For a software startup, having a good idea is important, but a good team is essential.
Good ideas are easy to find; I keep a list of interesting business and tech ideas that I constantly update and probably have a couple hundred at the ready.
What’s hard to find, and is much more important for success, is a good team. What are the ingredients of a good team?
Go All In: Look for “Crazy Eyes”
It’s tough to go it alone. While you might succeed nurturing an idea as a side project, your chances of success go up dramatically when you band together with people who complement your skills and are willing to do what it takes to get something to market as quickly as possible.
I call it “crazy eyes.” You need to be able to look somebody else in the eyes and catch that wild-eyed glint of insane dedication – and truly commit to each other as collaborators. If you can’t find people to take risks with, you probably won’t be able to bring your idea to fruition.
Proper Casting
Putting together a good team is all about having the right people in the right roles. First, that means choosing the right people to collaborate with. Second, it means knowing and being honest about the strengths and weaknesses of each individual on your team.
All too often, I have seen people call themselves CEO that really ought to be “Chief Software Architect.” Or people in operational roles who clearly can’t stand being around other people. While it’s tempting to label yourself and your cofounder as COO and CEO, you need to be honest (and educated) about whether you are really right for these positions.
When you go to talk to potential investors, they will sniff out this kind of bad casting right away, and they will just assume you have bad judgment. If they think you have bad judgment about a simple thing like properly casting yourself, then they think you will have bad judgment about everything else; they certainly won’t trust you with investment funds.
Proper casting is a sign of honesty, clarity, and good judgment. It’s key to connecting with investors. Even if you don’t think you need investors, prospective partners and employees pick up on your casting judgment also. Do it right.
A Good Team Always Survives
What may seem like a great idea may turn out to be a bad one, or one that needs to be changed to be successful. Maybe it turns out that kids don’t want to play with horses in your 3D virtual world. Maybe instead, 50 year old men want to play war there. A good team figures that out and capitalizes on it. A bad team spends ever greater sums of money trying to embellish the pretty horses and advertise in kids magazines.
Even in the worst case, a good team that knows its strengths and weaknesses will know how to salvage assets and return value to investors (license the tech to others, etc). A bad team gets mired up in personality conflicts, personal crises, falls apart and becomes toxic to everyone.
This is why investors will almost always bet on a good team with an unproven idea over a sure-fire idea and a so-so team. Good teams deliver returns no matter what.
Good Teams Make Markets
I’ve seen lots of ideas that sound impossible on the surface turned into great businesses through the skills, connections, and experience of their teams. Want to sell WiFi in airports? Sounds impossible, but not if your COO spent 10 years as the director of purchasing for HMS Host. Want to sell an avionics upgrade to the Air Force? Sounds tough, but not if your CEO spent 10 years on contracts at Lockheed.
What a team brings to an idea is more important than the idea. Good ideas are a dime-a-dozen. Finding the people to make a good idea work is incredibly difficult.
Stay Calm and Open to Change
It’s easy for partner relationships to become emotional and strained. Often, partnerships form as a handshake and a promise of 50-50 equity. Operating agreements and buy-sell arrangements often come later, breed resentment, and then become set in stone as people invest increasing amounts of sweat equity.
Don’t let relationships get in the way of execution. While you may be passionate and emotional about your idea, you should be calm and cool about your relationship with your team members. Remember, it’s all about proper casting. Do whatever it takes to put people into the right roles and immediately address any questions regarding equity, hurt feelings, and the like.
There’s no better way to turn a good team bad than to let equity and casting issues fester.
Know a Lot of People
The best way to insure proper casting is to choose the right teammates to begin with. The best way to do that is to know lots of people with diverse skills. This will keep you from going into business with your college roommate and instead partner with people who have the skills that round out your team.
Just Say No
“No” is the most powerful word in business. The pressure to be “moving forward” in our society is intense where to buy propecia. But if team is so important and you also believe in your idea, it doesn’t make sense to move forward with the wrong team or the wrong idea. Just say “no.” Instead, wait it out and find the right team, or at least part of the right team before moving forward. Or change your idea.
Every day I see smart entrepreneurs, under pressure to “move forward,” squandering their time by pursuing an idea with a “halfway there” team. I don’t mean to belittle any entrepreneur’s efforts, and I certainly wouldn’t bet against them. But there’s a difference between doing something just to be doing it (and not really believing in it) and going all-in with people who have what it takes to succeed.
