What makes a good mentor-mentee relationship

A good mentor-mentee relationship can be game-changing for a startup, and therefore it is important that both – mentor and mentee – understand how they can make the engagement meaningful, productive, rewarding and fulfilling.

A good mentor can make significant contribution in not just the success of a startup, but also in the personal and professional growth of an entrepreneur. And therefore, I advise entrepreneurs to not give the tag of a ‘mentor’ loosely to anyone whose advice you seek regularly.

Mentoring is way beyond business advice and expertise sharing, and hence entrepreneurs and experts should be very, very careful when initiating a mentor-mentee relationship.

Who is a good mentor for your venture? Continue reading “What makes a good mentor-mentee relationship”

What do you do when someone who was helping you in your startup in an advisory role asks for 10% in equity as compensation?

Entrepreneurs should define the model of engagement with an advisor very carefully BEFORE starting the engagement, so that expectations are set right at the beginning.

10% equity for an advisor role is simply excessive. Not just in the generally accepted model of ‘advisors’ (i.e. where an experienced individual guides the company with his/her perspectives and insights), but it is excessive even if the individual was providing advisor services as a commercial model, with clearly defined outcomes. Continue reading “What do you do when someone who was helping you in your startup in an advisory role asks for 10% in equity as compensation?”

Converting an idea into a business

I often get asked this question: “I have an idea. But I just don’t know what to do next. How do I start implementing it?”

It is not unusual to get stuck with the idea without knowing how to take it forward. Often the fear of having to manage operations, finances and staff is what stops people from getting started on their idea.

Having an idea is a good starting point. The first thing to do is to let that idea rest for a few days. Think about it every day. But don’t act on it. Think through all the positives AND all the negatives. Think of how great it can be. And also think about what could go wrong and how worse can it get. You will start seeing different aspects about the idea. Not all will be good. And that’s OK.

Continue reading “Converting an idea into a business”

Should all founders present in a pitch presentation?

In a 10-minute pitch, it is best for one person to lead the presentation. Others can chip in in the Q&A, when of course the person presenting has to direct the question to them.

Even in a longer presentation, I suggest startups to let one person lead the pitch with adequate time for each team member to introduce themselves and establish to the audience why they are important to the venture.

Why do I say that? Because for investors a pitch is not about checking if the founders can present well. It is about checking if the story is compelling. Once they are excited about the story, then it becomes important to establish each person’s role in strengthening that story.

Find a Co-traveller – Find a Co-founder

In my view, it is extremely helpful if you find a co-founder when starting an entrepreneurial venture. Apart from sharing the work and responsibilities, a co-founder can be the motivating companion and the emotional support that you will need when your business is going through a tough phase. And all businesses do go through a tough phase.

Also, a business needs different types of skills and competencies. The ideal composition of a founding team is when the founders bring complementary skills to the venture. E.g. someone from the marketing/brand management category, the fashion industry and an operations management/procurement person – will make an ideal founding team for an e-commerce startup.

images

Ideally, apart from people with varied skills and competencies, it is also useful to have a founding team, with different personality types – someone who depends on gut feel for decision making will find it extremely beneficial to have a co-founder who takes measured, well-thought out decisions, and vice versa.

Who exactly is a co-founder?

Continue reading “Find a Co-traveller – Find a Co-founder”

How do you do keep an employee motivated and happy while delegating tasks to him/her that don’t fit his/her line of goals?

This was my response to a question on Quora.

Motivate-yourself-now

In a startup, when you hire, hire people who are willing to go beyond their call of duty. You need people who are likely to do a bit of heavy lifting, and lend a hand in areas that are outside of their scope of defined responsibilities.

It is up to the management to also encourage people, motivate them and make them feel part of the larger goal. This means that the more transparency there is, the more opinion seeking there is, the more sharing of good and tough news, is the more likely that an employee will be willing to take on tasks that are not in the line of goals. Continue reading “How do you do keep an employee motivated and happy while delegating tasks to him/her that don’t fit his/her line of goals?”

Why Weak Decision-Making Is Dangerous For Business, But Is Difficult To Spot

Leadership is not the same as good management.

Corporate leadership is usually seen in the context of ‘managing’ the journey of a company in a defined direction.

l

Efficient management of people, resources and environment may help the company progress smoothly on course in an agreed direction. However, the success or failure of the company, or whether the company is able to fully leverage the market opportunity is often dependent on the leader’s ability to make tough decisions, sometimes involving making a choice between progressing in the agreed direction, or changing the direction.

Leadership is about leading i.e. setting the direction and ensuring that the troops are aligned to move in that direction, and encouraging them to move in that direction.

Use the analogy of an army in the past, marching on to conquer new geographies and it is easier to visualize what a leader’s role is. Leadership involves the ability to see far in the horizon; imagine what the land beyond the mountains looks like based on assessing the current environment; and then chart the most optimal route; stock up on the necessary supplies; communicate the plan to your troops; create smaller manageable groups and identify people among them to lead those contingents. Then before the onset of the journey, the leader’s role is to give a rousing speech to motivate the troops, and as you move along in the defined direction create the mechanism to review if the progress is happening at the right pace and in the right direction.

Sometimes, the journey may be more difficult than imagined and the leader may have to reassess the plan. Often, when you reach the top of the mountain you may realize, that the vision of what lay ahead was different than what it actually is.

It is during such times that good leaders make tough decisions, while weak leaders keep ambling along on the same plan hoping that somehow things will change for the better. This is the crucial difference between definite leadership and the mere ability to manage the march in the agreed direction. This is the difference between good managers and great leaders.

If managing change is tough, deciding to change is tougher

Changing direction is a tough call as it may require the company to realign its direction and resources. It requires conviction, confidence, the ability to convince others that the changed strategy or direction is a good decision and then the ability to reorganize the resources and people in the new direction. Of course, it calls for a vision that can assess what the outcome of a new direction could be. And it certainly calls for courage to give up what was debated and decided previously as a good direction, and embark on a new journey or a new direction. It also calls for emotional maturity, as suggesting a new direction may often mean debating against the very decisions/directions that you earlier fought your way for. Even if it is in the best interest of the organization, it is a difficult decision as it involves a whole lot more effort, not the least to convince the rest of the team to realign their views and plans.

To be able to pull off such a tough change in plan requires a leader with great competence and one who enjoys respect from the rest of the army.

The impact of indecisiveness or lack of foresight and vision is not measurable under normal measurement trackers, and hence managements need to debate at board meetings, on whether the direction needs adjustment.

When a leader guides the company and manages people & resources well in an agreed direction, it is visible as a ‘success’ because there were milestones identified and measurement criteria defined, and it is easy to ‘see’ that the company is progressing well. Or if the leader is not driving the progress well, that is easy to spot for the same reasons.

However, since the outcomes of an alternate direction are in the ‘unknown’ zone, absence of push in that direction is not visible.

Great leaders introspect. They assess the environment, and the factors that led them to take the original decision. They are not afraid of thinking of alternatives.

Apple may not have been relevant if Steve Jobs had not decided that Apple is NOT a computer manufacturer and bet on music players and mobile devices as the new direction. It took great leadership to change the Indian Tobacco Company into ITC, a multi-category brand, including hospitality – something that was not at all related to the business they were originally in. It took great leadership to reimagine Titan from a watch brand to a fashion accessory brand.

Great leaders take bold, difficult decisions. All decisions are not necessarily right. Because, a decision is nothing but choosing from amongst the various options available, all of which would have different outcomes in the future. All scenarios of possible outcomes are based on assumptions. And hence, it is dependent on the leader’s conviction on these assumptions and outcomes that will set the direction and pace for the company. And success will depend ultimately not on whether the decision was right, as any of these decisions could have been right, but on whether the leader was able to align the team, resources, products and processes to the decision.

This article was originally published in NextBigWhat on February 3, 2014 (Read here).

Should aspiring entrepreneurs work for a start-up or a large company before starting up on their own?

