How to Configure Your Startup Team

I am fond of quoting that about 70% of my investment decision of an early-stage company is the team. My rationale is simple: everything goes wrong and only great teams can respond to competitors, markets, funding environments, staff departures, PR disasters and the like.

Final startup grind from msuster

How you build out your team in the first few years can have a huge impact on the trajectory of your company.

So I naturally spend much time with the companies in which I invest helping them:

  • recruit
  • figure out roles
  • measure performance / quality of team
  • identify gaps
  • debate the right structure

and so forth.

There are no “right” answers – just opinions. And the folks at Startup Grind have been kind enough to invite me to present this morning in Mountain View on the topic.

Quick summary:

  • Be careful not to have too many co-founders. it’s the most expensive dilution you’ll ever face. And you need to be careful about giving up control to cofounders as much as VCs
  • I don’t think VCs care as much about co-founders & economics as people think. I think they care that there is a deep bench of talent. But not anal if one founder who shares equity graciously with early employees who are treated as “co-founders”
  • My idea startup team is heaving on tech personnel but also has strong product management. PM’s are underrated in Silicon Valley these days. For the wrong reasons. PMs are a vital part of a tech startup. Engineering is critical but it is not everything. Without strong PMs you build crappy products that nobody needs or that real people can’t use
  • Early-stage companies shouldn’t: outsource core product development, have consulting firms build it for them to speed up time-to-market, shouldn’t hire too many business people until product is complete and early product/market fit tested
  • Don’t hire a homogenous team. You need a diverse set of skills to succeed
  • Don’t listen to VCs who tell you to bring in the big guns early. Some push hard for super experienced execs to join. If they join super early it is often a disaster. I’d take people who “punch above their weightclass” any day of the week. When you scale you bring in the heavyweights
  • Your first sales people should be consultative sellers who can fuel evangelical sales. Don’t hire “relationship management” sales people too early
  • Tech teams are comprised of three distinct managements skills: people, process & technology. Know the difference. Some people are good at all. But that’s rare. More often than not you need experts in each who work well together.
  • Resist the temptation to build a group of “C Level” execs in an early stage business. I especially think “president” and “coo” are bad titles for early-stage businesses. Give everybody functional roles. Have them manage their area. If you need a COO then perhaps you’re not a CEO? Maybe you’d make a better part-time Chairman and let the COO run the business?
  • Hire admin / office management after you raise a reasonable size VC round. It will pay huge dividends in avoiding the CEO tied up in admin and allow him / her to focus on bigger picture items.
  • Equally – a great VP Finance can be leveraged well to take on finance, legal, HR and much of the operational tasks. Will prove INVALUABLE to reduce time CEO spends at: board meeting prep, fund raising and ultimately M&A discussions.
  • Be careful about board construction. Limit the number of VCs. Equally limit the number of management. Can always appoint other startup CEOs to the board to take founder seats (which you control) and/or bring in industry experts as independents.

It’s all in this deck in a prettier format. Ok, well not that pretty since I do my own slides and often at 1am. But my slides are linked above and you can also download from SlideShare.

Since it is sometimes hard to get the full context from a conference presentation, I have included blog posts links on the topics in which I have written fuller posts in the presentation itself.

I’d love to hear your view on the presentation. What you agree / disagree with. And what your views / tips for early-stage startup teams are.

  • http://arnoldwaldstein.com/ awaldstein

    Agree completely that an office manager early and a finance exec are key pieces of a startup puzzle. Running marketing, channel, product and sales with a VP level finance partner is the way to go. I count many finance execs as friends.

    I believe in team as key of course. 70% people over idea though seems out of whack to me personally but I’m the builder not the funder mostly. I get pivot but I also know that the same team is not always the right one to move from a consumer to a b2b platform play at an exec level. Or that inspiration is horizontal across a given group for new ideas.

  • http://about.me/humphrey HumphreyPL

    Just awesome Mark! Thanks so much again for just knowing when to give the right advice without even knowing it. I am at the point where I am willing to give up equity to get the team together right from the start but was just thinking about getting more board votes to control the company direction. I want the 3 of us (PM, Dev, Design) to all be co-founders but I need to be choose the direction. Quick question how have you dealt with vesting and cliffs when things don’t work out. I want to have vesting over 4 years with 1 year cliff but what happens when things don’t work out who decides what isn’t working out? How is it defined when you have some full time and part time founders? Thanks again Mark!

  • Ofer Heijmans

    Hi Mark, great presentation. Quick comment relevant for b2b startups: I’d throw in the first team a role of customer-success. People under estimate the importance of the “service/support” factor for the company. I my opinion it is what makes or breaks you. Customers will have a tough time working with a new product from a startup, no matter how awesome the UI is. This is where the customer-success guy comes in, saves the day by providing that needed “clutch” and win the customer.