And yes, many entrepreneurs don’t really believe in what they are doing: if they did, they’d quit their day jobs. Building up and then tearing down a half-baked startup takes time as well as real and emotional capital. Why waste all that? Life is short. Find the right teammates (if you need anyone beyond yourself to begin) and then go all in. Your support network will rally around you.
What Investors Look For
You may think investors read your idea first. They don’t. They look at where you live. They look at who your attorney is. They look at your background. They look at your team. Smart investors know that your network says more about you than anything else.
Once they’ve figured out “who you are,” then they consider your idea and determine if you have any hope in hell of delivering what you’re promising. Investors know ideas are cheap; they see them all the time, and usually have many ideas of their own. What they are looking for is why they should bet on you to deliver on your particular idea. And frankly, they are looking to see if you are delusional!
If you are realistic about your chances, have spent time building a good team, and have cast your team members in appropriate roles, most investors will look at any plausible idea favorably. It doesn’t hurt if you share some common acquaintances, either; shared social networks and shared values help ensure long term commitment to the investor and the community. This is why angels almost always invest close to home.
Local Is Best
It’s both tempting and possible to put together a “virtual” company with folks spread around the world. However, investors see this as a sign of team weakness. It means video conferencing instead of face-to-face meetings. It means slower response times. It means travel costs and weaker relationships. In the end, it lowers your chances of success and is just a pain in the ass.
In the context of larger established companies, having some remote workers can make lots of sense. But if you’re trying to launch a startup, do it with the people in your own backyard. Can’t find the right people? Keep digging; see below.
Build Your Network
The single best thing you can do to as an early stage startup is to build up your network of potential team members. And don’t just collect business cards at networking events. Build real relationships. Figure out what makes people tick. Spend time in environments where you take risks with people and try out new things. They will become your casting pool, now and in the future.
One of the best ways to do that is to get involved in your local tech community. Here in Baltimore, we have Beehive Baltimore, which lets freelancers and entrepreneurs spend time working together. From Beehive, TEDxMidAtlantic was born. That event brought over 100 amazing entrepreneurial thinkers together in organizing a 500 person, very complex event. Go to events like Ignite Baltimore; listen to the people around you and think about how you can collaborate with them. Grab lunch and beer with people!
These are just a few observations I have gleaned from my work with Baltimore Angels and with starting and observing many companies over the last 23 years. I welcome your comments!
10 comments ↓
Nice post. The only thing I’d question is the wisdom of quitting your day job too soon. I admittedly don’t know too many startups intimately, but the small tech companies I know were built steadily and in little steps under the cover of a day job. Eventually they built momentum and quitting the day job became a necessity rather than a risk. I don’t see that as “not believing in what you’re doing”, I see it as “not being hubristic”, or “being practical”. As you say, the best idea in the world is just a nice starting point in the direction of success. Great ideas don’t feed you or pay you health insurance. Why take a huge risk at precisely the time you have the least resilience to failed risks? Build it in smaller steps to chip away at that risk.
But, like I said, I’m not familiar with a lot of startups. Maybe different kinds of startups have different needs.
Chris – Investors disagree. It’s pretty disheartening to hear a pitch from an entrepreneur who is hedging their bets and not willing to commit to going all in. It’s always a sign that the team is weak and not yet formed. And that’s not a criticism, but it’s a very good sign that the entrepreneur is not ready for investment.
Similarly, investors really disdain entrepreneurs looking to draw a salary from investment capital. The best way to go from the standpoint of attracting investors, if you can swing it, is to build up some savings and then go all in. It shows you are serious, and you probably are.
Investors will want to see their capital spent on advancing the business goals and not going to your personal overhead. They will question why they instead don’t invest in the same basic idea with another entrepreneur with less costs and who is more prepared.
Lastly, people are too timid. You will not get rewards without taking risks, and if you have a strong network, your chances of success go way up. Be smart, have good friends, and DO quit the day job!
Ah, right. After writing the above, I realized we’re talking about different beasts. I’m thinking of self-funded bootstrapping, you’re talking about VC-funded bootstrapping. The latter is something I know nothing about; I’m only (moderately) familiar with the former. Now that I see the distinction your advice makes more sense. Something like: Investment money should be used to accomplish something that the labor of the founders can’t accomplish alone. (?) In which case, yeah, I can see how it wouldn’t make sense to invest that money until the team is devoting their full energy to using it to greatest effect.
Chris – I am actually coming at it from the perspective of an angel investor, which (believe me) is a far cry from the position of most VC’s.