I think it is a good idea for aspiring entrepreneurs to get some experience of working with a startup as well as some experience of working in a large company.

Here’s why: Working with a startup and working with a large company offer very different learnings and experiences for an aspiring entrepreneur.

For example, working in a startup helps an aspiring entrepreneur understand – how to make things work in a resource constrained environment; how to hire people when you are not a known brand; how to be flexible and nimble, etc. Working in a startup also helps aspiring entrepreneurs understand  -how business models evolve; how a gradual ramp-up is implemented; how a business plan has to be adjusted; how quickly things can change… and how assumptions are tested and hence, adjustments made in goals, strategy and implementation plans.

On the other hand, working in a large company helps aspiring entrepreneurs learn about  – the power of processes and systems; the challenges of working at scale; the way to handle HR issues when there are multiple layers in an organization when, (unlike a startup), you don’t know your colleagues by name. Working in a large company also teaches aspiring entrepreneurs about business focus, being goal & objective oriented and about increasing profitability.

In effect, both environments – large company and startups – offer experiences that are varied and very useful when you yourself will start your own venture.

What should a non-technical co-founder offer, to attract a good technical co-founder?

Essentially, when encouraging a techie to give up a well-paying job, you will have to convince him/her that they have a better chance of creating wealth as your business partner than as an employee.

Logically, what techies will be seeking from non-technical co-founders are the aspects of business that they may not have an interest in, or may not have the experience or competence in. E.g. understanding of domain, understanding of fundamentals of business, sales skills, operations management competence, etc.

To convince techies to join as co-founders, non-technical founders should be able to convince the techie that he/she has what it takes to create value  & wealth for the team.

Even in startups which are heavily dependent on technology or technology platforms, just technical competence is not sufficient for the startup to become a strong ‘business’. 

Start-ups with well-rounded teams that bring complementary skills to the table are likely to have a a better chance at success.  E.g. a techie + a business person + a marketing/sales person would be considered a fairly well-rounded team.

Working from home

Start-ups in India, even now, continue to find it difficult to attract good talent. Primarily because of risks associated with a start-up. More importantly, the initial team in any start-up has to be very differently motivated and driven in order to ensure that the start-up gains stability and gets into a position to scale-up. To ensure that, entrepreneurs have to be extremely choosy in the quality of talent they engage as first team mates.

After observing a number of start-ups, we realized that past professional successes of a person were no guarantee that the person would be able to deliver the same in a start-up. Self-motivation, proactivity, ability to embrace shifting strategies, ability and willingness to multi-task, the desire to participate in more than the immediate task, getting kicks out of participating in shaping the foundation of a company, etc. are critical qualities that early team mates in a company should have.

In many ways, even if by default and not by design, we realized the benefits of not making an early stage company top-heavy. It allowed us to leverage the wisdom of our investors and mentors, take quick decisions and implement it through the enthusiasm of the young team with limited experience and therefore limited inhibitions towards deviation from previously discussed approaches or tasks outlined.

However, it was also important for us to have high-quality talent with deep experience in specific areas where those qualities mattered. It would have been quite difficult to employ people who met the criteria to leave a well-established company and work for a start-up. (And even if we convinced someone to consider working for us, we certainly did not want to play the “we will pay more than what you currently get” game.). It is for this reason that we decided to try an alternate approach.

In a place like Gurgaon (or indeed Delhi NCR), there are several women who after a number of years as a successful professional have taken a break for various reasons – child and ‘husband moved to Gurgaon so I gave up my job and moved too’ situations being the top reasons. Many of these professionals are keen to engage in an assignment that allows them to contribute with their skills and experiences but in an environment which gives them time for family or other priorities that they may have set for themselves.

We decided to focus on such high-quality talent to participate in our early-stage team on ‘flexible terms’ and work-out-of-home options.  We realized that this approach opens up the talent pool beyond what is traditionally possible. More importantly, it gets you talent,driven not by monetary compensation, but by the excitement of what you are doing and the interest in participating in what they believe to be a potentially exciting business. Also, because of the advantages and flexibility it offers to professionals, their commitment to the task is self motivated.

In fact, so successful has this model been for us that we are now actively seeking professionals who prefer to work out of home. So, should you know someone who can participate in our story, do let them know that we always have room for people who can contribute and add value.

How do you do team appraisals in a startup?

The way of assessing a person’s value to a team is quite different in a startup than in a post-startup stage company. 

New Picture (10)

In a startup, having absolutely the right people in the initial stages is critical. Because a startup will always be starved for resources, there is just no room for laggards or those who do not fit in with the vision and approach of the rest of the founding team. (And by founding team, I do not mean just the founders, but also initial team members, most or some of them will be with some sort of ESOP’s package).

In a startup, founders have to take adequate and more care to ensure that the person is just right for the ‘Organization’.. not just for the role. Here’s why…

In a startup, there is uncertainty about various aspects, including the product sometimes… but most certainly there is uncertainty about pricing, target customers, value proposition/positioning, target markets, business model, etc. Hence, there is no point in hiring just for a very tightly defined role. Ideally, find people who are willing to adjust to the requirements of the startup. Hence, suggestion number 1: Hire for attitude and willingness to adapt, with passion & commitment to the cause/concept/domain.

A person who is passionate, dynamic and a team player will eventually slip into a role that will be most required of him/her to deliver on. I have known people who thought they would do sales in startups, eventually fit beautifully into managing operations.

When you are doing ‘appraisals’ of the founding team, the best way to do it is to do it through regular, honest, transparent and candid conversations. There is no point in doing a numbers-based evaluation in a startup. Instead, assess if the person is enjoying the environment, assess if he/she is contributing to the startup in some way or the other (in some cases, there may not be much for the person to deliver on at the current stage.. .e.g. if you had hired a sales person but if the product development is delayed by a quarter or two, what does the person do?).

As long as the person is contributing to the team in some way, the person should be considered a valuable resource. E.g. in some cases, the person may be needed just because he/she gets a business perspective or even because he/she keeps the spirits high in the office or because he/she brings to the table the maturity that helps sort out issues between squabbling teams.

A good way to do an appraisal is to share the broad vision with the team, clearly identify milestones, define roles and then have a monday morning meeting where each person speaks for 2-3 minutes about what is happening on his/her goals and milestones. (Remember, in most startups the milestones will NOT be met as planned… but as long as the direction and pace is ok, milestones should not be a serious concern).

In the Monday morning meeting, discuss where things are not going well.. identify weak spots… and then get the entire team to support the person/team to overcome challenges.

If the situation does not improve and if the person is incapable of handling that role, but if he/she is attitudinally right, give him/her another role.. discuss with others. and see how you can ‘fit’ the person in.. do it ONLY if the person is attitudinally right and can be a contributor in someway at some later stage. Hunger to learn, inquisitiveness, passion, commitment are things that you should assess.

What do you do if all you have is an idea? You are unlikely to get funded… so, how does one get started?

Getting funding for a plain idea is going to be virtually impossible. Ideas are a dime a dozen, but unless you are able to convert that idea into a product/service… even a MVP, and unless you are able to have a plan on how you plan to scale that up, investors are unlikely to be interested.

New Picture (11)

How then, does a young, first time entrepreneur (perhaps without or very limited work experience) with an idea, get going? Here are some things that you can consider:

  • Find some co-founders – 1 or 2 others who you can take along in your journey. Try selling your idea to potential co-founders. (Remember, an entrepreneur has to sell, sell, sell… not just to customers.. but he/she has to have the passion, conviction and the ability to sell the concept to others too.). When you look for potential co-founders, seek complementary skills… if you are not a techie find techie co-founders… someone who can build a MVP.
  • Study the market –  Speak to potential users every day… Understand what they will like about your product… See how you can further solidify your concept and make it even more powerful. Listen and be open to what potential users tell you about competition and WHY THEY WILL NOT USE YOUR PRODUCT. When customers tell you why they do not want a product, it gives you deep insights on what could go wrong in your business.
  • Join an accelerator and participate in hackathons where you can get the MVP done
  • If you are convinced that this is likely to be a good ‘business case’, then try and raise a bit of money through a friends & family round…. raise ONLY AS MUCH AS YOU NEED TO BUILD A MVP. E.g. if you need Rs.10 lacs… then perhaps you can raise it by getting Rs.50 thousand each from 20 people. Or Rs.25,000 each from 40 people.

