Joe Procopio - Afrikan Heroes

How To Build Your Startup’s Founding Team

May 17, 2020

Joe Procopio is a multi-exit, multi-failure entrepreneur

Who should your first hire be? How about your fifth? Your 10th?

Every startup founder faces an overload of critical decisions early in the life of their company. None of these decisions are more important than selecting the first few people you choose to work with.

The makeup of your startup’s founding team is going to be the difference between success and stagnancy. An ineffective team won’t kill your company quickly, it’ll lead to a slow, painful, inevitable failure. To make matters more difficult, founders often get drawn to the wrong people for the wrong reasons.

In over 20 years of building companies, I’ve established a pretty solid track record of bringing together entrepreneurial talent. So I decided to take some time to review about a dozen recent matches to figure out what makes the good ones work.

To give yourself the best chance of getting early hires right, you’ll need to find fit first, then fill roles, then establish rhythm.

Find fit by filling gaps and attacking weaknesses

The first rule of startup hiring also happens to be the first rule most founders ignore: Don’t hire people who are like you, hire people to fill your gaps and address your weaknesses.

That starts with skill set.

An entrepreneur-turned-investor friend of mine likes to say, “In the beginning everyone needs to be either coding or closing.” I’m on board with this, with a couple twists. I like to strive for everyone to be either making or selling.

Making is more than coding. Coding builds the engine, making gets the car to the showroom. And to me, selling is more than closing deals, it’s creating a scalable machine that will move more and more product out the door at increasing margins.

Your balance between making and selling should always be around 50/50. Figure out where you’re weak, and fill that gap next.

Personalities should also be balanced across an early team. I’m not saying you have to box everyone into a personality category, but if someone is already in their own box, including you, you should probably fill those gaps and counter those weaknesses as well.

In other words, if you’re totally focused on the future, you need balance from someone who is focused on the now. If you’re super-strategic, you need someone inherently tactical. If you’re a good cop, go find a bad cop.

Passion can be overrated, but one thing you want to make sure of is that nobody on the early team is there just for the job. If the person you want to bring aboard is not sold in — if they don’t believe in the concept — they’re not a good early hire. They might make a good contractor.

As an aside, one of my favorite signals for measuring passion is when, after a meeting or interview, a potential hire emails a list of thoughts and ideas and questions they came up with AFTER the meeting or interview. And not the bullshitty, look-at-me questions or questions about their role or the viability of the company, but questions and ideas that show that they kept thinking about the problem and the solution after they left.

Fill Roles Carefully and Conservatively

Theoretically, the earlier the hire, the larger the impact on the business. But that isn’t always the case. Sometimes you just want helpers, not heroes. Here’s how to slot new folks in.

Cofounder: Be careful with this role. I’ve seen plenty of examples of people getting burned by not being made a cofounder when they should have been. I’ve also seen tons of startups that have cofounders who shouldn’t be cofounders, and they struggle with the dead weight.

Cofounders contribute more than a small share of the evolution from idea to reality. If they were a major reason why the idea went from thought to plan to existence, they should be a cofounder.

Executive: Executives don’t have to be cofounders, and vice versa. Executives lead the company or the teams. Making a CTO a cofounder just because they come aboard early is a mistake. Making a cofounder a COO just because they’re a cofounder is also a mistake.

Employee: Everyone else you hire full-time is an employee, and frankly, it’s too early to be making decisions about where people fit in the org chart. Usually you’ll be surprised at where things shake out on their own six months to a year in.

Advisor: These are people with a ton of strategic skills and experience that you might need close by but not day-to-day, and otherwise couldn’t afford. As an advisor, they can get paid what they’re worth, and you don’t have them slotted in at 40–80 hours a week at their rate.

Consultant/Contractor: This is also a good way to get a few hours a week or a couple solid full-time months out of an expert to fill a role you might not need full time, like finance, legal, or tech. In that way, they’re like an advisor, but these folks are tactical instead of strategic.

Rhythm makes it a team, not just a bunch of employees

It’s really freaking awkward to be the boss of one person.

And that’s true all the way up to about 10 or 12 people, because before that, it’s rare for a natural working rhythm to develop. So to get over that gap, you should proactively establish a new working rhythm every time you bring aboard a new person.

Basically, you want to get everyone around a table and hash through these skeletal guidelines with the new person:

Here’s what everyone else is doing.
Here’s what you’re going to be doing on our own.
Here’s what you’re going to be doing with other people.
Here’s how much of your time, as a percentage, you should allocate to each of these initiatives.
Here are your goals for each initiative, with milestones.

This isn’t a scrum or a status meeting, it’s a top down list of everything that is going on and who is handling it. It’s a guidemap for that person’s Monday to Friday, 8:00 to 5:00, or whatever hours your startup keeps.

Each time you add someone, you’ll set an initial benchmark to help the new person find their fit and help the rest of the team understand and complement the shift in workload.

Once you’ve done all this a dozen times, hiring gets easier. But these are good habits to form and keep, because hiring the wrong person for the wrong reason, whether it’s your first employee or your 500th, always does damage.

Joe Procopio is the Chief Product Officer at Get Spiffy, Inc and a multi-exit, multi-failure entrepreneur.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

How Startups Attract Corporate Investment

January 12, 2020

If you’re thinking about raising money to fund your startup, you need to take a hard look at corporate investment.

More than 95% of all startup exits are by merger and acquisition (M&A) as opposed to initial public offering (IPO). All of those M&A exits came out of relationships that were built way in advance of the exit, including those that started with a single early investment in the startup.

Corporate investment is probably the most under-utilized form of startup capital. Gigantic, usually cash-heavy corporations are sometimes ill-equipped to foster speedy innovation at their size, making them perfect partners for startups aiming to unleash disruption in the same industry or vertical.

