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.

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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. 

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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.

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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.