All the best. Plan well. Do well.

HR processes and documentation for startups

Processes take away the subjectivity in decision-making. And since HR is about dealing with people, subjectivity can be a dangerous thing.

Most startups make the mistake of thinking that they will handle the HR activity on a case-to-case basis in the initial stages, and implement the processes when they are ready to scale.However, when you are growing, there is never enough time to plan, test, implement, rework and finalize processes.

The ideal time to build any processes, even for HR, is when starting up. Processes need not be complex and multi-layered. A process is nothing but a well-thought of way to deal with any situation or activity.

Some of the processes, and therefore the documentation related to the processes, which a startup should define at the beginning of the journey are as follows:

  • Interviewing and evaluation: Working out a process which allows you to interview people with a well-defined objective and evaluation criteria is critical. It also helps provide a template for valuating the candidates, and helps narrow down the choices.
  • Compensation package: A well-designed compensation package not only reflects a professional approach, but also helps employees feel good about their offer. In fact, a well-designed compensation package can also lead to cost savings for the startup. Consult specialists like PlugHR for a startup consulting package.
  • On-boarding an employee: On-boarding an employee is the process of welcoming a new employee into your company. Especially for the first few employees, it is important for you to have a one-on-one on-boarding program. Define a process covering the following
    • A welcome talk/presentation that outlines the vision and aspirations of the company – help the employee feel great about the decision to join
    • Explain the processes that may be relevant, including the areas in which processes that are yet to evolve
    • Present their business cards, and a nicely drafted welcome note
    • Ask if they have any queries and questions
    • Give them clear KRAs and directions on what they are expected to do and what they will be evaluated on
    • Finally, introduce them to the rest of the team highlighting some of their key strengths
  • Performance measurement: This is directly related to the process of setting clear KRAs or Key Responsibility Areas. The performance measurement system should be directly linked to the compensation review mechanism.
  • Feedback and regular interactions: Set a process for regular ‘all-hands-on-deck’ meetings where the founders should share the process, or lack of it, every month. If the progress is not as per plan, this forum should be used to explain how you are planning to adjust the plan so that the company is back on track. This should also be the forum for getting people’s feedback.
  • Exit interviews: One critical aspect that is ignored in most startups is a formal exit interview. When a person is leaving a startup, asking the reasons for the decision can be very informative and instructive in understanding the gaps between perceived expectations and perceived reality. This can be useful in either – the founders setting things right if there were any gaps, or in communicating the expectations right, in case the gaps were perceived rather than real.

How much equity should I ask for, from an early stage startup, in lieu of a normal salary?

While there are several approaches available, and a lot will depend on the stage of the startup, status of funding, criticality of your role, etc.

Typically, if your role is critical to the success of the startup, the founders will be willing to give a higher equity in lieu of normal salary. However, if you bring generic skill sets to the team (e.g. social media marketing, sales, coding, etc.) then the percentage of equity will be, understandably lower.

A good way to think about this is to multiply the difference between ‘normal salary’ and what is actually paid by a number that you and the founders feel is right to justify the ‘risk’ associated with the engagement.

E.g. (and these numbers are just for illustration) if your ‘normal’ salary should be $ 10,000 pm, and suppose the startup was giving you $2000, and that this lower salary was to continue for a period of 18 months, then the total salary that you would not get would be $8000 pm X 18 months i.e $144,000. Now, assume that the founders and you agree that you should be compensated in equity worth 3x of the amount that you are foregoing, in which case, you would need to be given $450,000 in equity.

Now comes the tricky part… i.e. of estimating how much equity would be worth $ 450,000 when it is given to you. Here’s where the math changes into art/perceptions/negotiations. Assume that the founders feel that the startup will be valued at $ 45 million, then they would give you 1% equity, whereas if you feel that they would be valued at $4.5 million, you would want 10% equity. Here is where you and the founders would need to agree on the vision, aspiration, potential, etc.

Of course, this conversation will happen only if you are critical to the team… else, you will be given equity in line with the ESOPs policy of the startup.

What exactly is a Co-Founder?

(This was my answer to a question on Quora)

Choosing a cofounder (1)

A co-founder is someone who has equal skin in the game. I.e. all of them are working full-time in the venture, all of them are making the same sacrifices (e.g. taking no or low salary.. unless all founders agree that one needs to take some/less/more salary because expenses like children’s school fee, EMIs, etc. have to be met).

A co-founder is someone who accepts the emotional and intellectual responsibility to convert the idea into a business, and who commits to live through the challenges that any entrepreneurial journey faces.

What is the difference between a CEO and a Chairman of the board?

The board and the CEO have very different roles. The chairman is one of the board members who is elected by other members.

The CEO has the responsibility of running the day-to-day operations of the company.

The board’s responsibility is to provide overall direction; set vision & goals; oversee governance & integrity and take major strategy decisions [e.g. change of the business model], etc.

In addition to the founders and representatives of investors, it is prudent to have a few independent directors on the board. These are often senior folks with a lot more experience than the operating team and can be very very useful as a sounding board while taking tough decisions as well as for the motivation that would be required when the business is going through rough times.

In many ways a board member can provide ‘adult supervision’ to young founders and CEOs.

The CEO executes the vision and the direction set by the board.

Should startups fire under-performing employees? If yes, how?

6a00d834546ab769e200e54fab5b998833-800wi

 

Irrespective of the reasons, asking an employee to leave is always a tough call, and almost always a stressful situation for all individuals involved.

Because it is tough to get people to work for a startup in the first place, often entrepreneurs hesitate to fire an employee even if he/she is a misfit in the organization. Also, they worry about the impact it will have on the other employees. And these are valid concerns.

People management is a critical role that entrepreneurs have to learn play, and play well. Founders should budget about a third of their time in people management, including thinking about the right team structure; roles & responsibilities; finding the right talent; interviewing; onboarding; engaging and nurturing the people in the organization.

When hiring a person for a startup, founders have to make sure that prospective team members understand the challenges and the dynamics of working in a startup. Often people who have not worked in startups have no idea about how different it is to work in a startup versus working in established companies.

In a startup, as the team is figuring out what works and what does not, often adjustments will be made in many different aspects of the business – on the business model; product/service; pricing; customer segments; markets; positioning, etc. To someone who does not understand that this is the way most startups figure out their ‘model’, it will appear as if the entrepreneurs are not focused or not clear or are a confused lot. This leads to frustration and discomfort for an employee who was not prepared for constant changes in the business. When hiring people for startups, entrepreneurs should make efforts to explain these dynamics.

They should also clarify that the startup is likely to be lean, resource starved and cannot be expected to be ‘a smaller version of a large company.’ A startup is fundamentally different from an established or larger organization.

But despite all this, there will be situations when entrepreneurs need to take the tough call of asking someone to leave.

Do remember however, that for startups, where the right model is yet to be discovered, it is important to hire people for their attitude and drive rather than for their competence on a particular aspect. Hire people with passion and enthusiasm. Hire people who are responsible and self-driven. If they are not, then even their competence for the role is not going to be effective in a startup.

When should an employee be asked to leave?

My view is that if an employee is a misfit for a startup, entrepreneurs should talk to the person at the earliest, see if there is a way of improving the situation, give the attempt appropriate time, assess the results and if the situation does not improve, then ask the person to move on at the earliest. You have to do it sensitively but swiftly. And very clearly, objectively and without hesitation.

