Chapter 9. Building a New-Venture Team

New Venture Team

A new-venture team is the group of founders, key employees, and advisers that move a new venture from an idea to a fully functioning firm. Usually, the team doesn't come all at once. Instead, it is built as the new firm can afford to hire additional personnel. The team also involves more than paid employees. Many firms have a board of directors, a board of advisors, investors and other professionals on whom they rely for direction and advice.

Liability of Newness as a Challenge

The high failure rate is due in part to what is known as the liability of newness, which refers to the fact that companies often falter because the people who start them aren't able to adjust quickly enough to their new roles and because the firm lacks a "track record" with outside buyers and suppliers. Indeed, experienced management teams that get up to the speed quickly are much less likely to make a novice's mistakes. In addition, firms are able to persuade high-quality individuals to join them as directors or advisers quickly gain legitimacy with a variety of people, such as some of those working inside the venture as well as some outside the venture (e.g., suppliers, customers, and investors). In turn, legitimacy opens doors that otherwise would be closed.

Another way entrepreneurs overcome the liability of newness is by attending entrepreneurship-focused workshops and events, such as Startup Weekend, hackathons, boot camps, and so on. Another route to overcoming the liabilities of newness is joining one of the growing number of start-up accelerators that are popping up across the country.

Entrepreneurs should remember that, at the end of the day, the faster they can overcome the liabilities associated with launching a new venture, the greater the likelihood they will achieve success with their firm.

Creating a New-Venture Team

Those who launch or found an entrepreneurial venture have an important role to play in shaping the firm's business model. The key to success is not the idea but rather the ability of the initial founder or founders to assemble a team that can execute the idea better than anyone else.

The way a founder builds a new-venture team sends an important signal to potential investors, partners and employees. In general, the way to impress them is to put together as strong a team as possible. Investors and others know that experienced personnel and access in good-quality advice contribute greatly to a new venture's success. 

Here are the elements of a new-venture team

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It is important to carefully think through each element. Miscues regarding whether team members are compatible, whether the team is properly balanced in terms of areas of expertise, and how the permanent members of the team will physically work together can be fatal.

There is a common set of mistakes to avoid when putting together a new venture team. These mistakes raise red flags when a potential investors, employee, or business partner evaluate a new venture.

The Founder or Founders 

Founders' characteristics and their early decisions significantly affect the way an entrepreneurial venture is received and the manner in which the new-venture team takes shape. The size of the founding team and the qualities of the founder or founders are the two most important issues in this matter.

Size of the Founding Team

The first decision that most founders face is whether to start a firm on their own or whether to build an initial founding team. Teams bring more talent, resources, ideas and professional contacts to a new venture than does a sole entrepreneur. In addition, the psychological support that co-founders of a business can offer one another can be an important element in  a new venture's success. Team members can easily differ in terms of work habits, tolerances for risk, level of passion for the business, ideas on how the business should be run, and similar key issues. If a new-venture team isn't able to reach consensus on these issues, it may be handicapped from the outset.

When a new venture is started by a team, several issues affect the value of the team. First, teams that have worked together before, as opposed to teams that are working together for the first time, have an edge. Second, if the members of the team are heterogeneous rather than homogeneous, they are likely to have different points of view about technology, hiring decisions, competitive tactics, and other important activities.

Qualities of the Founders

The second major issue pertaining to the founders of a firm is the qualities they bring to the table. One reason the founders are so important is that in the early days of a firm, their knowledge, skills, and experiences are the most valuable resources the firm has. 

The level of a founder's education is important because it's believed that entrepreneurial abilities such as search skills, foresight, creativity, and computer skills are enhanced through obtaining a college degree. Similarly, some observers think that the higher education equips a founder with important business-related skills, such as math and communications. In addition, specific forms of education such as engineering, computer science, management information systems, physics, and biochemistry provide the recipients of this education an advantage if they start a firm that is related to their area of expertise.

