1. CHAPTER SEVEN
THE FOUNDING TEAM

2. Building Effective Founding Teams
Why teams lead to a better chance for success?
Shared intense effort required by a start-up
Loss of one member less likely to result in start-up abandonment
Team concept permits expertise across major functional areas: marketing, finance, operations
Skilled team lends credibility to the start-up

3. The Entrepreneur’s Team

4. The Founding Team Benchmark for an effective team
Shared vision between lead entrepreneur and the team
Shared passion leads to shared hard work
Industry experience relevant to the new venture
Solid industry contacts with sources of capital
Functional areas of the business are represented
Team members have solid credit ratings
Team members have the time and money to endure start-up constraints

5. Distribution Issues How to Divide the Pie
Differentiation
Reward system recognizes differences in contributions among team members
Performance
Reward is a function of performance (as opposed to effort)
Flexibility
Reward system acknowledges and accounts for changes in contributions of team members

6. Critical Issues in Distributing Ownership
DIFFERENTIATION.
•The democratic approach involves higher risk than differentiation.
•Different team members rarely contribute the same among and the reward system needs to
recognize these differences.
PERFORMANCE.
•Reward needs to be a function of performance during the early life of the venture.
•When relative contributions of the team members change, then the reward system needs to
change.
FLEXIBILITY.
•The performance of a team member may be more or less than anticipated.
•A team member may have to be replaced.
•Flexibility in the reward system can include mechanisms such as vesting and setting aside a
portion of stock for future adjustments.

7. The Key to Growth Team traits Cohesion Teamwork Integrity
Commitment to the long haul
Harvest mind-set
Commitment to value creation
Equal inequality
Fairness
Sharing of the harvest

8. Common Pitfalls
Do not use the “honeymoon” period of start-up advantageously
Do not answer the questions of who is in charge, who makes the final decisions, and how real differences of opinion are resolved
Do not address or recognize the deficiencies of the lead entrepreneur or the management team

9. Common Pitfalls
Do not recognize that creating and building a new venture is a dynamic process
Do not identify and defuse destructive motivations of investors, prospective team members, or the lead entrepreneur
Do not value trust and integrity

10. Rules for Friends and Families
Friends/family members must possess real skills and expertise required by the venture
They need to share the same work ethic as the entrepreneur
The advisory board must include outsiders to balance input objectivity
All relationships are business oriented and must be stated clearly in contractual terms.

11. Professional Advisors/ Board of Directors
Outsourcing solutions for professional help:
Attorneys
Accountants
Bankers
Insurance Agents
As-needed assistance for information, assistance in reviewing business concept and reality checks.
Board of Directors
Legal form of the business influences the decision to have a Board of Directors

12. Considerations for Advisors/Mentors
Possess the necessary technical skills relative to the business?
Have significant, successful industry experience?
What is their experience running a business at the level of the next step for the entrepreneurial venture?
Have any important industry contacts?
Do they possess good problem-solving skills?
Do they possess honesty and integrity which engenders mutual trust?

13. Considerations for Advisors/Mentors
Permits entrepreneur to overcome “tunnel vision”
Payment for services is through honorarium
Serve as a sounding board, coach, advisor
A safe haven for entrepreneur’s to air their fears, concerns, hopes, dreams

14. Mistakes To Avoid With Teams and Boards
Forming the team by chance or casually
Forming team of diverse goals
Using only insiders for the Board
Using family members and friends as professional service providers
Remunerating the team through stock in lieu of salary

15. Outsourcing with Independent Contractors
Independent contractors (IC) own their own businesses
IC are hired by the entrepreneur to do a specific job
Hidden costs can affect the new venture’s business
Types
Consultants
Staff
Manufacturing Support
Sales Support
Service Agencies
Government Agencies

16. The 20-Point Test for Independent Contractors

17. Considerations of Value
Contributions in certain areas are of particular value to a venture.
Commitment and Risk
Idea
Skills, experience, track record, or contacts
Business plan preparation
Responsibility