There are three broad reasons why a person should be asked to leave:

  • Non-competence or lack of interest in the role
  • Value system, personality or culture misfit
  • Ethical issues or dishonesty

In a large team, a few non-performers do no make too much of a difference. However, in a startup, there are likely to be only one or two people driving any key function, and an under performer in small teams impacts the overall performance of the organization.

Also, tolerance of under performers by the management also has an adverse impact on other employees.

Hence, entrepreneurs have to be clear and swift about asking the person to leave in case you assess that the relationship is not working out.

Of course, if there are integrity issues, cheating, misappropriation of funds, or any other ethical issues, the person should be fired there and then.

Yes, there will also be situations when startups need to ask people to go (and sometimes ask good people to go) because the business can no longer afford them. These are tougher to handle. But in the interest of the others and the business, often entrepreneurs need to do this as well.

How should the firing process be handled?

An entrepreneur’s first priority should be to retain an employee that has been hired after ensuring that he is a good match for the organization.

As an entrepreneur, it is important to assess why an underperformer is not able to deliver, make attempts to address the core reasons, have a clear talk with the person, assist the person in overcoming the challenges and basically do everything you can to make the engagement work out well.

If after all this, it is still not working out entrepreneurs should be swift in asking the person to leave.

Below are some suggestions on how firing a person can be handled:

  • First, talk to all other key employees and explain to them the reasons for your views, ask for their thoughts and help them accept this as a collective decision taken in the best interest of the organization
  • Have a frank and transparent talk with the person being asked to leave – state the reasons clearly, explain that this is an objective call, explain why this is important for the organization
  • If possible, give adequate notice period to ensure that the person can find another job (of course, this should not apply in case of ethical & integrity issues or dishonesty)
  • Handle the announcement responsibly and with respect to the person. Often it is best to make a joint announcement (entrepreneur and the person leaving) to the rest of the team, saying that the person has decided to move on to pursue other opportunities.
  • There will be some skepticism within the team, there will be doubts on whether the business is in trouble or whether the organization has a ‘hire & fire’ culture.  Address these concerns one on one. Proactively. Speak to each employee if possible.

Of course, it is also important to do an exit interview with the employee to take feedback on the team, the leadership, the company, culture, etc. Often employees who are leaving can provide excellent and valuable insights to entrepreneurs.

Net: Firing someone is tough. But if it needs to be done, it should be done.

 

How do you decide who becomes the CEO from among the founders?

Well, there is no real logic that can be applied in addressing this question, but a person who understands the dynamics of business better, is good at sales, good at operations management and can be the face of the company to the outside world is a better choice and in the best interest of all, including other co-founders.

Of course, the person who is designated CEO should have what it takes to be a leader, and have the aptitude, the passion and the desire to steer the company in the direction agreed by everyone.

A co-founder who becomes the CEO needs to understand that he/she is NOT the boss who can have special privileges… and that he / she is merely the chief executive who has the responsibility to making critical decisions and making sure that the company is on track to meet/beat targets.

In a startup, a CEO should take up the ADDITIONAL responsibility as a CEO along with an area of the startups business that he/she should take ownership of. E.g. the CEO may take up the responsibility of handling the sales function or operations management or driving the technology piece, etc. But the responsibility of being the CEO is over and above that functional responsibility.

It is also important to designate one person as the CEO from among the founders, as the rest of the team as well as external stake-holders (investors, vendors, partners, etc.) need to know where the buck stops and who would be the decision maker when one needs to be made.

In most cases though, especially when a few friends get together to start a company, who will be the CEO is a tough decision. In such cases, it is best to have a healthy debate within the team and select a CEO. (Some startups, when faced with the task of deciding who the CEO should be have followed the strategy that the founder who will get to be the CEO will give 1% of his/her equity to the other founders i.e. if there are 4 founders, the equity structure will be 22% for the founder who becomes the CEO and 26% each for the other co-founder.

While it is a difficult question, often leading to stress among the team, it is critical to address that and take a decision. Especially if the startup is going to seek VC funding, there will have to be one CEO who is leading the team.

 

What can co-founders do for mutual protection?

(This was my response to a question on Quora.. which was qualified with the following additional comments by the person asking the question:

Hi,

We are 4 guys starting a new company, and we are looking to formalize an agreement that will:

1) Protect all of the co-founders from a non-performing co-founder.
2) Protect a co-founder from being kicked out by the majority of the co-founders without any justified reason.

We’re specifically talking about clauses like vesting, cliff, voting rights on how to fire one of us, etc.

What would be a good mechanism to achieve this?)

My response

Apart from legal contracts and vesting, which of course need to be there, my view is that entrepreneurs need to have a detailed discussion among themselves on a number of what-if scenarios.

I ask my startups to think and debate and discuss about some of the following scenarios and points:

  • Agree on what ‘success’ means- typically, when numbers are not discussed  and founders go on the basis of passion, the underlying understanding (even if not stated) is that this will be a ‘large’ business. I therefore ask the founders to write down separately what they see as their revenues in 5 years time. Often, there is a 5 – 10x difference between the numbers quoted by two different founders. One founder’s view of ‘large’ is USD 10 million, while the other aspires to be a USD 100mn brand in 5 years time. Obviously, with such differences, the founders satisfaction from the traction is likely to be different, and, in this particular example, even if the company were to be USD 30 mn in revenues in 5 years, we would end up with one disgruntled and dissatisfied founder.
  • What if someone were to buy you out for USD 10 mn in 1 year’s time? (often all founders say yes, we will sell)… then I ask what if that number was USD 2 million and not 10.. often at least one of them says he/she will sell out (this person is usually the one who has the least faith in the potential of the business, and hence as a mentor my goal is to help the person see the potential… or understand from him/her why he/she has that perception)
  • How much time can they go without a salary in case the story does not play out as planned. Different people will have different answers based on their circumstances… and that’s OK. Just that the rest need to be aware of the choices that the person will make in case of crunch situations.
  • How do you handle failure? Will you penalize a founder if he/she does not deliver? Will you be tolerant, supportive and inclusive in case one of them under performs? My view is that often someone will under deliver or fail in their deliverables… and that’s ok AS LONG AS THEIR COMMITMENT AND EFFORT WAS 100%. But that’s just my view. Founders have to decide how they will deal with incompetence or failure. In many cases, founders take on responsibilities based on their perceived areas of interest or what the situation needs them to take ownership of. In most cases where there is no prior experience or interest, this is stressful. My view is that founders need to give each other the space to fail, with adequate processes for early warning signs and course corrections. Of course, this applies if the commitment was 100%, the attempt was honest and there were no integrity issues.
  • What happens if one of the founder becomes incapable of performing his/her duties (accident, family circumstances which require him/her to shift to another city, if the startup changes the business model or the concept, etc.). Will he/she continue to get the same privileges, equity and salary as was originally agreed. (there is no right or wrong answer. Founders have to collectively take a philosophical call on these type of issues. Well, to push the point, they also should discuss what will happen to the person’s shares in case he/she were to die… would the shares go to the family or to the founders or go back into an ESOPs pool?)

There are a lot of things that founders should agree on BEFORE starting up. And often these things are not discussed. They should be. If there is prior understanding on who will make what choices under what circumstances, the friction & stress can be avoided (or at least reduced).

Additionally, the founders NEED to decide who the CEO will be (and why) in case the team gets funded. (Lack of agreement on this, and multiple founders with similar aspirations can be a sure shot disaster).

What’s typically done with un vested equity of a cofounder who leaves?

In cases where there is a vesting clause, the undistributed part of the equity of the leaving founder is available for distribution. How it is distributed and to whom depends on what the founder’s agreement (documented) says. In most cases, it will also be (or should be) captured in the Share Holders Agreement (SHA).
The following options are usually considered, and which of these options or combination of options are relevant for your company are dependent on the company’s individual circumstances :
  1. The shares could be kept aside to give to another individual who could come in to replace the leaving founder – usually done when the skill set that the leaving person had is not present in the team and needs to be added through a new person… and the function that the new person will drive is important enough to ensure longevity of the person
  2. The shares could be distributed to the remaining founders
  3. The shares could be distributed to all shareholders in the percentage of their shore-holding
  4. Part of the shares are distributed (in either of the three ways) and some shares are kept in an ESOPs pool

How should equity be split between founders?