  • MarkLanday

    Mark,
    Nice post. On slide 22, you might want to add a VP Sales.

    Mark Landay
    Dynamic Synergy Executive Recruitment
    http://www.DynamicSynergy.com
    @MarkLanday

  • http://www.spindows.com/ Clay Hebert

    Great stuff, Mark. I think you nailed a lot of the key issues. Do you think design is underrepresented in the deck? It’s quite possible that a designer could be my third or fourth hire. Most great business people and most great engineers are not great designers, front-end devs or UI-UX people. As we see design & UI-UX be more and more of a competitive advantage, it seems like that role is more important every day.

  • http://www.justanentrepreneur.com Philip Sugar

    I don’t worry as much about having co-founders. Yes you are giving up equity. I’d rather have a piece of a watermelon rather than a whole grape. I think its telling when you have a CTO that is paid a small amount of equity in the form of options. Do you think you really are going to get the best/most committed CTO? Which brings me to the titles. Who really cares? And you are right it does make co-founders feel better. If the point is you are going to need to replace them as you grow, that’s a pretty crappy preconceived career path you are setting out for that person.

    I would also think that market would be a super important to a VC. Not nearly so much to whether the company will be successful or not (which I agree is all about the team) but how big the exit could be..

  • http://www.abbeypost.com/ AbbeyPost

    Arnold, I have to agree that the 70% weight given to team over idea seemed a bit heavy, but at the same time I see how an investor could see it that way. Ideas fail, fade, etc., but a strong team can pivot on a dime when and IF they see that their original idea isn’t working.

  • http://mattr.co/ Jack Holt

    Question for you, Mark – and I sort of apologize for it being a little off topic: George Zachary floored me and Steve Blank yesterday when he told the group that the term sheet should give Board/M&A control to the founder. His claim is that the “really good VCs” know that they make money from giant wins and not the terms. As well, he states that when the Board doesn’t “let” the founders sell, things go downhill quickly.

    Can you tell us how pervasive this attitude is? Thanks!

  • http://arnoldwaldstein.com/ awaldstein

    My point of view is my own experience and across my clients. Not as broad as a VC of course and Mark has the bigger, broader picture.

    But I must say–no one pivots on a dime. And no significant pivot can really change without additional or different expertise.

    I see lots of early stage companies moving from a C based revenue model to a B2b one as funding has trickled and revenue the most real of all data points. It is a rare team that can be good at both.

    One opinion only.

  • http://bothsidesofthetable.com msuster

    I don’t disagree. BUT … when I’m investing (early) I’m hoping not to see that radical of a pivot. And frankly if it were to happen it likely wouldn’t be initiated by investors but more likely by management who spotted the need for change. Thus … back to the importance of having the best team possible. Without them in your situation you likely keep hitting your head against the wall on consumer opportunity when better ones might exist.

  • http://arnoldwaldstein.com/ awaldstein

    Yup…

    We all evolve our businesses. In fact, even when I was building $20, 30+M we were always in major evolution.

    But honestly, can you give us some examples of super successful Pivots in the last five years? Put aside the obvious of Kickstarter and FAB.

  • Elizabeth Golluscio

    +1 for Clay’s comment about hiring a designer early. In 2013 with UI/UX being a clear competitive advantage, you should probably be working with a designer long before you start coding.
    Separately, I think hiring exclusively Eng + Sales is a recipe for disaster for too many (esp B2B) start-ups. Find a “sales-wired” marketer who can actually write, talk tech with the engineers, and *build demand* before you a team of reps are out making cold calls and sending (conflicting) messages into the market about your value, benefits, features. It’s called a “sales funnel” for a reason :)

  • http://bothsidesofthetable.com msuster

    The “how do you decide” is precisely the point. I’d rather start things, share equity with co-founders – even giving away up to 50% of equity (although I would recommend slightly less) but controlling the voting stock so if you fall out of love you make the decision. Thus – prenuptial.

  • http://bothsidesofthetable.com msuster

    agreed. I should have mentioned sales engineering / implementation for B2B

  • http://bothsidesofthetable.com msuster

    It’s already there. You must have missed it.

  • http://bothsidesofthetable.com msuster

    I used design & eng interchangeably. I know they’re not but under my description of tech I mentioned design skills. So short answer – in 2013 – absolutely!

  • http://bothsidesofthetable.com msuster

    You can give your CTO 30-49% of the company if you want. And treat them like an equal. With the only distinction that if you fall out of love you get to make the final call. Otherwise known as prenup. Or if the CTO starts the company and wants to hire a CEO they might consider the reverse.

  • http://bothsidesofthetable.com msuster

    Most modern VCs think this way. But for the record I think board control to founders is right for early-stage deals and not necessarily later-stage ones.

