On March 2015, at a TED conference, Bill Gross, founder of Idealab, presented his research outlining The single biggest reason why startups succeed, and after examining more than 200 companies, he suggested that “timing” accounted for 42% of a startups success (Exhibit 1).
While it’s interesting that timing is the biggest factor of success (and I do personally believe that to be true), as an entrepreneur, you really don’t have much control over time. All you can do is be really honest about whether or not consumers or companies are ready for what you have to offer them. If they are, go for it! If not, then you’ll just have to wait for that perfect moment to launch (and who knows when that will be?).
What is in your control, however, is the second factor – team (and the execution capabilities of that team). Therefore, when assembling your team, it’s be important to consider three factors:
Throughout the course of a startup’s lifetime, it is inevitable that a founder will ask himself (or herself): Should I hire friends and family or should I hire someone I’m less familiar with? The reality is (and this will be probably a theme among my posts) that it depends. However, when making this decision it’s important to consider some of the benefits and drawbacks of each, which I outline in Exhibits 2 and 3.
Exhibit 3. Advantages and disadvantages of hiring acquaintances
When hiring family, it’s important to be honest with yourself. You need to ensure that you actually can have those difficult discussions with (or even fire) your family member (whether it be a spouse or a distant third cousin) if he or she underperforms. What often happens is that co-founders underestimate how difficult these actions can be, as evinced in the HBS case, Family Matters at ProLab.
What I personally find the most important is ensuring that your team is heterogeneous and complementary when it comes to human capital (knowledge and skills from past experiences), social capital (connections, credibility).
Early on in a startup, founders typically hire generalists who can perform a variety of roles, since “business divisions” (e.g., marketing, sales, supply chain) are not yet set up. Therefore, these generalists may often be confused as to what their specific responsibilities and decision rights are, especially since they may overlap with other team members.
As a founder and hirer, it’s important to outline the candidates’ responsibilities early on (perhaps even before hiring him or her) so that there is less confusion around who determines and executes what. Otherwise, a lot of tension could be created as founders/teammates fight for who decides what.
When it comes to decision rights, as learned in the case, Savage Beast, consensus or democratic decision-making may be better early-on (especially as you strive to build a collegial culture), while a hierarchical structure is better for late-stage companies that need to make decisions quick.
3. LEGAL RISK
One factor that I never really considered when thinking about hiring for a startup is the potential legal risks associated with that hire.
In our Founder’s Dilemma discussion on the case, Sam Martin and Cathy Slater, I learned that as a founders, you need to be very careful about hiring or committing to people who may have legal restrictions (e.g., non-compete or non-solicitation agreements with prior employers) that prevent them from working at your firm.
For example, in the case, Sam Martin was a potential co-founder who had developed strong social capital (i.e., potential future customers for his startup) from his prior employer, however in his employee agreement, he had agreed to a “non-solicitation of customers” clause. Without knowing this, Cathy Slater (the other potential co-founder) and the future company would be at legal risk, should Sam have solicited those individuals.
These legal risks have huge consequences. They not only add stress to the founders, but they can also lead to fundraising complication, since investors don’t want to invest in companies they think face serious (and difficult to overcome) legal issues. Both of these lead to delays in the company’s progress, opening up doors for competitors without legal issues to come in.
Overall, let’s not discount the other 4 factors associated with a startups success, as Bill Gross points out, but for me, assembling the right team is the most important factor within our control.