But I believe the advice is sound across the board. Good teams matter for bootstrappers, people taking angel investment, and certainly for people taking VC investment.
Your money could be earning 5-10% in the markets; your entrepreneurial returns should exceed that in the long term, or why do it?
As your first, biggest investor, you should want you to quit your day job as much as any external investor would because it increases chances of success.
Also, there are lots of types of companies. Lifestyle companies offer great personal freedom but will never attract investors. I’m not talking about lifestyle companies here.
Dave –
I have to tell you, one of the most annoying things to me as an entrepreneur who is bootstrapping his startup, is how all conversations about startups assume the goal is looking good to VCs.
My goal is to build a good business. If this attracts VCs, so be it, but I’m not going to make major strategic decisions about my company based on whether I think it will impress a few people I don’t know.
Every week, there are posts that warn about the minuscule percentage of companies that are funded. Right behind each of those posts, are handfuls of posts about how not to pitch VCs and how to get the attention of VCs and how to build a team that will make VCs change their religion and yada yada yada. I’m sure attracting VC money is the wet dream many entrepreneurs have (although, I don’t really know why) and this is the stuff that draws their eyeballs to blogs, but the incongruity seems a bit odd, even disingenuous, at times.
IMO, making decisions about your company (at the stage we’re talking here) based on what impression you think it will give VCs is probably putting the cart before the horse for the great majority of startups.
To me, the “do I quit my job” question is so personal and so dependent on a variety of variables (family support/siutation, nest egg, personality, etc.) that for someone on the outside to tell someone they should or shouldn’t do it and when without a conversation about it is, well, bad advice.
BTW, I 100% agree in how important a decision choosing the right team is, just for different reasons, obviously. 🙂
Nick – notice I never used ‘venture capitalist’ in my post. Like you, I think the obsession with VCs is silly.
What I did talk about (a lot) is investors, and that includes you. You are your own first investor.
What are you trying to achieve as an entrepreneur? If you want to build a lifestyle company, that’s cool and my comments don’t apply. Because you’ll never be able to sell a lifestyle company (most likely), and you aren’t setting yourself up to be a serial entrepreneur. Fine, but a different problem.
If you are growing a company to sell it, and are looking to be a serial entrepreneur, you should always be thinking about investors, whether that’s friends and family, angels, VC’s, or even a potential acquirer.
Team is paramount if you are talking about investors – any investors, including you. What I am suggesting is that unless you build up your team first, you should NOT quit your day job because you, as your first and biggest investor, are as insane to bet on an incomplete team as any other investor would be.
I am also suggesting that if you have identified your team, and you are really confident about it, it’s equally insane for you NOT to quit your day job, because any investor (you especially) should demand 100% of your attention.
It’s funny that entrepreneurs often don’t think of themselves as investors. They should.
I guess my objection boils down to this sentence:
“And yes, many entrepreneurs don’t really believe in what they are doing: if they did, they’d quit their day jobs.”
You clarify it in the comments like so:
“What I am suggesting is that unless you build up your team first, you should NOT quit your day job because you, as your first and biggest investor, are as insane to bet on an incomplete team as any other investor would be.”
And that’s pretty much all I’m getting at–the point that quitting your day job is not about how much you believe in your idea. Quitting your day job because you believe you’ve got a really fab idea would only serve to demonstrate you have no idea where the value of a company comes from. People have really fab ideas all the time. Fab ideas aren’t worth anything on their own. I reckon we don’t disagree on this, but the way you phrased it in the original post seems vulnerable to misinterpretation on this important point. It’s not enough to believe really hard: you’ve got to back it up with something. You argue that the only fundamental thing you need to back it up with is a team. I might quibble and say it wouldn’t hurt to back it up with some cold hard shippable code too. (Although I do put priority of the team over the code.) But either way the point is: quit your day job, sure, but don’t do it for the wrong reasons, and go in with both eyes open.
Chris, I agree that you shouldn’t quit your job just to pursue your idea. You should quit your job when you have a team lined up to pursue your idea, even if that team is only you (and you are sufficient to prosecute it).
The key idea is that you should see yourself as your first investor, and you should behave like one. If you believe you have aligned the right team resources, then there’s no reason to wait in pursuing it.
You and all investors should see not quitting your job the same way: as a sign that you’re not quite ready to move forward and probably need more or different team members.
Interesting post by @davetroy, ‘Team is Everything.’ I found the What Investors Look For section especially good http://davetroy.com/?p=671
You must log in to post a comment.