How much equity each founder gets in a startups has to be decided after serious deliberations on a number of factors. This is especially true when two or more friends (and worse, relatives) are coming together to start a venture.

pie-sample

 

 

 

 

 

 

 

 

Whatever the split, assuming that equity should be split equally between all founders is an incorrect starting point. 

Each team will have their own dynamics, and emotional as well as rational reasons to decide the split of equity between them. I would urge them to consider the following factors:

  • Importance of the person’s function to the team (e.g. technology, marketing, etc.)
  • Criticality of that person being in the team
  • Is he/she the only person with that skill set in the team
  • The seniority of that person in professional life
  • What is the person giving up to come to this venture (opportunity cost)

Here’s a link to a neat tool to help you decide on the equity split Co-Founder Equity Calculator

When is the right time to hire a sales person in a startup?

The answer to this question depends on the stage of the startup, the nature of the industry, the current team’s capabilities and competencies and the resources available for hiring and retaining the appropriate sales person. 

images (1)

Sales people typically like to work with companies where the processes are well defined, the value proposition has been proven and the marketing material and sales packages are all working smoothly. They usually like to achieve their numbers and targets, measuring themselves against their peers and their own achievements on the basis of how well they have achieved their targets. Hardcore sales folks do NOT typically like to be trapped in working and reworking processes, strategy, pricing, sale packages or even experimenting with different value propositions to different customer segments.

Ideally, you should hire a sales person (senior or junior), when some of the uncertainties of the business have been tested and proven.  

In the initial phase of the business, you will not / cannot know what price points will work, which audience segments will respond better or what communication messages will deliver better results. As a result, a new sales team tends to interpret this phase of ‘experimenting’ as “the management is undecided and unclear about what they want to do”, and hence start looking around for more stable opportunities. A sales team or the head of sales, leaving the company soon after joining, sends a wrong signal to the market – not just to other sales folks, but also to other members of the team, customers, vendors and investors.

Also, if you don’t have a challenge big enough for your sales head, he may not enjoy the work. You should therefore start hiring sales folks when the organization is really ready to leverage their skills and competencies, and provide them enough motivation and material to go and win in the market.

However, it’s not always possible to wait for things to settle down, before you hire a sales team.

So, if you really do need a sales person at the early-stages of your journey, make sure that you explain the current stage to the sales person, clearly define what his or her roles and responsibilities will be in this phase (e.g. could be – to help define the marketing and sales packages/programs) and honestly apprise them on the role that they will have to perform in the initial phase. Enlighten them that every startup goes through this phase of discovery, and emphasize the FACT that they will learn a lot from this phase than they would in just any sales management role. Position it as a positive and do not be defensive about it.

Even if you – an entrepreneur, are not a sales person, recognize and appreciate that the sales people are motivated differently and that you need to understand their mindset to be able to challenge them, motivate them, encourage them and reward them.

Happy Hiring !

 

What are the most important things to consider while choosing co-founders for a startup?

Finding a co-founder is pretty much like finding a spouse... at least in the sense of the seriousness and the thought that will go into the decision making. And despite all the precaution and thought, there is no guarantee that things will work out well. You can only hope, and give it your best, assuming that the other person gives his/her best too.

Accepting someone as a co-founder is probably going to be one of the most important decisions in your entrepreneurial journey, and often in your life journey too

A co-founder is NOT just another co-worker. Even if the share-holding is not equal among the founders, a co-founder is going to be an equal partner in the decision making, strategy planning, dealing with the challenges, carrying the load, putting a 100% into the venture, etc. The success or failure of a venture can often depend on the quality of the relationship between the co-founders.

Travel-With-Friends2-600x450

I suggest two major points to ponder on, when accepting someone as a co-founder:

On the functional front :

  • Ideally, a person who has complementary skills, that you or the current team do not have, is likely to be more useful for the venture. (e.g. if you are a techie, find someone who is a business person).
  • Find someone who has worked in a startup, or clearly understands what working in a startup could be like AND, accepts it happily. Often folks who have worked in larger companies, with well-defined processes, proper infrastructure, an army of people in support functions, super specialization of divisions, etc. are unable to deal with the uncertainties, roll-up-your-sleeves-and-get-it-done style, and the multi-tasking nature of the work environment that startups typically are.
  • Find someone who will not need the backing of a great brand name and large resources (e.g. big marketing budget, large sales force, etc), to deliver results. Find someone who is a self-starter and is not likely to look for a ‘boss’ to guide him/her. Believe me, many senior professionals actually perform better when there is someone to guide and drive them… and nothing wrong with that. You just have to find someone who does not depend on someone else to set the agenda and targets.
  • Find someone who has the ability to deal with challenges and the maturity and calmness to manage routine stresses and failures, which are manifest in every entrepreneurial journey.
  • Find someone who is a team player, someone who is likely to get along with a number of people in a flatter organizational structure. Someone who is secure enough to share the credit for success, and brave enough to accept responsibility for failures.
  • Find someone whose measure of success is to increase the size of the pie, and not about increasing his/her share in the pie.
  • Find a co-founder who can think AND do. Often senior folks from the industry who want to be entrepreneurs, accept a co-founder position in startups, but may not be happy doing the operational stuff. Some seniors from larger organizations feel that operations is what they used to do when they were junior, and now that they have moved up the ladder, their role is to think and strategize, and delegate operations to juniors. This does not work well in a startup.

On the personal front :

  • Ideally, find someone from the same socio-economic background. This is important because when the challenges hit you, people with different financial circumstances may take different views on the situation. E.g. if the startup does not appear to be likely to scale up as much as earlier thought of, a co-founder with substantial wealth may not find it worthwhile to continue while another co-founder with modest means may still find it lucrative to continue. On the other hand, if the startup starts getting into a cash crunch, someone with a weaker financial position may not be able to continue for long with a lower income or no salary. These are practical issues. Either you find someone with similar circumstances/background, or discuss upfront what the response to different situations could be.
  • Find a co-founder with similar aspirations and motivations. This is critical, and in my mind, a non-negotiable condition. People with differing levels of aspirations are likely to try and pull the company in different directions, as the startup progresses.
  • Find a co-founder with similar professional aggression and drive.
  • Find someone with similar views about life.
  • Find a co-founder that you will feel comfortable sharing your joys and sorrows with. Find someone who you can count as your friend.
  • Find a co-founder that your spouse is comfortable with. Especially if the co-founder is of the opposite sex. Your spouse being uncomfortable with co-founders will not directly impact the company but could cause stress in your personal life. Avoidable.
  • Go by your gut feel. See if you feel nice about the person.

Most importantly, do not accept anyone unless you think that he/she is a GOOD HUMAN BEING. Everything else is secondary. If you have heard negatives on ethics, value-system, social behavior, ideologies etc – RED FLAG yourself. Do not get tempted by professional performance.

Happy Co-Foundering !!

What should you know about hiring one of your competitor’s rock star employees?

(I am assuming that there are no legally binding or even friendly agreements between you and the competitor on poaching from each other).

