William A. Sahlman of Harvard Business School famously insists that most business plans waste too much ink on numbers while not paying attention to what matters most: the team.
“When I receive a business plan, I always read the resumé section first,” he wrote. “Not because the people part of the new venture is the most important, but because without the right team, none of the other parts really matter.” Once considered bold, his approach has become common in angel investors and venture capitalists alike.
Note: this is an excerpt from my upcoming book, Art of the Initial Coin Offering. The book describes and shares reflections from my experience working with a number of ICOs. In this excerpt, I share what I believe makes for the best founding team. While presented through an ICO-oriented lens, the concepts are applicable to all software businesses.
The team formation stage is the perfect place to ask the big questions, like who you want to be as a company.
Zappos, the popular shoe e-retailer, defined a set of core values when they were in their early stages. The title alone sets the tone: the Zappos Family Core Values. In it, they offer ten key bullet points:
- Deliver WOW through service
- Embrace and drive change
- Create fun and a little weirdness
- Be adventurous, creative, and open-minded
- Pursue growth and learning
- Build open and honest relationships with communication
- Build a positive team and family spirit
- Do more with less
- Be passionate and determined
- Be humble
Zappos formed this list by asking teammates to share their personal values, which they combined and tested against existing employees.
This is a must-have conversation for project partners, and the sooner, the better. Each team member will be investing their limited time on Earth in this project, and it’s important to understand — to the extent which you can — what their individual goals and motivations are.
When interviewing potential team members at Benja, I often ask applicants what the job-after-this-job is.
This fosters a sense of understanding between the organization and its employees. If an employee shares that they may be interested in starting their own company someday, it signals that they may be a good person to task with founder-like responsibilities. This understanding enables the organization to offer compelling and interesting work which benefits the development of the employee. That’s a win all around.
For most software projects, the ideal team is consists of a business founder, a technical founder, and a few advisors. This simple and limited set of team members should offer a clear division of labor and minimal bureaucratic overhead.
I occasionally run into a startup which launches with more than one business founder but have never found an instance where such an arrangement is necessary. Teams should aim to keep as lean as possible, as startups often pivot and needs will change in time. If a startup keeps overhead low, it increases its chances for success many times over.
Finding a Business Founder
Business founders are, frankly, a dime a dozen. Take it from me, a business founder.
Don’t get me wrong: business founders play a critical role in the organization, but there are so many who can do the work. A business founder can be found in any city, business skills are transferable between industries and segments, and supply generally outpaces demand.
If you’re a technical founder with an idea, you can afford to be picky.
Qualification for the role is less about which skills the business founder has and more about the business founder’s interest and relation to the problem. In most cases, a business founder is the one who takes the lead in a pitch; They are most likely the individual who will lead meetings or calls with prospective investors or partners. As any businessperson will tell you, the person who delivers the best pitch is the one who tells a clear story that demonstrates a real feel for the problem. You’re looking for someone who can generate a feeling of empathy from their audience.
Further, you’re looking for someone who can sell, though that doesn’t mean you’re looking for the best salesperson on paper. Even if the position will require little or no sales activity, the business founder is going to be tasked with selling the idea to investors, the product to partners, and the marketing plan to the team. In many startups, the business founder serves as the public face of the company — they’re going to have to sell it.
When hiring for business roles, I have found that one simple exercise is the most effective way to gauge the candidate’s ability to sell: we ask them to teach the recruiting team something.
In my experience, responses to this question are fantastic. Thanks to our recent hiring efforts, I’ve learned how to ask for a beer in three different languages, how to cast a fly fishing rod, and how to make the perfect paper airplane.
By surprising the candidate with the question, we gain an insight into how they think on their feet. We learn how they adapt and if they’re able to organize information in a concise manner. Often, we learn a little bit about the candidate’s personality and hobbies. Above all, we gain an insight into how the person sells something they know and care about. It’s a good one.
Above all, a fellow founder should seek a business founder they can trust. It’s typical for a business founder to handle financial responsibilities, including compliance, tax, and general financial management, critical tasks whether the organization is handling $500 or $500 million.
The business founder should be able to handle most of the business-side tasks. Between a decent business founder and software for items like payroll, bookkeeping, and the like, there is typically no need for a second business founder. You generally don’t need a Chief Financial Officer before you have annual revenue in excess of $10 million.
Finally, depending on the nature of the project, you may find that an effective business founder comes from a sales engineer background. Many sales engineers are tasked with preparing and delivering technical presentations which address technical needs, experience which may be helpful for products based on a non-mainstream concept like blockchain.
When the team at Benja pitched a list of apparel retailers on our token-based advertising marketplace, I found it necessary to include a primer on blockchain and cryptotokens. In some instances, these concepts took more than half of the presentation to work through. A sales engineering background would have been useful.
