by: Valto Loikkanen
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How to build the core team for early-stage startup?Recently, we wrote a blog post about entrepreneurs tunnel vision syndrome that got some nice re-tweet buzz as well. Related to this, I wanted to touch on one topic that I have been wondering about lately when looking at the market from the investors point of view and at the same time understanding the tunnel vision syndrome.

As an investor, advisor, mentor or any similar role, where you can have the opportunity to meet many different startups and entrepreneurs in their different stages. And you hear the entrepreneurs view from the inside out and then have your own views from the outside in – without having that unconditional love towards the startup that entrepreneurs have; you tend to look at the startups as they are (or as they seem to be).

We have also written a lot about the value of an idea compared to the value of the whole package. Where a lot of this understanding also comes from the broader view of the markets (investors, seasoned entrepreneurs etc.)

When we also look at many of the well know strategies of developing your startup in the early stages, it is all about customer development, being a lean startup, doing agile development and so on – towards finding the product market fit. There are studies made about potential success of your first plan, where the norm is that 66% of plan A’s fail. There’s even a great book about getting to plan B that talks in detail about how not to get fixated to your first plan.

So there is a lot of good information about how to train yourself or your team to “un-love” your idea and focus on the bigger vision, potential of the market and customer development to eventually get to the product that the market really wants. As there is also a lot on how not get too fixated on your original plan.

As entrepreneurs you must be able to fixate your self with results and learn to fall out of love to your idea and product, to be able to slice features, rebuild it as needed etc.

But then when you ask from most experienced entrepreneurs, investors and so on, what’s the most important thing in a startup, the majority will point out the obvious – it’s the team, it’s about the people. When you think about it for a second, it’s nothing short from obvious, particularly when you think about the before mentioned factors, execution and strategies.

However, as important as the team and people are, there is very little written about actually building the right team compared to how much there is written about strategies, processes and tangible steps to develop your product. Few of the good ones I have seen lately were these posts by;

Jason Baptiste

What To Look For In A Technical Co-Founder” and
What To Look For In A Business Co-Founder

Here’s also one of our own older posts about this topic: “How to build your core team for early-stage startup?

Coming back to actual topic of this post. As an investor or advisor, you very often meet people that have the same market and/or customers in target and often it can also be two teams (or often just single entrepreneurs), that are approaching the same idea/product from two different direction. One is from product development team and another is a biz development team or entrepreneur.

From both of their “tunneled vision” perspective, the right thing to do to move forward and develop their team is to look for new team members to join to make their team stronger in those parts of their business where there exists a lack of skills. So the startup populated with developers are looking for more of a biz dev, sales, marketing etc. type of people. And the biz dev, sales etc. populated team is looking for excellent developer team members, maybe for a CTO, head of product development etc. but not just skilled people – but ones with the right entrepreneurial attitude.

As you can understand, it’s more likely that the entrepreneurial, passionate developer is not free on the market just waiting for the right startup to find them, rather they are most likely working on their own startup, maybe already tunnel vision is kicking in. And the same goes to those biz types of startup teams/entrepreneurs.

At this point you start to see the problem, if they are both successful to find the right people, they go and start to compete on the market even harder.

I think it’s safe to argue that if your aim is to build something disruptive or massive in scale, you really need all the skills you can get to your startup. And the best people are rarely on the markets just waiting for someone to find them.

That why I often think when looking from outside that “these teams should get together”, few times I have even hooked these up, but rarely have I seen anything but polite conversation come out of it.

There are natural reasons for this. That’s because it’s hard even in the existing team to always appreciate some of your team members work, especially it’s something you don’t fully understand. So developers think about how much they have put into product and sales / biz dev people see how much they can bring value when they have the right product. But as that can typically happen, before the others get traction to their product or the other team get the product done – the most likely outcome is that they have already lost the energy and passion or fallen in love with yet another idea for great product / business. Or the existing team is starting to break because there are no results.

It would be great to see that more of these teams come together and make a “micro merger” to join together as one team and just go after the markets much stronger. Naturally not always do the startups being merged have the same value, so it most likely will not be 50/50 deals between two startup teams – and rarely should it be. The best thing to do is look at the value from individual team members point of view and how the shares are split on each startup before and most importantly what each member will bring to the table going forward, in terms of skills, commitment, customers, connection, even some money and then have vesting of shares to match the common goal.

If the difference is clearly uneven, it can then be much more of a micro acquisition, where the other startup/team is being bought and paid by shares of the other. Naturally these are very common practices in the later stages of the business, but who said those tools should not be used more also in the early stages, to be able to get the best team possible for your venture.

Having done this myself, all I can say it really is a strategy worth looking at. Just make sure all of the potential team is more interested and focused in the future and not fixated to the value of the existing business, because that’s not the reason you should be doing it. Remember, in the early stages you are doing it because of the people/team (maybe for speed), and not so much of what you actually have in your hand at that time (I’m referring more to startups that have yet to reach meaningful revenue), unless those are paying customers – that value is very real and easy to calculate.

Maybe at this point you think, “yes that makes sense, but sounds to me it’s easier said than done”. Yes you may be right, but nothing in business should be easy, if that’s the way you feel, you will have problems what ever you do in the future. – I like to say nothing is hard, it might only take more time or effort.

Like many other things, new opportunities are opened with small actions. In this opportunity it’s about telling everyone you meet that you are always open to talk about potential cooperation, including those you may feel are your competitors. You can even say we are open to mergers with great teams if you like, there’s nothing wrong with that.

And do remember, nothing happens until you have signed the agreements and no decisions need to be made until there is an offer on the table that calls for action. Also you should not start to really look hard for potential candidates, just be open to it and if there is a natural connection, look deeper into it. If you go into the actual process/serious discussions, you should feel good throughout the process, if you don’t – don’t do it. Feeling uncertain is natural, but feeling bad about the general direction is not. Also make sure to communicate the smallest little uncertainties you may have and also spend enough time with the idea.

Also one last point, the younger you are, both as a person and / or in business experience, the more open you should be for this kind of opportunity. It’s way better to go through this process and fail, than not and just let your business be flat or die, if you can not get the right team together, if you have a big ambition for business. You will learn much more from this than by not doing it plus your “entrepreneurs CV” looks much more interesting when you can talk about this type of experience, having done it yourself. This makes you much more valuable on your next startup, regardless if it’s your own or if you are joining another team.

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About the author

Valto Loikkanen Valto is a co-founder of Grow VC, an entrepreneur who has started several companies across Europe and the US in the web and mobile fields. Forward thinking and always seeking the next big web and mobile success, as an entrepreneur, investor and advisor. Follow Valto on Grow VC, Twitter, LinkedIn, Google+

This entry was posted on Wednesday, September 1st, 2010 at 10:23 pm and is filed under Business Education, Entrepreneur Inspiration. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.