Choosing the right people for a startup is so critical that one CEO says it’s even a higher priority than deciding what your company will do.
“First get the who, then the what,” said Michael Winwood, CEO of Optomi, an IT services company.
Finding the right people means connecting with the right co-founders, the most suitable employees and the most appropriate investors. Choosing the right co-founders and then the early-stage employees will set the tone of the company’s culture.
“You’d better have the same values,” said Radhika Emens, CEO of Tanjah Partners, a consulting firm that helps other companies enter global markets. Corporate values are the principles that mark how a company behaves. They can be overarching themes, such as sustainability, or the tenor of your business, such as being fun-loving. Even small businesses can adopt core themes, such as a restaurant that uses only fresh, local ingredients or that has a home-style feeling.
Failing to establish core values and a good relationship with a co-founder could lead to a bad company culture. A poor company culture could ruin even the best business strategy. “Culture eats strategy for breakfast,” Winwood said.
While Emens said she believes it’s important for co-founders to share values, she said their skill sets should not overlap much. “You need a co-founder that’s going to complement what you have,” she said. Often, that might mean that one of the founders is skilled with the core business while the other might be skilled at marketing, finance or business development.
Startup employees: Talent isn’t enough
Choosing employees to build the company and carry out your vision can be tricky because working in a startup requires different skills than working in an established company.
At the beginning of the startup, you’ll need to find employees who can build the business, which usually means being able to wear more than one hat, according to Anita Gardyne, founder of Oneva, a website for finding childcare and elder-care professionals who have cleared an FBI background check. “Early on, you need folks who can be the Swiss Army knife,” she said. People well-known for specific expertise may be great hires at a certain point in the company’s lifetime but might not be a good fit when you’re starting out, Gardyne added.
Gardyne advises taking advantage of subject matter experts’ expertise as advisors in your company’s planning stages, but choosing more versatile people as partners or early-stage employees.
Much of this is because startups don’t have the money to hire multiple people to do different jobs, but it also reflects the fact that startups almost always need to change direction or pivot before hitting on the strategy that succeeds. The company will need employees flexible enough to change course as the company does.
In addition, the early-stage employees need to be self-motivated problem solvers. “You don’t bring a CEO a problem,” Gardyne said. “You come to me with a solution. That’s why I hired you.” Gardyne said that as Oneva, which recently received angel funding, has grown, it has begun hiring specialists. “As our startup has evolved, we’ve needed different things,” she said.
Elizabeth Dodson, co-founder of HomeZada, which has a website for members to keep records about their homes and the items in them, advises founders to be deliberate in their hiring decisions, and has her own version of the Silicon Valley “fail quickly” mantra: “Take a long time to hire, and fire quickly,” she said.
Getting good investors
Choosing the right people also extends to those who will advise and fund the startup.
“Once you’ve got funding, your investors will want to put their people on the board,” said Emens. “You don’t want to have voting members on the board who don’t share your values.”
Gardyne said she has turned down some people interested in funding her company when the potential funder hasn’t been a cultural fit.
“It’s a lot about whom I trust. it’s not just about money,” she said. “I want their money, but I want them to bring more to the table.” Funding is a multiyear relationship from the time of the investment through the exit, whether via an IPO or an acquisition, she said.
Because they are putting up their own money, investers want a voice in the company’s business decisions. Gardyne said it is important to have investors she can hold honest discussions with and meet for strategy sessions when the business has a downturn or more sluggish growth.
In addition, she looks for what investors offer besides money. For example, one of her investors, Michael H. Ross, CEO of MHR International, has done $1 billion in business with the U.S. federal government, she said.
“At the end of the day, I want a man who’s done a billion dollars with the federal government because he’s going to show me how to do it,” she said.
Not all investors are going to have done $1 billion in business with anyone, but look for expertise, connections and resources like an incubator.
Another key factor often overlooked is diversity. Companies with the most diverse boards have been shown to have more than 50 percent higher return on investment and 14 percent higher earnings than those with homogeneous boards, according to a McKinsey & Company study. After a down quarter, LinkedIn investors in May demanded that the company bring in board members with more diverse backgrounds. Why not build that in from the ground up?
- Corporate Diversity: Global Leaders Embracing Inclusion
- Funding Your Startup: Tips for Raising Capital
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- Thomas Barta, Markus Kleiner and Tilo Neumann, "Is there a payoff from top-team diversity?," McKinsey & Company
- Jason Sherring, "LinkedIn Corp activist shareholders may be getting a foothold in the social networking company," Inside Trade