A particularly important attribute for founders or founding teams is the presence of a mature network of social and professional contacts. Founders must often "work" their social and personal networks to raise money or gain access to critical resources on behalf of their firms. Networking is building and maintaining relationships with people whose interests are similar or whose relationship could bring advantages to a firm. For some founders, networking is easy and is an important part of their daily routine. For others, it is a learned skill.

The Management Team and Key Employees

Once the decision to launch a new venture has been made, building a management team and hiring key employees begins. Start-ups vary in terms of how quickly they need to add personnel. In some instances, the founders work alone for a period of time while the business plan is being written and the venture begins taking shape. In other instances, employees are hired immediately.

One technique available to entrepreneurs to help prioritize their hiring needs is to maintain a skills profile. A skills profile is a chart that depicts the most important skills that are needed and where skills gaps exists.

To save money, increase flexibility, and mitigate the difficulty in finding good employees, new ventures use four different sources of labor to get their work done. First, an employee is someone who works for a business, at the business's location or virtually, utilizing the business's tools and equipment and according to the business's policies and procedures. Second, an intern is a person who works for a business as an apprentice or trainee for the purpose of obtaining practical experience. Third, a freelancer is a person who is in business for themselves, works on their own time with their own tools and equipment, and performs services for a number of different clients. Fourth, a virtual assistant is a freelancer, who provides administrative, technical, or creative assistance to clients remotely from a home office.

The Roles of the Board of Directors

If a new venture organizes as a corporation, it is legally required to have a board of directors⎯a panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm. A board is typically made up of both inside and outside directors. An inside director is a person who is also an officer of the firm. An outside director is someone who is not employed by the firm. A board of director has three formal responsibilities:

1. Appoint the firm's officers (the key managers)
2. Declare dividends, and
3. Oversee the affairs of the corporation.

New ventures are more likely to pay their directors in company stock or ask them to serve without direct compensation⎯at least until the company is profitable.

If handled properly,  a company's board of directors can be an important part of the new-venture team.

Provide Expert Guidance

Although a board of directors has formal governance responsibilities, its most useful role is to provide guidance and support to the firm's managers. 

Lend Legitimacy

Providing legitimacy for entrepreneurial venture is another important function of a board of directors. Well-known and respected board members bring instant credibility to the firm.

Rounding Out the Team: The Role of Professional Advisers

Founders often rely on professionals with whom they interact for important counsel and advice. In many cases, these professionals become an important part of the new-venture team and fill what some entrepreneurs call "talent holes".

Board of Advisors

An advisory board is a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis. An advisory board possesses no legal responsibility for the firm and gives nonbinding advice. The most important thing that advisory board members can do is make high-level introductions to early customers, suppliers, and business partners.

Although having a board of advisors is widely recommended in start-up circles, most start-ups do not have one. As a result, one way a start-up can make itself stand out is to have one or more boards of advisors.

Lenders and Investors

Lenders and investors have vested interest in the companies they finance, often causing these individuals to become very involved in helping the firms they fund. In fact, the institutional rules governing banks and investment firms typically require that they monitor new ventures fairly closely, at least during the initial years of a loan or an investment.

The amount of time and energy a lender or investor dedicates to a new firm depends on the amount of money involved and how much help the new firm needs.

Other Professionals

At times, other professionals assume important roles in a new venture's success. Attorneys, accountants, and business consultants are often good sources of counsel and advice.

Consultants

A consultant is an individual who gives professional or expert advice. The role of general business consultant is as important as ever; it is the general business consultant who can conduct in-depth analyses on behalf of a firm, such as preparing a feasibility study or an industry analysis.

Consultants fall into two categories: paid consultants and consultants who are made available for free at a reduced rate through a nonprofit or government agency. The first category includes large international consulting firms. These firms provide a wide array of services but are beyond the reach of most start-ups because of budget limitations. Consultants are also available through nonprofit or government agencies.

In summary, putting together a new-venture team is one of the most critical activities that a founder or founders of a firm undertake. Many entrepreneurs suffer by not thinking broadly enough or carefully enough about this process. Ultimately, people must make any new venture work. New ventures benefit by surrounding themselves with high-quality employees and advisers to tackle the challenges involved with launching and growing an entrepreneurial firm.