HR-Outsourcing-What-It-Is

To begin with, do not hire just because a rock star employee from a competitor is available. Evaluate a few key things before you hire:

  • Do you really have a need for a person with that skill set and experience? Sometimes the possibility of getting a rockstar performer from a competitor to work for you can tempt you to hire the person simply because it ‘feels like there could be value’ … and, perhaps, it may give your ego a minor boost. Evaluate if you really need a person with that skill set and experience or, are you tempted to hire just because he/she is available. In some cases, even if you do not have a need for the person just yet, you and your board/investors may take a decision to hire the person simply because that employee may not be available when you need them. If you do not have an immediate need, assess when you are likely to need a person of that competence and caliber and how difficult will it be to find someone else. And then, take a decision based on costs, opportunities and risks. If you have an immediate need, then go ahead and hire (of course after evaluating a number of other parameters… some are mentioned below).
  • Even in the same division (e.g. sales), if you have different needs than what the person was working on with the competitor, check if the person you are hiring can deliver on that need: E.g. a head of sales, who has been delivering exceptionally good results in converting customers may not be as effective in designing sales programs and marketing communication material, if that is the key requirement of your organization currently. Also, the person may or may not have a passion or interest in doing different things that they have recently excelled at. Hence, don’t just evaluate his ability, but also his willingness and interest to do different things than in his previous job. In some cases, if the deviation is short-term (e.g. designing sales processes and hiring a sales team and developing sales/marketing material) ,  the new person and you may agree that he/she would oversee/drive that activity before moving on to do what he/she has been a rock star at doing.
  • If you are at a different stage of growth than your competitor is, that rock star employee may not be able to deliver the same results as he/she did for your competitor. E.g. if you are just entering a particular market, whereas the competitor is a well-established player, the dynamics of the on-ground realities may vary. Hence, your rock star employee may or may not be able to deliver on them in the changed circumstances.
  • Check if there is a ‘fit’ with your company personality, value-system, aggression (or lack of it), work culture, policies, infrastructure, etc.:  People who succeed in one environment may not necessarily be as effective or productive in a different environment. E.g. if your competitor’s work culture was more aggressive or competitive internally than yours, while your company’s work culture is more ‘encouraging rather than pushy’, the person may ‘respond differently’ and may or may not perform as he/she used to in the previous assignment. (In the Indian context, I would use the example of a person, working with let’s say Reliance, not being able to adjust in a TCS or Infosys.)

Also evaluate possible risks

  • Would there be any backlash or reaction from the competitor
  • Would it have any impact on your existing team (especially among those whose level that rock star employee may come in as)

Of course, there could be a lot of positive side-effects in hiring a rock star employee from a competitor. Here are a few possibilities:

  • The most important positives are the information (whatever legally permissible), learnings and industry connections that the person brings to the table
  •  Often, a rock star employee is able to convince more folks from that company to join in, thus making hiring a bit easier
  • It could be a positive signal for customers/partners/investors

We would love to hear your views on this. 

Building the founding team – finding co-founders

The success of failure of a startup is largely dependent on the quality of the founding team. Most investors would therefore make their decisions on investing depending on how confident they are about the team implementing the idea well.

 

Size of the founding team

While there is no ideal size of a founding team, 2 -3 founders is generally considered to be a good number for a variety of reasons.

Well, starting a venture on your own without a founding team is certainly possible. But it sure does get lonely. You need someone to give you company, especially during the stressful times which all startups will go through in some stage of their journey.

On the other hand, having more than 4 founders can often lead to chaos and overlap of competencies. [Though there are great examples of companies like Infosys which had 7 co-founders.]

 

Composition of a founding team

The ideal composition of a founding team is when the founders bring complementary skills to the venture. E.g. someone from marketing/brand management, someone from technology and someone from operations management/procurement will make an ideal founding team for an B2C e-commerce startup.

In my view, it is critical to find co-founders who have the same passion for the concept, and ideally who come from the same socio-economic background. This is necessary because when the startup is going through challenging times, it is most tempting with someone who is less passionate about the subject to step out. Also, if the founders come from different socio-economic background, the challenging times can be quite stressful too. Someone from a wealthy background my quit because the challenge is not worth the effort, and the returns. On the other hand, someone who is financially challenged may not have the ability to continue in a resource-constrained mode for longer than originally planned.

 

Founding Team members are different from founders

Remember, not everyone who joins at the beginning of your journey needs to be a founder. They can be called ‘Founding Team Member’, and it does carry some weight in a person’s profile.

Founding team members are often the ones who are willing to take a bet with you, and hence expect to be rewarded with some equity so that they also get to benefit from the upside when the startup succeeds. Often founding team members are the ones who would are passionate about the domain, or some folks you know and who join you because of their belief in you as a person and as a professional. Founding team members are special and need to be treated as such. They are the ones who help you define the culture, and to the external world, the personality of the organization.

Be very selective about whom you involve as part of the ‘founding team’ and who are just early employees. My suggestion is that only when you are confident that someone is as passionate about the opportunity as you are should you give the person the status of ‘founding team member’.

Building the founding team – some points to consider

inline-How-to-Survive-a-Founding-Team-Trainwreck

Things that founders should discuss before teaming up

  • Most startups go through challenging times. Founders should therefore have an open-minded discussion beforehand about how to ride rough times. Ideally, these discussions at the beginning of the journey help set the guidelines on handling potentially stressful situations.
  • Time commitment that each person brings to the venture and what limitations or constraints some of these commitments could carry e.g. someone may not be able to travel to outstation locations or someone may not be able to relocate to another city if required or someone may be doing a part-time course, etc.

Often, the remuneration and equity holding is linked to the commitment of the founders.

  • What is the equity holding of each founder: While most teams usually split the equity equally between the founders, there are enough examples of teams dividing equity based on the value that each founder gets. E.g. someone with the domain experience or someone who has more work experience could own a larger portion of the equity than others.
  • What is the role of each individual? Unless you clearly define the roles and responsibilities, there will be chaos. It is also for this reason that it is important.
  • Discuss and ensure that all founders are ‘seeing the same film’ in their mind. I often ask founders to write separately how much revenue their company would do in 5 years, and I often get very, very different answers from each founder of the venture. I am often surprised to note how different each founders views on the opportunity, goals, etc. can be …. just because founders have not had a detailed discussion among themselves on these things.

Most critical decision for founders

One of the most critical decisions that startups need to make, and most find it difficult, especially when it is a group of friends coming together is on who will be the CEO of the company.

For most investors, and also for the good of the company, clarity on who is the captain of the team is critical. [Also, investors worry that even if the friends don’t fight about who is the CEO, their spouses could !!!].

Also for employees, it is necessary to have a clear view on where the buck stops and who the leader is. Ambiguity on that front almost always leads to chaos and unclear plans.

Importance of an advisory board

Creating a strong advisory board is one practical way of filling in the competencies gap that a startup may have.

mentor

Most startups are resource-starved and hence not in a position to employ people for the various skill sets required for building the business. This often means that the entrepreneurs end up doing the thinking on the most critical aspects about the business EVEN IF THEY ARE NOT THE EXPERTS ON THAT PARTICULAR SUBJECT OR AREA OF ACTIVITY. E.g. a team of two founders with experience in technology and marketing respectively would also ATTEMPT to think on their own, perhaps with some amount of research and talking to experts, about areas like production, procurement, logistics, supply-chain, customer support, etc. Each of these is a specialized area and would require someone with years of experience to provide a perspective on the opportunities and challenges.

This is obviously not going to work in most cases. Think of it this way… If you were starting a cardiac care hospital, and because you are a startup and cannot afford a good surgeon, would you go ahead and operate on a patient if you were not a cardiac surgeon? Well, you won’t because that would be a dangerous thing to do!!! Exactly for the same reason, like cardiac surgery requires a surgeon with specialized expertise, different aspects of a business like supply chain, marketing, sales, technology, etc. should be ideally thought through by some folks with some experience in those areas.

Creating an advisory board allows the founders to get the brain-power, guidance and insights from senior function/domain experts, without having to actually hire senior resources to handle those functions. E.g. a startup may require some serious help on the supply-chain or sourcing side, which the founding team may lack. In such a scenario, getting someone with 15 – 20 years experience in the domain and skill-set as an advisory board member would work well for the startup.