When you can’t build innovation, you buy it.

I’ve taken on corporate investment a number of times, most recently at my last startup and my current startup, so this advice is in real time. I’m also advising startups who are using corporate investment as a means to eventually get acquired.

Also, last week I got to sit in a session with John Somorjai, EVP of Salesforce Ventures, at a conference put on by one of my investors. Salesforce’s corporate investment portfolio includes 18 IPOs and 75 more companies acquired, with 13 of those acquired by Salesforce themselves. His advice confirmed a lot of my own experience.

So first, let’s look at the pros and cons.

Why Choose Corporate Investment

There are a number of good reasons to chase and take corporate investment, some obvious and others not so obvious. Here are what I see as the top reasons:

They’ll probably be your biggest initial customer. When you’re just starting out, having a known entity on board is a magnet for other customer prospects, large and small alike. Just make sure that one large customer doesn’t make up too much of your customer base for too long.

They take less equity and get less involved. Because of SEC rules and internal policies, corporations will only take a small percentage of the company, 15% or less. They also usually don’t ask for more than a board observer seat.

You can learn as you go. You’ll get a closer look at the operations of a company that’s 10 to 100 times your size — all the good, the bad, and the ugly.

They bring contacts and resources. Of course, you’ll go into the deal with a lot of restrictions on who your startup can work for and even who you can talk to, but you’ll get access to more than just the restricted list. They’ll also have tools, strategies, and even infrastructure you can lean on to grow.

They make a nice exit. Obviously, when a corporation invests in your startup, it’s a sign that acquisition is on the table. Maybe not today, maybe not ever, but it’s an option, and options are always good.

What To Watch Out For When You Take Corporate Investment

I don’t see a lot of negatives often, especially those that make a material impact on the startup. But if you know the potential traps ahead of time, you’ll be prepared if and when they happen.

They may be a bully. Make no mistake, with their size and your indebtedness, they can pretty much tell you what to do and when. You can say no, but there’s always going to be friction. You’re basically banking on their sense of fairness.

They’ll be looking for exclusivity. Why wouldn’t they? They won’t want your startup working or talking to their competitors, and they’ll even want to put restrictions on working with other companies outside of their industry or vertical. Negotiate this carefully.

They’ll want a lot of custom work. No matter what product or service you bring to the deal, they’ll want it to conform to their established ways of doing business. This means you’ll do a lot of work that can’t be reused.

They’ll keep you industry focused. My last startup, Automated Insights, started as a sports data company, and we turned down an investment from ESPN that would have locked us into sports. That wasn’t part of our plan.

They will move super slow. I don’t mean this in a bad way, but if the corporation could move quickly, they would have done what you’re doing by themselves. Be prepared and be patient. Speed is why you’re there, it’s not what you should expect.

Read also: How Startups Can Partner With Big Corporations In An Era Of Fierce Competition

What Your Startup Needs To Be Corporate Investable

According to Somorjai, 70% of the companies that Salesforce makes an investment in are at the early stage, so their investment is either a series A or B. This validates some unconventional wisdom, that your startup doesn’t need to have a ton of customers or a ton of revenue to be attractive to a corporate investor.

What your startup does need is compatibility with the investor. Somorjai notes that at the time of investment, the startup has either already integrated or is about to integrate with the Salesforce platform. Now, this isn’t as restrictive as it sounds, but it does hammer home the need to be in the same space as the investor. Somorjai stated that Salesforce will indeed pass on investments that don’t align with their company, even if the startup is a great investment.

Automated Insights took strategic investment from the Associated Press, which was a no-brainer for our automated content solution, and Samsung, which wasn’t as obvious a partner, but who had some of the same ideas for the future of automated content as we did.

Once you’re aligned with the corporation’s goals, keep in mind that there will be plenty of due diligence around the investment. Somorjai says, “Have your house in order because you only get one shot. If people find bad things, they won’t come back.”

This means the startup’s product needs to be rock-solid and robust, accounting for and perfectly managing all of those things that keep corporate management up at night. This includes data security, customer privacy, and any other legal or operational risks. Corporations aren’t afraid of competition or spending money, they’re afraid of headlines.

Due diligence also means that the idea behind the product or service needs to be unique. The idea and any processes should be wholly owned by the company and preferably patentable. No investment goes unnoticed, especially one from a public corporation, so there’s a good chance patent trolls will come out of the woodwork at some point between investment and exit.

And finally, the company must have all its investment accounted for neatly in a cap table that doesn’t have any red flags that the SEC might frown upon. Again, this is especially true when the investor is a public corporation, but even if they’re not, it will become an issue when it comes time to exit, and the investor will have this on their mind going into the investment.

While your startup doesn’t need to be in an entrepreneurial hot spot like San Francisco or New York, it will need to be located somewhere that will allow the startup to attract and retain talent. Your home city should be one where people migrate to, get educated in, stick around after graduation, and play in the same place they work.

Last but not least, and this is encouraging, Somorjai said the word “culture” a lot during his Q&A session. Company culture is quickly becoming a big factor in both the corporate investment process and the M&A process and there are couple reasons why.

First, good company culture tends to put to rest a few more of those corporate nightmares of headlines that cause public relations dumpster fires. But more importantly, big companies usually have poor or stagnant company culture, and an investment or acquisition sometimes provides both a strategic and a cultural shot in the arm for the corporation. It’s basically a two-for-one on the innovation front.

Like all outside investment, there are a ton a boxes to check to make your startup is attractive enough to get the attention and then the funding. It’s a hard enough process as it is, so make sure you’re considering all the players, even the ones you might be trying to disrupt.

Joe Procopio is a multi-exit, multi-failure entrepreneur. He has built and sold startups such as Spiffy, Automated Insights, ExitEvent, Intrepid Media.