Why is the Founders Team only an entry checkbox for investors?
The entire startup world is built around one main concept: the team pitches an idea, and the investor evaluates idea-team-market. The team is key. But it is only really evaluated at the entry point – as one of the checkboxes in the decision table. A decision that is then fixed for the long term by cap tables and shareholder agreements. We believe another approach is possible – and we think this approach could work better.
Yesterday I had an interesting lunch meeting with an Estonian investor. Of course we shared our vision on startups and investing. We quickly found ourselves aligned on important topics, such as ethics and growth potential. And then I tackled the founders team. We both agreed that the founders team is crucial for the lasting success of a startup. And yet it is often mainly used as a decision parameter upon investor’s entry.
The entire startup-VC world is built around one main concept: team pitches to investors, and the best team/idea-match makes it. Great idea, bad team? Sorry. The checkbox of the team remains unchecked in the pipeline evaluation, and the project is off the table. That way, many great ideas don’t even make it in the first round, only because they started off with the wrong friends eating pizza after working hours …
Do they really match?
And even when the team is evaluated as ‘the right team’, that is often only an ‘at first sight’ evaluation. Diploma’s and work experience are being used to verify the completeness and complementarity of the skill set, and then the ‘as a team’ presentation has to steel the heart of the investors during a five minute pitch and a couple of extra meetings to close the deal.
But what about common values? It’s one thing to all wear the same T-shirt, and present a rehearsed pitch. It’s a totally different thing to all have the same basic principles to live by. The principles and values that keep them together, and make them build a successful company out of almost nothing.
And what about their leadership style? What about their common vision on how internal teams should be built? What about their common complexity handling level, that is needed to grow as a team over a common dialogue?
Can the team evolve?
Even if all that fits nicely together, a similar question arises about evolution. Founders are locked into their startup to stay for the long term. Of course, we do not want the founders to run away when the floor gets too hot for them to handle. And of course, we want the founders to have a strong position when future VCs aboard the cap table with deep pockets.
But why should the team not change over time?
A startup goes from 0 to 1, from 1 to 3, from 3 to 10, etc. During the first years of a startup, its internal evolution is huge. The required leadership differs during such evolution. Often the initial idea creators should have moved aside a long time ago, to allow the company to mature over time. But if the mother or father of the idea is a big shareholder and a board member probably with a big status as startup CEO, it is not easy to admit you are actually blocking the growth of your own baby, and step aside when the startup requires new leadership. And in such a case, no one will force you to move aside, unless it is way too late …
Let’s adopt a different team concept
At ImpactBuilders, we start from the idea. We have the liberty to assemble the team and change it over time, when the new venture matures. For our startup Flxion e.g., we are now adding the first leader to the team, although the product already found its first launch markets. At this point, the company only needs a half-time product owner to continue and improve the road map of its core product. The initial father of the idea is still on board as the business developer to attract co-creation customers in the coming months. He knows he is not a manager, and will not remain in the core leadership team. Even stronger, over time, he will reduce his position in the cap table in favour of the new leadership team, so that he is not blocking the future of the venture.
Most other roles — even including the role of the COO — are currently shared internally within the ImpactBuilders business group: admin and accounting are shared services, as well as marketing, recruitment and team coaching. So, there is no reason to have a ‘complete’ and ‘full-time dedicated’ team for this startup at this stage of the company. Rather than trying to recruit three leaders, reduce their salaries, and give them all the same T-shirt, we allocated a senior product owner half-time with a senior salary of which a substantial part is converted into shares. And rather than trying to keep a young team together, we have spent our time talking with each other. To see if we share the same values. To transfer the product vision, and validate the capacity to think along. To see whether the leadership style of the product owner fits the developers. To see how the internal services collaborators resonate with the new product owner. That’s when and why we decided to start off together. Next year, we will attract a business developer, and we will carefully validate the fit with the rest of the team — and with the internal shared services.
That’s one of the key points why we are different. We build the startup from the idea and by the team. And we can evolve the team over time, since we always have and keep the opportunity to put leaders in place that are more fit to the job that is required in that stage of the company maturity.