While this may seem like a daunting task, it’s an important one for both yourself and the crypto community more generally: the more people are comfortable with the term “blockchain,” the better. A rising tide lifts all boats.
Finding a Technical Founder
It has always been difficult to find a rockstar technical founder. This is certainly the case in non-mainstream tech cities, like St. Louis and Los Angeles, but is even true in Silicon Valley.
The competition for full-stack developers is intense, and as the cryptocurrency market finds new highs in 2017, there’s an added layer of complexity: technical workers are making more money than ever before, shifting the market and making it increasingly difficult to incentivize someone with a developer skill-set.
I’ve heard stories of fresh Stanford grads walking into the Googleplex drunk and walking out with a $150,000 starting salary. I’ve met ones who decided to hole up in a San Francisco co-working space, launch their own cryptotoken, and raise $5 million in less than sixty days. The question is this: in this environment, how do you incentivize a technical founder?
Not unlike the way we qualified the business founder in the previous section, the answer is motive. When I’ve been tasked with technical recruiting, I often seek to learn what the person works on in their free time. If the candidate contributes to open source projects, take the time to look at their user profile(s). Side projects will tell you a lot about a person.
At the time this book is being published, I advise companies to pay less attention to blockchain specialization and more attention to interest and ability to learn. There simply aren’t enough developers who have the experience necessary to lead blockchain projects, a fact that I am hopeful will change soon.
An alternate path, one which I know many are taking, is to hire a team of junior developers and contract a blockchain specialist to train the staff for three to six months. While this may slow the initial development phase, it will be easier than competing for a full-time specialist, and in that period of time you should be able to identify an individual to lead the technical effort.
As always, trust is paramount, especially if the technical founder is working alone.
Finding an Advisor
There are many common misconceptions about the role that an advisor plays in a young organization, including whether they’re even necessary at all.
Let there be no mistake: no matter who you are or what the organization is, a team of advisors is necessary. This is the case whether the founding team is a duo that dropped out of the University of Florida with no work experience or if they’re startup veterans with several successful exits.
The reasons are many: you may be starting a business with no industry experience and you may be able to draw from experienced operators. You may have a specific need — financial expertise, perhaps — but not yet be in the position to hire for such a role. You may need an advisor who settles disputes between founders and provides objectivity. All viable reasons to bring in an outside voice, and this barely scratches the surface.
In my opinion, there is no greater reason than this: you’re going to get tired, and you’ll need a trusted party to help keep you on track. Entrepreneurial pursuits can be outright exhausting and, in many cases, lead to depression. A study by Dr. Michael Freeman, a clinical professor at the University of California, San Francisco, shares that thirty-percent of all entrepreneurs experience clear depression.
No entrepreneur is immune to the pressure of expectation, which leads many to respond to questions about how things are going with blind optimism, a reaction driven by the false standard that early-stage companies need to be “crushing it.” The line between honest optimism and false bravado can put a founder on an emotional crash course for disaster. The right advisor can be a business therapist of sorts, a steady hand who can help navigate the trials and tribulations of this experience.
Much like a personal therapist, the advisor who looks best on paper isn’t always the right one. It can be tempting to bring in an advisor with a pedigree that will wow potential investors but, it’s far more important to find one who you can have an honest and direct conversation with, especially if that person specifically covers one of your individual or team weakspots.
For new participants in the crypto space, there are many areas where an advisor can add value. There is the technology end of the business, of course, but also a number of business-side tasks and considerations during a cryptotoken issuance and sale. Even in a basic token issuance, there may be a need for a salesperson, a marketing guru, and an economist. And that’s just figuring out what your token supply might be.
Even in a world where you’re able to find strong advisors who are interested in your project, you’re left to identify motivations and pinpoint a method of incentive or compensation that is fair to all parties.
The answer lies in an interview, no different than an interview for any other position in your organization. This may seem counterintuitive, especially in scenarios where young founders worked hard just to have a conversation with experienced advisors, but this is part of the dance: simultaneously asking someone to join your young organization while being selective.
After an advisor comes aboard, a simple agreement defining the scope of expectations is an appropriate and fair step for both parties. Set the ground rules.
In the end, time is the most valuable resource for both founder and advisor. Neither should waste it. Throughout the evaluation process and during the advisement period, be specific about why you want to talk and be clear about the amount of time you’re asking for. An e-mail should offer some frame of reference, with an ask like “We’re concerned about our retention metric and we need to hire a user-experience designer — do you have twenty minutes to chat?”
And if it isn’t working, cut bait. An advisor is no different than any other employee in your organization whether they’re paid or not.