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CHAPTER 5. BUILDING THE startup TEAM. Learning Objectives . Explain how to effectively build a founding team. Understand how to work with professional advisers. Discuss when to add a board of directors.

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learning objectives
Learning Objectives
  • Explain how to effectively build a founding team.
  • Understand how to work with professional advisers.
  • Discuss when to add a board of directors.
  • Compare and contrast the pros and cons of outsourcing with independent contractors versus hiring employees.
building effective founding teams
Building Effective Founding Teams
  • Why do teams lead to a better chance for success?
    • Shared intense effort required by a startup
    • Loss of one member less likely to result in startup abandonment
    • Team concept permits expertise across major functional areas: marketing, finance, operations
    • Skilled team lends legitimacy to the startup in the eyes of lenders, investors, etc.
    • Diverse experience of the team allows entrepreneur to make better decisions
creating the founding team
Creating the Founding Team
  • Benchmarks for an effective team:
    • Shared vision between lead entrepreneur and the team
    • Shared passion leads to shared hard work
    • Industry experience relevant to the new venture
    • Solid industry contacts with sources of capital
    • Functional areas of the business are represented
    • Team members have good credit ratings
    • Team members have the time and money to endure startup constraints
special issues for high tech teams
Special Issues for High-Tech Teams
  • Funding is through angel and venture capital.
  • Founding team consists of scientists-engineers with little market or business experience.
  • The venture requires professional management outside of the founding team.
  • The investors help with forming this team.
unique issues surrounding virtual teams
Unique Issues SurroundingVirtual Teams
  • Virtual teams function differently and affect how the team interacts.
  • Synchronous-asynchronous communication media alleviate physical distance issues.
  • Trust is critical to effective virtual teamwork.
founding teams for international ventures
Founding Teams for International Ventures
  • Success in the international market depends on the skills and knowledge of the team.
  • Successful characteristics include:
    • Extent to which founding team members have traveled or worked abroad
    • The number of languages they speak
  • Experienced founding teams likely to form partnerships to facilitate entering the foreign market.
rules for friends and families
Rules for Friends and Families
  • Friends/family members must possess real skills and expertise required by the venture.
  • They need to share the same work ethic as the entrepreneur.
  • The advisory board must include outsiders to balance input objectivity.
  • All relationships are business oriented and must be stated clearly spelled out.
seeking professional advisers
Seeking Professional Advisers
  • Outsourcing solutions for professional help:
    • Attorneys
    • Accountants
    • Bankers
    • Insurance agents
  • “As-needed” assistance for information, assistance in reviewing business concept, and reality checks
seeking personal advisors
Seeking Personal Advisors
  • Building a board of directors
    • Legal form of the business influences the decision to have a Board of Directors.
    • Boards provide beneficial expertise in establishing corporate strategy and philosophy.
    • Boards of publicly traded companies are elected by shareholders and represent their interests.
    • Members assist with business development, act as arbitrators for dispute resolution, and give credibility to the new company’s image.
building a board of directors
Building a Board of Directors
  • Considerations when choosing board members:
    • The necessary technical skill related to the business
    • Significant, successful experience in the industry
    • Experience running a company at the level the entrepreneur wants to grow to next
    • Important contacts in the industry
    • Experience in finance, capital acquisition, or IPOs
    • A personality compatible with the rest of the Board
    • Good problem-solving skills
    • Honesty and integrity, to engender a sense of mutual trust
advisory board
Advisory Board
  • Consists of a panel of experts interested in the new venture’s success
  • Ranges from infrequent meetings and no pay to frequent meetings and provided equity stake in company
  • Often used when board of directors is not required or in the startup phase
  • Helps the entrepreneur to overcome “tunnel vision”
the mentor board
The Mentor Board
  • The entrepreneur’s personal board who serve as a sounding board, coach, advisor
  • A safe haven for entrepreneur’s to air their fears, concerns, hopes, dreams
  • Generally role models and individuals who have businesses and lifestyles like the one the entrepreneur wants to create
mistakes to avoid
Mistakes to Avoid
  • All team members should have the required experience and qualifications, and the same goals for the business.
  • Avoid using only family and friends.
  • Only give stock incentives after an individual has proven him or herself.
mistakes to avoid cont d
Mistakes to Avoid (cont’d)
  • Equity distribution: it is important to clearly understand what each team member is contributing and value it appropriately.
  • Buy-sell agreement: used to prevent an owner from selling his/her interests in company without consent of the other owners and to determine what happens should owner leave the business.
outsourcing with independent contractors
Outsourcing with Independent Contractors
  • Independent contractors (ICs) own their own businesses and are hired by the entrepreneur to do a specific job.
    • Including: consultants, manufacturers, distributors, employee leasing firms, and professional advisers.
    • Hidden costs:
      • Searching and contracting ICs
      • Transferring activities to ICs
      • Managing IC
      • Bringing activity in-house
types of independent contractors
Types of Independent Contractors
  • Consultants
  • Professional employer organizations (PEOs)
  • Manufacturing support
  • Sales support