Five Roles Startups should Hire before raising VC Money
A strong team is the only defense against failure for today's founders
Venture capital investors have a maxim that they invest in teams, not specific technologies or ideas. However, over the last decade we have seen an increasing number of talented teams fall apart and investors forcing startup founders out of lead roles. Elon Musk ceased to be chairman of the board after a tweet went awry, and Facebook founder Mark Zuckerberg regularly defends against attempts to unseat him as a chairman as well. What could be wrong with the teams from the most successful startups? The problem is more complex than it seems at first glance.
On the one hand, this is a generational problem. From the founding of Silicon Valley until approximately 2005, technology companies evolved at a natural pace — not unlike any other business sector. The founders grew along with their companies, gradually assembling robust and stable teams. For the founders of HP, Microsoft and Apple, this process was a lifelong undertaking.
The millennial businessmen of today admit that they don't see themselves running only one business their whole life. On average, people from this generation plan to retire eight years earlier than baby-boomers; and 43 percent do not want to work in one place for more than two years. A whole generation of “professional founders”, visionaries who found one company after another with no intention of growing or managing the business, has taken over Silicon Valley.
On the other hand, the industry itself, overflowing with available venture capital, is not conducive to building robust and stable founding teams. According to PWC, $207 billion was invested in startups in 2018. As soon as a company from a portfolio breaks through — even without a sustainable profit generation model at that stage — the investors begin to put a great deal of pressure on the founder, demanding fast growth and an IPO (think Uber with its $100 billion valuation against the background of losses). Under such conditions, the chances for an inexperienced founder to stay at the helm are slim to none.
During the first wave of startups, all successful teams were necessarily guided by a mentor – a senior with extensive life and business experience who helped make proper decisions and point out weaknesses. Essentially all successful teams from that period fit the “two technical guys + an older mentor” model – Timothy Koogle was the mentor for Yahoo’s Jerry Yang and David Filo, and Eric Schmidt for Google’s Larry Page and Sergey Brin.
Today, we see that being tech-savvy is not a must to receive millions of dollars in seed investment – having an idea or a vision is enough. Accelerators and incubators have taken on the role of mentors, and “technical guys” are available for hire. This has led us to stories like that of Theranos – a 22-year-old Stanford student sells investors on her vision of “many, many” blood tests from just a single drop of blood. No one from within the company, nor any of its mentors or investors, realised a seemingly obvious fact – different blood tests would require mixing the blood with various diluting agents, which would not allow for multiple tests from only one drop of blood.
Investors can protect themselves from such failures by having dozens of startups in their portfolio. But, for today’s founders, a strong team is the only defense against failure. If there isn’t time to slowly gain experience, a company needs to hire qualified people to occupy the following five key functions before infusing big money into the business:
Visionary: The person who is able to identify consumer needs and come up with breakthrough products to fill those gaps. The visionary always solves real human issues, not abstract technological problems.
Specialist in a narrow field or technology: The one who knows how everything works on a technical level. Remember Elizabeth Holmes.
Experienced mentor: An older person ready to guide and share experiences. These people usually occupy the position of Deputy Director and don’t take an active role in the day-to-day business activities, but these are the people that younger founders can look up to for advice and guidance.
Marketing expert: Even if you thought up of a relevant product and created it, how would people become aware of it? Of course, Facebook and Google provide promotional tools, but you still need someone who has the expertise to understand how to use those tools to put forth a value proposition to potential consumers. A marketing expert will enable a company to make immediate profits, rather than run solely on investment money.
Communicator: Someone who helps build relationships between key team members, find compromises and resolve conflicts. I’ve seen many teams with strong leaders, each pulling in different directions, resulting in a suffering business. For example, Elon Musk's vision is always ahead of production capability, which creates a need for someone who can help the technologist and the visionary come to an agreement before making announcements to investors and the wider public.
It’s possible you will build the next startup valued at $100 billion for an IPO – or not. In any case, if you’re aiming to build a business that will stand on its own two feet, learn from the lessons of the past and start with the right team.