00:07University in this video I'm going to
00:10talk to you about building the
00:11co-founding team and there are three
00:14aspects of this that I want to discuss
00:17the first is how big of a team should I
00:19form how many co-founders should I have
00:22the second is what characteristics
00:24should I look for in co-founders and the
00:26third is what are the sources where
00:29should I look for Co
00:31Founders so first of all how big of a
00:34team even the largest of companies today
00:36started out as as a relatively small
00:39co-founding team so what we find looking
00:43statistically at many many startup firms
00:46is that larger co-founding teams tend to
00:49do better there's a tendency for
00:51entrepreneurs to not bring in enough
00:54people early on perhaps it's an effort
00:56to try and keep more of the equity for
00:58oneself but larger teams tend to do
01:01better for the purposes of this class
01:04I'm asking you to form teams of
01:06approximately three to four people so
01:09there can be a problem of having too
01:11large of a founding team if teams get
01:14too big then this can slow down decision
01:16making and generate problems of people
01:18not pulling their weight and
01:20contributing enough but overall
01:22entrepreneurs tend to form teams that
01:25small so we see statistical results here
01:29of the likelihood of having an initial
01:31public offering an IPO so we'll talk
01:34more about what this means but it's one
01:36success measure for High-Tech
01:38startups and so what we see here is as
01:41we might expect Venture Capital backed
01:44firms have a higher likelihood of an IPO
01:47but what do we see in terms of the team
01:49teams that have co-founders that have a
01:52higher number of Prior positions on the
01:55team tend to do better larger founding
01:58teams tend to also do better so we see
02:01positive and significant coefficients
02:04here the functional diversity of the
02:08founding team tends to also be
02:09associated with higher performance
02:11functional diversity means the number of
02:13different functional roles you have on
02:15the team so these could include
02:17engineering sales marketing Finance
02:23Etc also we see that importantly having
02:27prior startup experience so having a
02:29co-founder who has done this before
02:32leads to a much greater likelihood of
02:34success and having people on the team
02:37who have prior Senior Management
02:39experience also gives a large and
02:43effect interestingly if there are
02:45overlapping prior affiliations so
02:47co-founders who have worked together at
02:49the same company and might have better
02:51ways and better knowledge of how to work
02:54together with one another tend to do
02:56better also so these results show um
02:59similar charts but for the likelihood of
03:02raising Venture Capital
03:03funding so what type of teams are more
03:06likely to raise VC funding again those
03:09that have a greater number of Prior
03:11positions on the team the founding team
03:14size still helps but not quite as much
03:17and having prior startup experience or
03:19someone with uh management experience on
03:22the team also seems to help your
03:23likelihood of raising Venture Capital
03:26we'll talk more about raising venture
03:27capital in a later video in a later
03:30section of the course but I wanted to at
03:32least point out these results here but
03:35there is one decision that stands ORD a
03:37magnitude above everything
03:40else and that is who is the team that
03:43you surround yourself
03:45with now Common Place W commonplace
03:47wisdom would say oh I know the answer to
03:50this surround yourself with great people
03:53surround yourself with the A Team you
03:56know it doesn't get any better than that
03:58but is that really enough is that even
04:00I'm going to ask each of you in this
04:02room to look around you just look around
04:04you this is the A Team unless I have my
04:07statistics wrong this year unfortunately
04:09for incoming freshmen your chances of
04:12getting in are probably 1 and3 in the
04:13main applicant pool not the early pool
04:16so if that isn't a screen for The A Team
04:18I'm not sure what is does that mean that
04:20you should start a company with the
04:22three people who are sitting next to you
04:23and be guaranteed that that would be a
04:26success well Stanford has done the
04:28screen for you shouldn't that be a
04:30well let's take an analogy let's take
04:31the roommate analogy well hey everyone
04:34seems to be normal everyone seems to be
04:36a hard worker everyone is certainly
04:38intelligent everyone's creative so let's
04:40just put four people together as
04:41roommates it's going to work no
04:44problems sometimes it doesn't
04:46work sometimes it starts with the
04:48accusations is that my sweater hey did
04:52you drink the milk in the fridge and
04:54then it degrades to a total Destruction
04:57and a lack of eye contact the avoidance
04:59in the the room and then the countdown
05:00of days left in the quarter semester
05:03till you can get the blank out of there
05:05well you know in a rooming situation you
05:07can get out of there that's not that
05:09easy in a founding situation especially
05:11when you've started the company together
05:13you've split the stock and so the
05:15selection process of the team is really
05:17critical and it's not good enough to
05:19Simply say who's an a player it really
05:22is important for you to think about
05:23values core values that you share as an
05:26individual no different than a
05:27relationship versus a roommate
05:30right core values surrounding a lot of
05:34commitment goals what are your goals for
05:36the adventure when do you say I've met
05:39my goals and someone else says wait
05:40we're not even close what does
05:43commitment mean what does success mean
05:44how do you define success does do each
05:46of you have a common understanding of
05:48what the definition of success is
05:51because you wouldn't want one person say
05:52hey we're successful and the other
05:53person saying we failed so you need to
05:56talk about these things up front in the
05:57screen it's really really critical I I
06:00can probably draw the analogy that it's
06:02more like a mountaineering Expedition
06:04than a roommate search we are talking
06:08co-dependence who is on the other end of
06:10the Rope who do you trust to be on the
06:12other end of the Rope what happens when
06:15the unforeseen occurs which it's going
06:17to or even worse what happens when
06:20tragedy befalls who can you count on
06:23who's still going to be there who's
06:24going to run for the hills who's going
06:26to give up and you know there is no
06:28other time to think about this than the
06:31time of inception and startup as you
06:32choose your team you don't want to be
06:34going back and rejiggering and dealing
06:37with these issues six months a year
06:42later and so you see this is a really