This is a tool that is not used effectively in India, though you would observe many startups in places like Silicon Valley and Israel – the hotbeds of entrepreneurial activity – having strong advisory boards which help them think through their businesses.

 

Why would someone accept to be on the advisory board of a startup? Well, this is where the ability of the founders to sell the vision of the company comes in handy. Of course, you should have a large, aspirational vision to begin with. No one is going to be excited with someone trying to build a company which does not even aspire to be a market leader.

If you have a large vision and if you aspire for your company to have a large impact on that industry, and if you communicate that with passion, the right people would often consider being on the advisory board. If you come across as THE team which can do it well, many of the people you approach for an advisory board position would not want to take the risk of turning you down as they may regret later in case you become super successful. Because if you become super successful, they would like to have the bragging rights to say that they were an advisor to your company.

Of course, it is good to compensate the advisory board members with some equity as you are not likely to have the resources to remunerate them monetarily.

How should I get someone to join as an advisory board member ?

An advisory board member can be someone who provides the deep domain expertise of function experience to a startup, and fill in the competency gap that the founding team currently lacks.

Before creating an advisory board, the founders should make a list of the skill-sets that would be required for building a company around your concept/idea. E.g. in an e-commerce venture, areas like supply-chain, procurement, logistics, customer support, marketing, customer acquisition, digital communication, etc. would be critical, of course in addition to technology & GUI and of-course the expertise about the domain in which you are planning your venture.

Once you have identified the skill sets required, you should identify the competencies that the current team has, or could tap from among those you can regularly tap into e.g. a senior friend or a relative who has agreed to help you. That leaves you with the competencies which you would need to seek external advice and assistance on.

You should then identify the folks who you think could be ideal as advisory board members for your startup.

Point 1: Engage the folks for ‘what they can do for you’ and not for ‘who they are’. I.e. even if your uncle is the chairman of a large corporation, it makes no sense to have him on the advisory board if he is not from a relevant domain. In other words, you do not need a ‘show & tell’ board but an advisory board who can assist you with specific things.

When you approach someone to join your advisory board, plan well in advance what you are going to pitch to him.

Point 2: Understand what their motivations and drivers are going to be and then see if there is something that you can excite them with. In many cases, the excitement of assisting a startup is interesting enough for people to sign up… of course, if the startup comes across as ‘high-potential’.

Point 3: Set the expectations right and get their commitments up front. Be clear in communicating what you plan to do and what you expect them to contribute with. Be transparent about the challenges and honest about the roadblocks.

Point 4: Define the interaction frequency and process of interaction. Clarify what the preferred mode, time and day of interaction would be. Some people may prefer on-mail interactions with infrequent in-person meetings, while some may prefer face-to-face meetings. Some may prefer meeting on weekdays, while some over weekends.

Point 5: Once they accept, offer some equity. While many may not seek and some may not even accept, it is appropriate to offer nominal equity to your advisory board members.

Point 6: Formalize the relationship. Document the engagement. Set a formal advisory board meeting date, even if on a conference call. Set a clear annual calendar of engagement and interactions. Provide monthly reports with at least a quarterly conference call with all advisory board members together, even if you meet / interact with them i

Would it be considered a bad idea to accept a part time tech co-founder?

It depends on whether the tech component is core to the venture or it is a support to the venture. If it is core, then obviously it is critical to have the tech person as part of the core team.

Investors do not like part-timers. And that’s because, if someone who is core to the project is not willing to dive in fully, why should someone else accept the risks associated with the venture. Also, all businesses have challenges and require the founders to do the fire-fighting on an on-going basis. In the case of a part time resource who is also involved in some other venture, if there is a challenge in both ventures simultaneously, which venture will he/she focus on?

However, there have been instances where a core team member needs some income to take care of life’s expenses, and therefore needs to continue with another job while in parallel working with the startup. In such situations, investors would be OK with the CURRENT arrangement provided the person is committed to leaving the job and focus fully on the venture.

If the tech component is not core to the venture, there may be a bit of tolerance to a part-timer.

Of course, it all depends on what equity you are offering that person as a ‘co-founder’. In some cases, people have given a ‘vendor’ or an expert very nominal, ESOP level equity… but called them a ‘co-founder’ to allow them the bragging rights of the same.

You need to also recognize that shareholding and co-founder status or co-ownership as the promoter are entirely different concepts. A vendor who is offering a service or advice, which is not fully paid by cash but is partly compensated by equity, need not get co-founder status.

 

What should an ideal founding team look like?

An ideal founding team is one that covers all the important components of the ‘business’ around the idea or concept that the startup is working on.

team

In most cases, people start ventures with others who have a passion for similar concepts or opportunities. And that’s a great starting point. However, whenever possible, complementarity of skills is better than all co-founders with similar skill sets and experiences – one engineer + one marketing person + one designer.

As you start building a larger team  (you take in more co-founders or members of your early management team), you need to identify the various areas that your startup will need to deliver on and then identify the team requirements.

Focus on the critical areas. Get people who can multi-task. Get people with some experience in different aspects of business, and not just their immediate area of expertise.

Passion and commitment is critical at a startup. When finding a co-founder or early team members, also evaluate ‘why they want to join you’ rather than just ‘what are their qualifications and experiences and what do they know that will be useful to my startup.’

Tips for hiring early-employees in a startup

For me, attitude and commitment are the most critical aspects when hiring a person. Everything else can be taught. 

Of course, it depends on what you are hiring for.  When hiring a domain expert, you want to make sure that the attitude is right, the commitment is 100% and that the person does have the expertise in the domain that you want to hire him/her for.

Another thing that I have learnt, sometimes the hard way, is that it is important to ensure that the person you hire is also driven with the excitement of the startup. If a person is not super excited with the concept or opportunity or the startup, no matter how committed the person, and how right the attitude is, he/she may not be able to or be willing to survive the challenging times that most startups invariable go through. Some of the challenges, especially due to lack of resources & capital, make the journey incredibly tough. And only those really driven can go through it with determination.

It is important to clearly communicate to potential hires about the challenges and realities of working in startups. Explain to them the limited resources that they will need to work within, clarify that processes are yet to be defined, explain that most things will be ‘figured out as we go along’, etc. etc.

Ensure that they clearly understand the work environment and work culture before they accept your offer to join.

 

How to find a technical cofounder

Ian Jeffrey of Founderfuel Accelerator Program

Ian is the General Manager of FounderFuel and Venture Partner at Real Ventures. Originally from Montreal, Ian spent the last few years of his career in Silicon Valley. It was there in 2006 when he was VP of Marketing at Tiny Pictures that he helped launch Radar, the first mobile photo sharing social network. Following the acquisition of Tiny Pictures by Shutterfly, Ian acted as Director of Marketing of the mobile and social media team. There he launched Wink, a mobile service that lets users create photobooth-style prints directly from their iPhone. Ian started his career in 2002 as half of the two-man team behind Nomad, the now defunct Street Intelligence Agency of Cossette Communications. Specialized in word-of-mouth marketing and insight generation, Nike, Coca-Cola and McDonald’s were among Nomad’s major clients.

 

Finding the right o-founders – Teaming up for start up success

Choosing a co-founder is the most important decision you will make when starting your company. Your co-founder(s) will be like your spouse – you will spend most of your time every day with them‚ and you will need to agree with them on all the big decisions. Having a co-founder can certainly be a big advantage‚ in terms of vetting ideas and offloading the work. However finding a co – founder may be a complicated issue. Agreeing on the terms and conditions of partnerships‚ exit strategies and compensations from the beginning‚ improves the understanding of what is expected of each party. So how do you go about finding the right one?

 

What career should I take if I want to be an entrepreneur?

If you are clear that you want to be an entrepreneur, I would recommend you to take up a sales job. Any company, any where… take a job that requires you to go out in the field, meet customers, pitch your product, negotiate and sell.

Selling teaches you many things about the practicalities of business life. Rejection by customers teaches you to be modest about your assumptions on conversions. Dealing with rejection teaches you to deal with failure and challenges.

