How to get a team for a startup business
The importance of team in a startup
“A founder’s individual characteristics are important but what’s more important is that person’s ability to bring a bigger and more experienced team with them, and the bigger that team the more likely the firm will succeed.”
(Source: Rotman School of Management)
“If you are the smartest person in the room, then you are in the wrong room.”
Let’s start with the thought that, being the smartest person in the room is possibly the dumbest thing you can do when it comes to creating a great business from an idea. If you entered every room knowing you had more intelligence than the rest your ego may be satisfied, but there would be no one there that knew more than you and who could add ideas, inspiration and skills to your startup. You’re on your own. At this point you are relying on your own capabilities for everything.
How about creating a new room? Let’s call it your ‘Team’. Fill the ‘room’ with people who have different skills, the ones that you are weakest on and stop worrying about not being the smartest person in the room. Investors in your business will value the talent that you have assembled and see in you a founder capable of leading a team, taking a vision to completion and returning a profit for them. The success of a new venture doesn’t just lie with the founders and their vision. It’s only when those founders attract a great team around them, bringing in more experience and a diverse range of skills, helping to drive the founders’ vision forward, that long-term success will be possible.
How to pick your perfect team
Finding your dream team
Entrepreneurs sole focus is often their start-up. Hiring people who share this vision is crucial in ensuring the start-up has the best chance to achieve its goals.
Employees accustomed to working in corporations enjoy the comfort of consistency and often need to be told what to do, so many probably wouldn’t make a good fit for your start-up. On the other hand, start-up employees are creative and can operate without constant oversight and aren’t afraid to bring up new ideas and work to implement them. To attract the right team, look for self-starters who have achieved things in their own life, individuals with the ability to make out-of-the-box decisions and know how to work towards goals. Look for people who enjoy thinking on their feet but aren’t afraid to roll up their sleeves when necessary.
Your team critical to the success of your new venture, how do you pick the right people? Here are a few things to consider:
- Identify your company’s weak spots
Everyone has strengths and weaknesses, things they are good at and some they’re not. Identify the skills you have, and the skills you need as early as possible
- Identify time commitments
Identify early on whether you need full-time assistance or not. A part-timer you’re confident in is often better than a full-timer you’re not
- Identify potential candidates
Consider the skills you require and the experience of people you know and whether this compliments what you already have on board. Can they be relied upon and how important is a salary to them in the early stages?
- Have the conversation
You may already know candidates well, but you will still need to make a formal offer to them, so think through how you can persuade them of the merits of joining your team
- Assess continuously
You will then need to regularly assess how well the company’s goals and milestones are being met by your founding team and plug any knowledge gaps that may have arisen with new personnel.
- Your startup has Directors, but does it need an Advisory Board?
A board of directors is the governing body of a company. Directors are elected by the shareholders to act in the best interests of the company. An advisory board is an informal panel of independent people who give non-binding strategic advice to the owners and founders of a business. An advisory board can provide broad strategic advice, but cannot dictate how management run the company, and cannot appoint staff. An advisory board can be a considerable asset for your business at all stages of growth.
How does a startup remunerate key employees?
Advisory Board members are usually remunerated on an hourly/daily rate dependent on the depth of their involvement. It is not unusual for member to be on an Advisory Board for short periods e.g. 6 months whilst the company is going through various stages.
Compensation might take the form of:
- Fees – typically $1,000 to $1,500 per monthly meeting is a typical amount for high level professional individuals
- Out of pocket expenses
- Stock options. Some board members will be more valuable than others and you don’t have to compensate them all the same.
Incentivise Key Start-up Employees
Start-up employees typically have the same goals and working for a start-up provides experiences not available in established companies that can afford to pay high salaries to attract the right people. The key to attracting and incentivising the best start-up candidates is to understand the intrinsic value that working at a start-up offers. These include:
- Broader responsibilities – Employees in larger organisations are often restricted to a small set of job responsibilities whereas a start-up is usually unstructured allowing employees to gain valuable knowledge and experience above and beyond their corporate counterparts. Employees attracted to start-ups are generally more capable of thinking outside the box and are versed in multiple disciplines. The exposure to the start-up environment provides employees with experience alone that they would not get in other companies.
- Effective ownership – Large corporations offer employee option and share participation plans, but start-ups can offer real equity. Investors generally require key employees to be locked-in with a future stake in the business that will vest, subject to meeting set milestones, over a period of years. Employees effectively own a piece of the business they’re helping to build while taking on real tasks that directly affect the bottom line which is a great way to incentivise them to work harder and more passionately to achieve the company’s vision.
