everybody. In an early-stage company, you need builders: a proactive person who is ready to take responsibility and move forward and enjoy it. It is not everyone's cup of tea and that is ok. You just need to find the ones who really enjoy building because for them it's a dream come true. You should aim at having people onboard who love their role and they everyday work. That's possible and you shouldn't settle for less."