  • Don J.

    Mark, right on. We brought on a big wig from one of the big three. We made him CEO and our momentum tanked. He hired a new PM and things got worse. We all lost out when they brought in a VC group that really stunk it up. I’m now on my third start-up and I’m adhering to your message. We are boot strapping it and gained vauable knowledge from some hard lessons!

  • http://www.bluecoastrecords.com/ Cookie Marenco

    Wonderful post, as usual. The comments are an added bonus. I would guess that most of the points can be modified to apply to startups whether bootstrapped or with investors.

    I would add the importance of finding the right people for your team who are ‘culturally’ on the same page. Meaning your goals, drive, and ambition are similar. When times are tough, and you need to work the 80 hour weeks one needs to know you can trust people are going agree with your tactics or at least offer a good argument. You have to like them and look out for each other. They become family.

    I once made the mistake of hiring someone well qualified as a project manager who came from a large, successful organization. He loved our products and was fully on board. The problem was he had never worked in a startup where a few people did multiple jobs.

    It would drive me crazy to watch him spend hours each day trying to sink our calendars online. It was a 5 second job on a paper calendar that literally took 30 minutes (if you included losing the information) for each entry. Made me crazy. I couldn’t work, we’d argue about it. Having to explain “why” to an important member is very dysfunctional I’m very grateful not to have asked him to be a founder! I’d be in the grave… or he would. That was only part of the problem, but I won’t digress.

    It took quite a bit of time to find the right team… and to learn to manage them through hard times and pivots. If you have to work with people 80 hours a day, I can only suggest you trust them enough to stage dive blindfolded.

    One strategy I’ve tried to get the decision made quickly for a high position hire is to go on a 3 day business trip. This trick has never failed me. :)

  • http://boomylabs.com/ Shyam Subramanyan

    What are your thoughts on the geography of the team? With all the tools available today, do you think virtual teams can operate as effectively as teams in the same location?

  • Ko

    Thank you for great post. I agree with your weightclass concept strongly! What I learned from startup is that we should NOT hire best employees but good enough employees appropriate for the state.

  • Burc Sahinoglu

    Your presentation really resonated with me. I have to say having moved to the Bay Area a year ago, I was surprised to find people looking for co-founders like they would look for roommates, and we know how that ends. I always assumed that your co-founders should be people you know well. So now i am left wondering whether it is better to find cofounder(s) before trying to raise money or to try raising money on your own and then “hire” a first round of people who can be seen as co-founder after the fact.

  • http://about.me/humphrey HumphreyPL

    Thanks Mark. I might of already set the expectation of 3 way equity split but will control the voting stock. Thanks again,

  • Camilo Acosta

    I saw your presentation earlier today at Startup Grind where you said startup boards should “Equally limit the number of management” seats. Why’s that?

  • Liz Gay

    Hi Mark, I was recently discussing the topic of overconfidence among entrepreneurs as a pitfall in decision-making. Do you have any thoughts on if/how a VC can/should temper overconfidence among founders, or in terms of structuring a team to make the best decisions in spite of overconfidence?

  • http://www.michaelwfrank.com Michael Frank

    Great post Mark – I love how you and a few others bring so much transparency to the investor world. Anyway, in your deck you outline that you think a great founding or early team has a CEO and a bunch of engineers which makes a lot of sense to me for certain products that are highly technical.

    However, for a product that is more business operations centric, e.g. an Uber, a Taskrabbit, an AirBnB, I could see different team formations being ideal. Do you have different rules for what you like to see for these types of local marketplace businesses?

  • http://www.michaelwfrank.com Michael Frank

    Pivot examples: Groupon. Instagram (pre-launch though I believe)

  • http://bothsidesofthetable.com msuster

    I don’t really believe in “pivots” – I’m talking about the adjustments you make to “go to market” strategy, pricing, positioning, cost models, etc.

  • http://bothsidesofthetable.com msuster

    I buy that

  • http://bothsidesofthetable.com msuster

    culture fit is one of the most important hiring criteria

  • http://bothsidesofthetable.com msuster
  • http://bothsidesofthetable.com msuster

    the only challenge is that many investors have the perception that you need cofounders so just be aware of that bias

  • http://bothsidesofthetable.com msuster

    For the reasons I said this AM – it is hard to have constructive discussions about how the team needs to change over time when you have 3 members of the team sitting at the board. Plus, it means that you’re not getting other non-management members at the board who would bring different perspectives.

  • http://bothsidesofthetable.com msuster

    I don’t really have a great answer. I know that I look for people with huge optimism but a healthy degree of humility and willingness to let data inform their decisions

  • http://bothsidesofthetable.com msuster

    I know you may not agree but I consider those still to be very technically run businesses. If not just in product then also in customer acquisition, retention and the like.

