Building a startup team is something you need to get started with. Here is what you … [+]
For most entrepreneurs, the startup journey begins with an idea. However, you could argue that the first time you bring someone else into your business is an even more important milestone.
“You need three things to create a successful startup: start with good people, do what customers actually want, and spend as little money as possible.” – Paul Graham.
It is no accident that Paul Graham, the co-founder of Y Combinator, started the list with good people. Early startup ideas are inevitably going to change a lot and have very little value before being tested against reality (before proving that the product or service is something customers actually want). It is your early stage startup team that seeks and finds this validation.
As a result, building a startup team is something that you need to get started with. Here’s what you need to know about hiring startups in the early or growth stages.
The early stage startup team
The early stage startup team is largely defined by the first and third parts of Paul’s advice. You need to attract the right people while carefully planning the next stages of the business. This is a critical point because the more money you have, the more time you will have to devote to your ideas and trying different approaches. And the better your team, the better your execution and the higher the chances of building and commercializing something that people need.
Early-stage startup mutual fund First Round Capital shows that teams of two or more founders outperform solo founders by 163%. This underscores the importance of the early stage team. It’s ideal to have a team from the start.
In general, your team needs to cover two important areas:
First, you need at least one person who is knowledgeable about marketing and sales and who knows the industry. This person is responsible for speaking to customers and collecting their feedback. This is the most important activity if you want to make sure you are creating a startup product that customers will want.
Second, you need a person with the necessary technical skills to create the product that will test the market.
Once your startup has managed to raise resources (usually through fundraising after showing the traction at an early stage), it’s a good time to expand your team. The most important thing is that you are not a traditional company yet, which means you don’t need traditional employees. You need people with an entrepreneurial mindset, a high risk tolerance and, above all, a lot of proactivity.
Your early-stage team members behave very much like co-founders. Hence, it is imperative that you find highly motivated people willing to pull their own weight and have energy to spare.
The startup team in the growth phase
If your team is successful early on, your business will grow and you will have access to more resources so you can hire more people.
In this phase, the company’s requirements become more and more complex. You need more salespeople and engineers, but you also need people to take care of the legal and financial side of your business.
However, one of the biggest startup killers is scaling up prematurely, some of which is being adjusted too much before business needs can warrant it. According to the Startup Genome Project, 70% of the startups in their study suffered from premature scaling, and at the same time, not even one startup that was prematurely scaled exceeded the 100,000 user mark.
In the growth phase, it is important to carefully decide whether to expand your in-house team or to outsource whatever functions you can afford. As you expand your internal team, it creates high intrinsic value over the long term (usually in the form of culture), but it also increases your fixed costs and makes your company less flexible. It’s very hard to downsize and scale fast enough, which can create dangerous liquidity problems.
If your cash flows are volatile (and often for growing startups) it is usually better to outsource them to keep your core team small and flexible.
In summary, a good startup team is undoubtedly one of the prerequisites for a startup to be successful. Every business is different. However, as a rule of thumb, if you want to invest your money in recruiting an exceptional team or team member, how that investment will help you move your startup forward. A team is an investment and different teams will result in different returns on your investment. Investing in the wrong team has negative consequences.
There are many startup areas that you should always think about ways to cut costs. It’s different with the setting. Bringing in the wrong person or team can cost significantly more than the premium paid for the right recruits, especially in the early days when each team member’s goals need to be aligned.