Wednesday, August 17, 2005

Building the Perfect Team

One entrepreneur's recipe for assembling a startup team that sticks.

For the third time in my career, the excitement of building a company from the ground up is running through my veins. I love everything about this process--from writing the business plan to building the financial model, closing the initial round, developing and launching the product, and recruiting talent. I even enjoy talking about the process and advising other entrepreneurs. In such conversations, however, one topic invariably comes up: team building. As it happens, this topic has been much on my mind of late as I attempt to take my latest venture--the blogging and communications platform GoingOn Networks—to profitability. What better time, then, to present my own boilerplate for successful team building—one gleaned equally from experience and knowledge shared by entrepreneurs and mentors.

While there are countless articles and blog posts that purport to describe what venture capitalists are looking for in startups, none offers the one true formula for success. And as many people are quick to point out, there are plenty of venture capitalists out there who would have slammed the door on Bill Gates, Michael Dell, Steve Jobs, and Jeff Bezos if they'd come knocking in their early days.

Not to worry: I'm not writing this to tell you how to position yourself for venture capitalists. For starters, not all startups need or take VC money. (For proof of this, just look at Sam Walton or Mark Cuban. Jason Calacanis has even posted a blog called "Real Entrepreneurs Don't Raise Venture Capital.") The bottom line is that no matter how good your team appears to investors, what really counts is how your team works together in the trenches. Poor team dynamics and failed chemistry can sink even the most promising companies - a fact many founders and investors discover too late.

Without further ado, then, my recipe for building a great team:

Partner with people you trust. My first piece of advice for any budding entrepreneur, and one I always overstate is, "Trust is essential." If you have any doubts about a potential partner, clear the air or steer clear completely. As John Doerr of Kleiner Perkins Caufield & Byers puts it, "You must ask, 'Are these the people I want to be in trouble with for the next 5, 10, 15 years of my life?' Because as you build a new business, one thing's for sure: You will get into trouble."

Although I believe I'm adept at assessing people, I never go by first impressions anymore. After meeting many polished people with impressive backgrounds, I've learned to reserve judgment until the fourth or fifth meeting. After all, everyone can have good days or bad days, and character flaws often stay hidden until trouble occurs. The solution: Take your time and check team references.

I know of one situation in which close friends who started a company together fell into a bitter dispute. When the disagreement boiled over and my acquaintance left the company, he received no equity because he had let his friend take care of the initial corporate documents -- and his friend had listed himself as the sole owner. The "friend" cashed out at $50 million, and my acquaintance was left in the cold because he failed to cover his butt in the early stages. Don't be like him.

Find out what motivates people. What drives your prospective partners? If the sole factors are money and personal glory, I'd think hard about working with that person. Money can cloud judgment and create conflict: For that reason, money can and should be a primary goal, but it shouldn't be the only goal. Things like changing the world and providing a great product must be equally important.

Check egos at the door. A dynamic leader is great; an egomaniacal one is not. Since your goal is to create an environment in which the best ideas boil to the top, it's important that all members of the founding team have an equal voice. People need to feel that they're contributing to the growth of the company - even as the team builds out. Outside of hard executive decisions, I don't believe founders should pull rank in open discussions.

I know of one situation in which a founder pulled rank over a nonfounding senior executive with regard to a decision to sell out to a large infrastructure company. Without fully listening to the points raised, he rejected the offer. Now, instead of sitting on tens of millions, the founder is operating a company in "exit limbo."

As mathematician and philosopher Bertrand Russell writes, "A victory dependent on authority is unreal and illusory."

Keep the communications channels open. Don't horde information. In today's fast-paced technology world, it's important that all members of your company have access to the best and latest information. Establish a culture in which there are no information gatekeepers. When one person controls the flow of information, a fiefdom usually emerges in which that individual plays one side against another to increase his or her own perceived value. This creates conflict and inefficiencies - neither of which startups can afford.

Recruit the best talent available. This one's a biggie: Never settle when it comes to personnel. One A-grade hire equals 10 C-grade hires -- a lesson I learned the hard way when hiring a marketing manager for one of my startups. Under pressure to fill an important position, I pulled the trigger on someone whom I had doubts about but looked excellent on paper. By making a rushed decision, I wound up with a nine-month headache -- one that only cleared up when that person finally departed. My former partners still kid me that my once-sterling track record for hiring has been forever tarnished. Needless to say, I won't make that mistake again.

If your network doesn't present a capable candidate whom you know well, take a test-drive, if the situation allows it. For example, with GoingOn Networks, the first couple months was a test-drive between Tony and myself. I knew that if Tony wasn't satisfied with my execution, he'd sever the relationship -- which I've seen him do more than once. He's coldly practical like me, which I like.

Here are some things you should ask yourself about potential hires:

Do they get things done? What is their track record?

Can they deal with risk? What situations of risk have they previously encountered? How much risk are they willing to take?

What is their growth potential? Where do you see them becoming productive contributors? Are they constantly seeking to improve themselves?

Are they team players?

Pedigrees can be good indicators, but they aren't always. Sure, an electrical engineering degree from M.I.T. or the University of Illinois is impressive, as is a Ph.D. in biomedical engineering from Johns Hopkins or Georgia Tech, or an MBA from Stanford or Harvard. Worked at McKinsey, Microsoft, or P&G? Great. None of these gold stars on an individual's resume, however, indicates whether that person can thrive in a chaotic entrepreneurial environment or whether they'll be team players.

At the end of the day it's not about where a person comes from but what they did there. Some people look great on paper but are horrible to work with, while others may have attended no-name colleges but have built great products and demonstrated superior team skills in the intervening years.

Finally, don't pick people because they're your friends; pick them because you know they can execute and contribute. You want people who are not only capable but willing to accept the risks associated with early-stage companies -- people who will look out for the company rather than protect their own backsides.

Keep these points firmly in mind, and you'll be well on your way to establishing a great team. A-quality people may attract other A-quality people, but you need to look beyond professional attributes to a person's character and motivations to truly assess their team potential. If you do so early, you'll save yourself all kinds of headaches down the road. Take it from one who knows!

Originally published at AlwaysOn (old site).
Republished at OhmyNews International.

Brad Feld comments and links to it (old link). Thanks, Brad!

Tom Evslin at Fractals of Change discusses it at "Go for The Moon When Hiring for a Startup".

Torsten Jacobi links and posts about my article here.

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