  • http://www.michaelwfrank.com Michael Frank

    Oh, I agree on that! And the technical challenges around logistics and supply management so those services have liquidity at peak demand times are definitely very complex. My point was more that the skills demanded for certain parts of customer acquisition and servicing (on both the supplier and customer ends of the marketplaces) for those businesses may require a team with a different set of skills.

  • http://arnoldwaldstein.com/ awaldstein

    That definition I’m with you on and that pulls it together for me, team wise from what you say as well.

  • http://arnoldwaldstein.com/ awaldstein

    GroupOn is a good example.

    I’m with Mark that we evolve constantly and build new directions. The number that change direction and succeed, or find a completely new twist to their core (like Kickstarter) are few.

  • http://bothsider.com/ Mark Gavagan

    CAUTION: It’s easy to misjudge the quality of a team that doesn’t have obvious credentials like MIT, Stanford, Utica College (ahem, my school), Google, Facebook, Goldman Sachs, etc.

    While there are many brilliant and wonderful people from such venerable institutions, using them as a filtering shortcut includes those who may have gotten there through relationships or simply gone along for the ride, and excludes those are less obviously great.

    Since VCs are looking for 100x returns, it seems the greater risk is excluding a fearless outlier who may succeed or fail spectacularly.

    Also, consider an indisputable visionary like Steve Jobs. Would he have made “the cut” immediately prior to starting Apple? Probably not.

    This thinking also applies to companies. Consider Twitter. What “problem” were they solving? Now that they are where they are we can back into that answer, but I don’t think at the time there was an impressive one that would have made “the cut.”

    If seeking 100x returns, is it better to have A+ credentials or a uniquely insightful vision with the indefatigable desire to find a way to swim against the stream of common “knowledge” and get it done?

  • Ali Hamed

    Hey Mark, I think there is a lot of truth in this post–but I think that a lot of times people give up (as you said) their most expensive equity to co-founders. Often getting an application to the point of market-validation before finding your first tech co-founder might save you a bunch of equity and get a better person. Instead of selling them on an idea you’re selling them on a product people are actually using.
    The very first product can sometimes be built by either a virtual team or dev shop, and having an advisor product manage or audit the code might be one way of ensuring you’re not building a 3 legged stool.
    But alas, this is coming from a student, and I just see so many people never get off the ground cause they never “find their tech co-founder.”

  • Roman Giverts

    It’s also important that your co founders and/or very early employees are generalists and not specialists. So often I meet a guy with an idea, and he thinks he needs the following: 1 designer, 1 front end engineer, a couple back end engineers, an ops person, a mobile person, and on and on. Do the math, even if you raise funding and have the money for these guys, you now have a ton of salary to pay with no product and no knowledge of whether the product you’re building will have any success. You think it will take you 3 month to build and 6 months to get x million users, but of course you miss both of these. A year later you’re running out of money and back at the “VC Well” trying to spin your modest success as huge progress.

    I think an alternative and more effective approach is to have just a couple very versatile employees in the very early stages, this will maximize your runway and hopefully make it long enough until you figure out how to grow your product and company. Then you can raise money to scale, which is a lot easier, compared to raising money because you’ve run out of it.

  • Roman Giverts

    I think design and eng are becoming more interchangeable because of the evolution of frameworks. Many are becoming so simple that a motivated designer could pick them up and begin developing a product. On the flip side many frameworks like bootstrap have good design built into them that can make your engineers look like a slick designers.

    It depends what you’re trying to create, but if you’re good bootstrapper (no pun intended), in the very early days you can often create great products without a full team comprising every expertise.

  • http://www.repeatablesale.com/ Scott Barnett

    I’m a little late to the party here, just one comment on the admin/office staff point – I would try to hire some admin assistance ASAP – especially if you think you’re going to raise funding. If you can swing it financially, having somebody who gets the office “vibe” and also gets you will be extremely helpful in offloading the CEO/founder’s admin efforts when trying to raise funding. We had the extra benefit that early office help reduced our time in doing some basic stuff (sending out notices, filing, etc).

  • Rajiv

    So when you mention that dont outsource your start up dev tasks.. are you implying that start up co founders always have to be developers?

  • http://www.facebook.com/danny.graphy Danny K A

    I agree one hundred percent. I’m a first time entrepreneur and am glad I made the right decisions so far with a team of 3 comprised of the developer, graphic designer and me.
    The motivations foe this was to avoid messy dilutions. It tuens out I was right. It might be of motw to mention my startup is @raveorbash and we are a social platform for consumers that tackles fake reviews.

  • judy shapiro

    A touch of irony in this post. Agree that diversity IS KEY to strong startup team. But the VC world often is very narrow in who they fund – very often preferring tech founders – ideally with Ivy league creds. If you are an outlier – good luck!