TEAM COMES FIRST!
By: Wojciech Fedorowicz
Tags: Venture Capital Funds, Startup, Founders, Funding, Startup Lessons

— comments to our newsletter for founders

In our recently posted newsletter “Behind the scenes” [check it out here] we have briefly discussed the importance of the Team component while assessing a particular investment project. Below I would like to expand a bit on what was written there.

It is fairly easy to say “Team is the most important element of the startup puzzle” when considering an investment, but, of course, life is much more nuanced than that. As we stated in our newsletter:

“The best sorts of teams are those which set off into battle and return — be it triumphant or defeated — still strong and united… As you run a business, you will come across various situations, but shared experiences in your past, especially those which proved to be challenging, will help your team bond and give you an advantage over those new to the startup game.”

And that’s usually true. But is it enough that the team knows each other for a long time and has been through ups and downs together? Probably not.

Founders, critical experience and stormtroopers

Let’s start from the beginning. Many startup manuals and accelerators recommend for the founder to team up with a person, who’s skills and experiences are critical for the success of the company, yet are not easily purchased on the market. Therefore it’s probably better for a particular technical founder to team up with a sales guru, rather than with an accountant. That also implies, that founding teams should not be composed of “clones” — individuals, who’s skills and backgrounds are identical.

That is usually true. But we also know that life is life and with time teams also change — sometimes founders leave, sometimes “late founders” or “hired guns” join in original founders’ place. That’s why, in my opinion, the above recommendation holds true mostly in the early stages of a startup’s journey.

A similar pattern applies to team’s history together — critical initially, but becomes a less important factor in startups at later stages. When the organization grows, new history and new experiences of “ups and downs” are being created. Moreover, impact of each individual person gets “diluted” by the size of the organization, with the exception perhaps of the key leader — the CEO. At those stages culture, processes, proper team compositions and in general good HR practices start to playing an important role.

So, considering an early stage investment, is it better to have a team of founders with identical skills and a long history or a diversified team, with much less experience working together? Tough call.

Swapping places

It is also very important to mention, that “winning teams” for the early stages of the company, when a creative chaos dominates, are not necessarily the same teams for when the company grows. Sometimes that means that founders need to develop personally, professionally and as leaders alongside their organizations, and sometimes they may decide to transition to a different role within the organization and give place to a professional hire. We have seen technical founders becoming Chief Scientists, as they really wanted to focus on the product and technology, or the CEO’s transitioning to Chairman positions.

Understanding the team

Our newsletter continues:

“Research conducted by CB Insights shows that 23% of startups fell apart due to differences in the teams leading them. We are not just talking about bringing together people who have the necessary competencies, though this is always going to be important. You have to trust each other as partners who have faith in those competencies and the ability of all the founders to make correct decisions.”

This quote only underlines the importance of the issue at hand, considering that a quarter of startups fail predominantly due to the team issue. In our practice we give a very strong emphasis on the team assessment, analyzing it from many different angles. However, the end result is usually a particular matrix of various datapoints and not a straightforward yes/no recommendation.

For us, it is of upmost importance to understand what is the combination of those datapoints for a particular team, what are it’s strengths and weaknesses, and whether we can address together those “deltas” (current or potentially future) in a reasonable and efficient manner.