What is the best way to find a cofounder online?

It is usually better to find a co-founder within your circle of known folks. However, if you have tried all of that and are unable to and if you must cast your net wider, LinkedIn is what I would bet on to ‘narrow down my choices’ and then target specific people for a ‘conversation’.

If you connect with someone whom you think could be a good co-founder, once you have a match of excitement for the idea and a sense of commitment, I would encourage you two to have long and detailed conversations of various scenarios about the business to ensure that there is broad agreement on the vision, direction, aspirations, values, expectations, goals – personal and professional, family circumstances – financial and personal, etc.

Of course, in all of this, the chemistry has to match and you need to be able to tolerate each other’s working styles. (Generally it is good to work with someone you know because you are likely to be aware of their personality, working styles, weaknesses, etc. and therefore the chances of stress due to ‘new discoveries about your cofounders personality’ is likely to be lower).

Essentially, if you decide to co-create a company with someone you have not known before, you should try to speed up the process of getting to know as many aspects of each other’s personality and aspirations that may impact the business in some way.

If I have the talents to build an MVP myself, should I hold off on a co-founder to raise capital and make some early hires?

A product is NOT a business … no matter how good that product is. A business has to be built around that product or concept. 

 

So, if you are good at product development, perhaps you need some support on the marketing/sales/commercial side of the venture.

Also, with most investors you are likely to have a better chance of getting funded if you have a co-founder. (Also… entrepreneurship is emotionally draining too, and hence getting a co-founder is a good idea.).

Remember, investors invest in the business case around a concept or product, and the ability of the team to implement that idea in the market. A good product is a good starting point, but neither a necessary condition, and certainly not a sufficient condition for funding. (Why do I say it is not a necessary condition.. because if you have a good product, it is obviously very good. But if you don’t have one, you can easily build one or get one built if you have the right business case that allows you to raise capital to build and market a good product.).

 

What are the top questions young entrepreneurs should be asking themselves?

From a business point:

  • What are we doing (concept) and why is this important (what need or opportunity does it address)
  • Who will use this
  • Who will pay for this, to whom and how much and how often? (Customer segment and business model)
  • How am I going to do all this (the operating plan)

 

From a personal point:

  • Why am I doing this (motivation – to make money, to change the world, to do ….)
  • Are the people I am doing this with (my co-founders) the ones that I feel really, emotionally close to (if not, won’t last)
  • At what milestones will I say “I am successful”
  • What will be the parameters for me to give up and move on
  • How much time can I pursue this without a salary
  • What alternate opportunities am I giving up to do this… and why am I happy doing that

How do I design a startup workspace?

Having a decent office does play a very important role in the early stages of a company.

It is very difficult to recruit talent without a good office Perhaps rightly so, people create perceptions and first opinions about a company by looking at the office.

Ideally, startups should try to co-locate with someone… could be another startup or an early-stage company that has some spare space. More people around makes your team feel like a larger company, and there is learning from others too. Of course, shared pantry, conference rooms and other resources helps save costs.

No cubicles and dividers… one room with everyone sitting on similar sized tables is ideal.

Bright and cheerful places make happy colleagues. Dull and dark places also make it difficult to hire people. Investing in a better office, with better lighting and decor eventually pays out in the form of better people accepting your offer.

Spend as less as possible on things that you do not need – copiers, fax machines, coffee machines, etc… rent ACs if you need it. Keep capex low…

Working out of home in the initial phases is not practical beyond a point. No matter how serious and committed you are to your venture, working out of a ‘non-office environment’ [i.e. home or Cafe Coffee Day type outlet] just cuts down on your productivity. It is not just about inadequate infrastructure and support system, an office environment and the people around you just add to the feeling of being a real company.

Without an office, business plans tend to get restricted by space available Inadequate or no office space and working out of coffee shops does leave you vulnerable to taking decisions based on restrictions of space.

 

 

Hiring technical resource for Startups

Many developers love working for startups and some who will only work for startups. Good startups.

Hiring for a startup is like any hiring: your network is easiest, resumes hardest. You can do a few things to limit the field and attract the right folks if you’re gathering resumes:

  • Find places to post your requirments  frequented by startup types
  • Remember being a startup is major selling point, say it loudly and often, and ask for startup experience.
  • Ask for technology experience popular in startup circles, i.e., not .NET, not JEE.

Elance can work for assembling a programming team, but it’s not a great solution as their contract requires you keep Elance as a middleman for future work between the same two parties

If you’re looking for alternatives for finding outsourcing, try also asking on Quora who are all the great developers that build early product versions for early stage startups.

 

What happens to the shareholding of a founding team member in case he decides to quit the company?

Ideally, the founder’s shares should vest over a 3-4 year period. This is not just in the interest of the investors, but also protects the entrepreneurs in case one of them decides to leave.

In simple terms, if there is a 3-year vesting period, then every month the promoters get 1/36 part of their equity.

For example, if there are 4-founders, and one of them who has 18% equity decides to leave the startup after 15 months because the venture faces significant challenges, then in a 3-year vesting period clause, the leaving founder will get to keep only 7.5% of his 18% equity, with the rest of the equity now available for the company and the board to offer to another person who may be brought in as a co-founder or at a management level to fill in the gap left by the leaving founder.

In case the equity that has not vested to the leaving promoter is not given to a new person, then in the case of an event like a M&A that equity is distributed to all the remaining shareholders, including the promoters in the proportion of their holding in the company.

 

Handling disagreement between founders

One of the common reasons for issues in startups is disagreement on the way forward.

 

These issues and disagreements come up typically at two inflection points –

(a)  Either when the startup is doing very badly and tough decisions are to be taken e.g. to further reduce the already low salary or (

(b)  When the startup is doing really well and tough decisions are to be taken e.g. to sell out and take the cash or to stay on and grow even more.

 

How does one address this? Well, one way is to anticipate it and have a philosophical discussion and agreements with the co-founders on how different situations will be handled. This discussion should happen at the beginning of the journey and NOT when the situation arises.

 

What will be the decision in case of difficulties? What will be the decision in case there is an option to sell out? It is possible to build some of these agreements into the shareholder agreements or articles.

 

Some questions I ask our portfolio companies to discuss among themselves are:

1)    Who among the founders will be the CEO, and why (If you do not decide at the beginning of the journey, this can be a tricky one to settle. If you do not fight over it, your spouses may.). If required, would you be open to a professional CEO.

2)    If someone offers to buy you out for Rs10cr in a year, what would you do…

3)    What will be your measure to say that the venture as ‘failed’ and give up

4)    What is your plan B?

5)    How long can you go without a salary (or survival salary)?

 

One way to protect the venture in case of conflict is to vest the shares of the founders. I.e. If there are 4 founders in a company with 25% shares each, they may decide that this 25% will ‘vest’ over a 5 year period. This means that if one of them leaves at the end of the 3rd year, he/she will get only 15% equity and the rest will be shared between the remaining founders. This can be documented and formalized.

 

 

Does having a good office help in the early stages of a company?

In my view, having a decent office does play a very important role in the early stages of a company.

Here are some of my observations on this subject: Working out of home in the initial phases does not help No matter how serious and committed you are to your venture, working out of a ‘non-office environment’ [i.e. home or Cafe Coffee Day type outlet] just cuts down on your productivity. It is not just about inadequate infrastructure and support system, an office environment and the people around you just add to the feeling of being a real company.

It is very difficult to recruit talent without a good office Perhaps rightly so, people create perceptions and first opinions about a company by looking at the office. In our case, we have been particularly lucky to have received the generous support of our ex-bosses who kindly accommodated us in their offices and thus allowed us to attract high-quality talent which perhaps otherwise would have been difficult to do.

Without an office, business plans tend to get restricted by space available Inadequate or no office space and working out of coffee shops does leave you vulnerable to taking decisions based on restrictions of space.