06:45important decision perhaps one of the
06:47most important decisions that you're
06:49going to make regarding the ultimate
06:51fate of your startup which is who are
06:53you going to add on the co-founding team
06:55and so we want to be careful about not
06:58only the skill skills that you're
07:00bringing into the team but also about
07:02the interpersonal and Team Dynamics
07:05there so who should you look
07:08for so one of the biggest factors is if
07:12you can find someone who has successful
07:15startup experience in your particular
07:17industry these people bring a much
07:19greater likelihood of succeeding again
07:22so if someone has experience you want
07:24that to especially be in the particular
07:27sector and Industry that you're in so
07:29that they have that Network they have
07:31that prior experience they know how the
07:33industry works and what customers want
07:36the second thing is as Mark alluded to
07:40you want people who have the same vision
07:42and the same passion you want to be on
07:44the same page about why it is that
07:46you're doing this and what the goal
07:48is next you want skills that complement
07:51and match your Venture strategy and the
07:54industry that you're in you want someone
07:56who you can work well with and so this
07:59may be people who you've worked together
08:01with in the past but it also might be
08:03someone new you definitely want the best
08:04person for the job but you want to know
08:06that you can work well with them and
08:09then finally I think that a lot of teams
08:11do better when you can combine someone
08:13who's the creative Visionary with
08:15someone who's more the downto Earth
08:18operations let's step by step figure out
08:21what what we need to accomplish to get
08:23this done those two pieces I think are
08:26really critical to bring
08:31so in some of my own research I've
08:33looked at what the characteristics are
08:35of the optimal team composition so one
08:38important thing is that this depends a
08:40lot on the industry that you're in and
08:42how it works and also what strategy
08:44you're taking as a venture and so these
08:47statistics show the likelihood that you
08:50achieve a good ex exit so this could be
08:52in terms of a merger and acquisition
08:55that makes money for the entrepreneur
08:57and the investors or it could could be
08:59in terms of an initial public offering
09:02an IPO and so what we see
09:05here is this column is just the control
09:09variables but if we look here at columns
09:12two and three we see that those who have
09:14a more diverse team so those who have
09:17more different functions on the team so
09:19these could be engineering Marketing
09:23operations um tend to do better
09:26overall but more diverse teams if you're
09:29choosing an innovation strategy more
09:32diverse teams tend to do worse so these
09:34are Hazard ratios so number below one
09:36represents a decreased likelihood of a
09:38good exit so if you're taking a really
09:41high tech High Innovation strategy it
09:44can be better to start with a founding
09:46team that's more technically focused and
09:49this is what we see in this next
09:52regression that shows that overall a
09:54technically focused team doesn't
09:56outperform but when taking an innovation
09:59strategy a tech focused firm has a much
10:02greater likelihood of achieving a good
10:04exit so if your firm is doing something
10:06really high-tech then there might be
10:08less for sales and marketing people to
10:11do and it might be more important to
10:13have a very engineering and technically
10:16focused founding team in the
10:21beginning similarly we can talk about
10:23different types of Industry environments
10:25and so one way to categorize this is
10:28environments where where you're
10:29competing with industry incumbents so
10:32this could be software internet
10:34Electronics versus Industries where you
10:37tend to partner with industry incumbents
10:39so this could be biotech chemicals
10:43medical devices Industries where you
10:46might create the core Innovation but
10:48then you tend to compete with other
10:50startups to partner and cooperate with a
10:53large established firm to bring that
10:55Innovation to Market and so as you might
10:57expect if you're going going to compete
11:00head-to-head in the product Market with
11:02industry incumbents in the competitive
11:05scenario then it's much better to have a
11:08more diverse team you're going to need
11:10those functions of sales marketing
11:13operations in addition to the technical
11:16roles but if you're in a more
11:18Cooperative industry where you're going
11:20to tend to partner with established
11:23firms for the distribution sales and
11:25marketing then having a more diverse
11:27founding team is less important
11:30and actually having a more technically
11:32focused founding team in these
11:34competitive environments is going to
11:36give you a significant
11:38advantage and so again to reiterate if
11:41you're in a competitive environment
11:43where you're competing with industry
11:45incumbents then having a more diverse
11:47team is going to tend to do better and
11:49having a technically focused team
11:51doesn't improve your chances but if
11:53you're in a Cooperative industry where
11:55you're going to wind up partnering with
11:57a large industry incumbent for the sales
11:59marketing distribution Etc then having a
12:02more technically focused team that's
12:04just focused on getting your Innovation
12:07done getting the product development
12:09completed can be to your
12:14advantage and so the final thing I
12:16wanted to talk about is where do you
12:18find these co-founders what are the
12:19sources how should you go about looking
12:22for co-founders in your
12:24startup there are a number of sources
12:26one could be at Stanford or at your un
12:30University another could be Angel
12:32Investors or Venture capitalists find um
12:36you could talk to professors in your
12:38field about former students who they
12:40know or industry contacts that they have
12:43who are entrepreneurial it could be your
12:45Professional Network people you've
12:47worked with in the past or ideally it
12:50could be a recently cashed out
12:51entrepreneur who's in your industry so
12:53someone who started a similar business
12:55and recently sold it
12:57successfully but the key is you want to
12:59look for people who you who you would
13:02work well together with who have a
13:04similar vision and people not
13:07necessarily who have done well in a
13:09large company context but people who
13:11have also been entrepreneurial and who
13:13would do well in a scrappy small startup
13:17environment and so these are the things
13:19that I wanted to talk to you about about
13:21building the team we'll talk more about
13:23team building and culture in a later
13:27video for more please visit us at
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