Starting a company and making it successful are huge challenges for an entrepreneur. In fact, such challenges are so huge that founders usually conclude that they can’t do it all themselves. This means that they must hire other people. But how can entrepreneurs ensure that the benefits of those new hires exceed the risks?
To answer that question and five others that are vital to start-up success, I set out to interview at least 150 entrepreneurs and ask them how they build and grow their companies. My new book, Hungry Start-up Strategy (forthcoming in November 2012), details the key concepts that emerged from those interviews — focusing on six key questions of start-up strategy: how to set goals, pick markets, raise capital, build teams, gain share, and adapt to change.
When it comes to building teams, entrepreneurs make plenty of mistakes. Among the two most common ones are
- Hiring friends who don’t add the skills that the venture needs at each stage of its development. Founders too often think it will be fun to hire their friends and just do it before giving much thought to how those friends will affect the start-up’s ability to grow. I have had several conversations with young founders who do this and wake up fairly early on in the process realizing that those friends are adding little to the venture and demanding a big cash payment to go away; and
- Assuming the start-up’s culture will take care of itself. Another common problem is start-ups that do not understand the importance of culture — since the founders are often people who excel in developing the product and lack a deep understanding of how to work with other people. One of the unintended side effects of technical excellence is the failure to realize that hiring and motivating top people is a critical element of the entrepreneur’s job. And actively managing a culture is an essential part of that. Failure to do so leads to poor productivity, high turnover, and increased odds of running out of cash before getting market traction.
So what is a start-up CEO to do if he or she wants to build a team that helps the venture achieve its growth goals? Here are five key steps (assuming you already have assembled a team of co-founders):
- Evaluate founders’ skills and adjust accordingly. Once the founders have identified the skills required, they should take a hard look at whether the current founding team has those skills. If so, the start-up should get to work. If not, the founders should reconstitute the team to add needed skills and shed ones that are not adding value. Although it is painful, such reconstitution boosts the venture’s odds of succeeding.
- Agree on roles and goals. Once the founding team has been assembled, each member should agree on their role and set goals. And if the founding team can build the company to the point where it can raise expansion capital, it must decide how to articulate its culture — particularly if those funds will go to hiring a bigger team.
- Create culture. Many start-up CEOs perceive that they ought to define the venture’s culture in ways that will help them to hire. To that end, entrepreneurs develop a set of core values—either unilaterally or in collaboration with other stakeholders. The goal is to agree on shared values to build the team and boost its effectiveness as the company grows.
- Analyze skills needed to prove start-up concept. The start-up founders should take an objective look at the skills that the venture will need in order to prove that the concept can work as a viable business. To do this, it helps to look at successful competitors in the market the venture is seeking to enter. If there is a common bundle of skills that the most successful competitors have within their founding teams, the start-up should consider whether it should follow suit.
- Use culture to hire, promote, and purge. Finally, the start-up should use these core values to hire people. To that end, it should devise processes to find candidates and screen them that explicitly incorporate those core values. In that way, start-ups can limit the number of hiring mistakes they make. Moreover, entrepreneurs ought to use the core values to decide who to promote and who does not fit.
For an example of an entrepreneur who does this well, consider the case of Justin Moore, CEO of cloud services provider, Axcient. As I wrote in November 2011, Moore is so good at building teams and managing culture that venture backers call him in to fix companies that are suffering from weak cultures.
And while you might not be able to match Moore’s team building skill, there is much that can be learned by applying these five steps that will help you avoid the most common pitfalls.