Peter Thiel, cofounder of PayPal, is quite blunt when it comes to the importance of a company having the right founding team.
A startup messed up at its foundation cannot be fixed.” That’s because, to Thiel, the early days of a startup are “qualitatively different from all that come afterward.” Paul Graham, cofounder of Y Combinator, phrases it a little differently — “Cofounders are for a startup what location is for real estate… You can change anything about a house except where it is.
Having the right people early on can make or break a company—it’s that important.
7 Things to Consider When Gauging Startup Founders
- History. According to Thiel, “founders should share a prehistory before they start a company together—otherwise they’re just rolling the dice.” Other considerations matter (and will be discussed later), but the founding team needs a synergy that is strong enough to withstand, and work through, inevitable challenges and difficulties that come when transitioning a concept into a company. This doesn’t necessarily mean they have a lengthy track record of success—quite the opposite, in fact—but it does mean they know each other well enough to work well together. Consistently.
- Ability. Of course, technical ability matters immensely—especially if the technology itself is going to be the differentiating element of the company. That doesn’t mean the founding team needs to be full of computer scientists. In fact, in a recent analysis of about 30 recent successful startups, 70% had at least one technical cofounder, while 40% were composed exclusively of engineers.
- Number. How many people does the company have? And does it make sense for the stage they are in? Amazon’s CEO, Jeff Bezos, refers to the “two-pizza team.” That is, if you can’t feed a team with two pizzas, it’s too large. Again, the effect of size depends on a number of factors, but large founding teams can be burdensome. More does not always mean better as it can be an indication of poor communication, a high cash burn, misalignment, inflexibility, or unshared visions. The flip-side is equally true. It’s uncommon to see successful companies created by a sole cofounder—generally, it’s important to have another person who shares your vision, can help make difficult decisions, and is able to execute a different piece of whatever is being created.
- Having a why. Perhaps it’s a cliché, but every company exists for a purpose, and that purpose is distillable into a sentence or two. Knowing why people are committed to a common goal is important for two predominant reasons: first, there is a unity of vision underlying the startup; and second, when times get difficult—which they inevitably will—a higher purpose serves as motivation to continue. In other words, it suggests an appealing level of grit and hustle that will keep the company alive.
- Incentive. The founding team needs to have a sensible equity split. This can take a few different forms, but in part, ownership of the company is very much the reward for creating its success. Having a messy division of equity—an ill conceived who-owns-what—can create havoc later on, especially if the startup begins to raise money.
- Execution. It’s helpful for a founding team to be able to demonstrate a level of accomplishment. That is, being able to show that the product they built has a niche (and, ideally, that niche is not too small) and a market. This execution may also be indicative of a type of fearlessness. Many startups are paralyzed by fear of launching something imperfect, so they delay. Startups who execute know when and how to launch, and are unafraid of doing so—even if it feels too soon. The different metrics used to measure early success vary from industry to industry, but even the slightest traction can suggest positive levels of hustle and execution—without these (and without a viable market), startups fail.
- Versatility. This could certainly have been included as a subset of execution, but having a flexible founding team is invaluable. This doesn’t necessarily mean that founding teams need to share skillsets—again, quite the opposite—but it does mean that plans may change, new ideas may pivot to newer and different ideas, and roles may shuffle. Entrenched, one-dimensional teams respond to this with hesitancy and obstinacy; skillful teams embrace it.
The fact remains: “No business is so good that the wrong people can’t mess it up.” Which is why one of the first steps in the analysis of a startup is a close, deep look at the founding team.