- Flexible work schedules – Start-ups can be more flexible than larger organisations and allow a variety of working options that suits the company and the employee. Start-ups can more easily accommodate workers’ personal lives with split shifts, compressed schedules, and other creative scheduling techniques.
Key executives that start-ups cannot afford
- Every start-up needs the best talent it can get, however, there is an affordability limit that forces them to economise in certain key areas. CFOs, COOs and other key roles cannot be filled until the business scales significantly. These roles will become very important as you go through future funding rounds and expansion so how does a start-up fill this gap?The major accounting houses of the world have identified the start-up sector as a source of future clients and have decided to respond with a service that provides many of the administrative functions including Board Reporting, Visa management and other functions. Previously to become a client would have required full hourly rates to be paid which for most start-ups is out of the question.
Now an interim service is available that covers many of the necessary areas at a fixed fee per month. One example is the programme introduced by Ernst Young that delivers these services for approximately $2,500 per month eliminating the need for a start-up to engage far more expensive personnel but still delivers the professional level of Governance required by investors. It is a useful interim step.
Managing a startup team for my new business
Team management can determine the success or failure of a start-up. As the founder you need to be aware of the things that are required to establish your business and set it on a path to success. Your Business Plan outlines the stages you have thought are necessary and the funds required to achieve this, however, does it identify the skills gaps that exist amongst your team?
Some key fundamentals to consider when managing your startup team are:
- Training – Are there areas in which they need to upgrade their skills or learn more about your product and its implementation?
- Planning – Have you established clear objectives, responsibilities and deliverables? Do they understand what needs to be done?
- Personalities – Are there different but valuable personalities that you need to manage?
- Communications – Do you have a plan or schedule for regular communications and discussion of what went well, what went wrong and what needs to be done?
- Incentives for achievement – Set clear and achievable targets and reward employees in several ways:
- Short-Term Incentive Plans
Short-term incentives, also often referred to as annual incentives, are intended to compensate executives for achieving the company’s short-term business strategy based on achievement of goals by the board compensation committee.
The nature of these goals varies depending on the type and maturity of the business, specific company strategy, market conditions and other factors. Short-term incentive metrics are typically financial in nature, such as revenue growth, return on capital or maximising profit, and many companies also include non-financial metrics that are consistent with company strategy, such as meeting safety or quality assurance hurdles, or delivering on development of a new business or product. Annual incentive opportunity is typically expressed as a target percentage of the executive’s salary, and plans are typically constructed to provide threshold, target and maximum levels of performance which then generate corresponding threshold, target and maximum levels of pay.
Generally, performance below the threshold level will result in no payout, while performance above the maximum level may be capped at the maximum payout tier (often 200% of target) to mitigate risk-taking.
- Long-Term Incentive Plans
Retaining good employees saves you money. There is no need to go through the expense of recruiting and training new workers if your workers aren’t leaving. Long-term incentive plans encourage employees to remain loyal to your business. A range of incentive plans, implemented at graduated longevity milestones, can convince employees to stay at the company for many years. Typical long-term incentive plans provide rewards every two to five years.
- Stock Options
A company benefit of stock options for employees who have been with the company for five years provides a long-term incentive, while at the same time making it achievable. Increase the amount of stock the employee can access at a discount for every five years he is with your company. The employee pays a percentage of each share’s value, with you paying the balance.
The percentage of each share that you buy increases with employee seniority with the company. Another option is restricted stock. The company gifts stock shares to the employee with restrictions. For example, the company can structure it so the employee forfeits all gifted stock if he resigns within two years of receipt. For each subsequent year of employment, he retains the rights to an additional 25 percent of the gifted stock. During the fifth year of employment following the stock gifting, the employee is fully vested and owns it all, even if he resigns.
- Vacation Increases
Adding a week’s additional vacation time for every five years the employee works cements company loyalty for the long haul.
Cash awards that are given every three to five years of employment on the achievement of certain performance goals work well as long-term employee incentives. Performance is typically measured against projected growth, sales expectations and peer group evaluations in the industry. The award amount is based on multiple base-salary calculations.
Your team is as crucial as your idea, they can make or break a startup. Keeping them together, focused and incentivised is the role of the founder and its importance should never be underestimated.