Building a Startup Team
When people think about how startup founders invest their time, most of them think about dealing with investors or managing the operations of the firm. Almost, no one imagines that the founder of a startup company spends a considerable amount of their time in building a team. This is because hiring is not considered to be a mission-critical activity by the vast majority. However, if you ask a seasoned investor, they will tell you that putting together the best team is probably the single most important task for any entrepreneur.
Investors tend to pay a lot of attention to who the team members are before they invest in any firm. However, there is almost no literature that speaks about how companies can achieve this goal.
In this article, we will have a closer look at the financial aspects of building a startup team.
The Problem with Hiring for Startups
Most of the startups that have come into existence today are high-tech startups. Hence, these companies require a lot of highly talented knowledge workers to grow and develop their business. The problem is that highly talented workers are found in competitive markets. This means that the same set of companies is approaching the same workers. Just like companies are selecting the candidates, the candidates are also selecting companies.
The problem is that startups lag behind more established companies in the labor market. On the one hand, established companies can offer more money upfront while on the other hand, they can also offer a well-defined career path. Startups do not have the luxury of offering either of these things. Hence, in a way, hiring for startups is like marketing on a budget.
The human resource team needs to get really creative in order to attract the right talent while being on a budget. The inability to attract the right talent can be a make-or-break deal for the startup company.
- Using Social Media: Before any company begins recruiting their candidates, it is important for the candidates to have some brand recognition. People are more inclined to work for companies they have seen or interacted with rather than working for obscure companies.
Big companies often use the power of media to create brand recall. However, smaller startup companies do not have the big budgets required to use traditional media channels. It is important for them to use tools like social media to engage with prospective hires.
Fortunately for startups, social media channels are absolutely free. The startup just needs to have a quirky persona in order to attract the attention of the target hires. Startup hiring managers will be surprised to see how much having a significant social media presence and brand recall can influence their candidates.
- The First Hires are Crucial: It is important for the company to realize that when it comes to startups, the importance of all hires is not the same. When the company grows from zero to ten employees, it needs to be very picky. This is because the first ten employees often form the leadership team of the company.
The leadership team is quite crucial because they influence the other hires as well. A lot of the other new hires may have been a part of their network or may join the company because they believe in the vision of the leadership team. It is important for the startups to be reasonably generous in order to attract the best talent in the leadership team.
When the company hires the next few employees, it can afford to be a little less picky and focus more on costs. Once the team size has already reached about a hundred, then the company may have enough infrastructure required to attract and retain good talent.
- The Bigger Picture: Startup hiring is like marketing to investors. If the candidate focuses too much on the current situation of the business, they may not be inclined to join the company. The startup hiring manager has to make sure that all candidates understand the full potential of the company. If the candidate believes in the company’s value proposition, they may be more than willing to take the risk.
- Target Other Shaky Startups: Hiring managers can be on the lookout for other startups where an adverse event has taken place. Companies which have witnessed the departure of key leaders, as well as those that have seen a recent down round, are likely to have employees which are looking at greener ventures. Employees who have already worked in startup companies can be convinced much more easily as compared to other employees.
- Hire Young: Startups tend to be highly risky ventures. People in their middle ages who have a lot of family obligations may not be suited for the high risk involved in such ventures. Startup ventures are more suitable for young students who have a few years of work experience. The typical startup employee is not happy spending years climbing the corporate ladder. Instead, they want to take on higher roles and responsibilities right away. Startup companies must position themselves to appeal to such employees.
- Equity Compensation: Last but not the least, companies must offer candidates an unlimited upside by making them an equity partner. However, equity partnership should form only a small portion of their compensation, or else it may feel like the company believes that their stock isn’t worth much and is transferring all the risk to the employees.
The fact of the matter is that hiring for startups can be quite challenging given the constraints. However, the ability to do so creatively and successfully can literally define the future of the company.
Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
- Seed Funding - Introduction
- Why is it Difficult to Raise Seed Funding?
- Documents Required for Startup Financing
- How Co-Founders Split Their Equity?
- Proof of Concept
- Minimum Viable Product
- What is Prototyping?
- Asset Light Business Model
- Advantages of Asset Light Business Model
- Disadvantages of Asset Light Business Models
- Cash Burn Rate: The Basics
- Managing the Cash Burn Rate
- Startup Financing and Term Sheets
- Key Terms and Conditions in a Term Sheet of Startup Funding
- Red Flags that Investors Need to Look out for in Term Sheet
- The True Cost of Owning a Property
- Valuation of Early-Stage Startups: The Mindset of Investors
- Pre Money and Post Money Valuation
- Start-Up Valuation: Advanced Concepts
- How Pre-Revenue Companies are Valued?
- Valuation Divergence - Meaning and its Importance
- How Do Option Pools Work?
- What are Capitalization Tables?
- Asset Sale vs. Stock Sale
- Financial Models for Startups
- Key Performance Indicators for Startups
- Restricted Stock Options (RSU’s)
- Veto Rights - Meaning and its Importance
- Financial Benefits of Incubators
- What are Unicorns?
- Why Startup Companies are Staying Private?
- Why Unicorn Companies Fail?
- Building a Startup Team
- Bootstrapping: Meaning and its Advantages
- Disadvantages of Bootstrapping
- Revenue Based Financing
- Convertible Notes and Startup Funding
- Pros and Cons of Convertible Notes
- Simple Agreement for Future Equity (SAFE)
- Keep It Simple Securities (KISS)
- Series A Funding
- Series B Funding
- Series C Financing
- Venture Debt in Startup Funding
- Pros and Cons of Venture Debt
- What is Venture Leasing?
- The Freemium Model - Different Types of Freemium Models
- Pros and Cons of Freemium Model
- Scalability and Startups
- Pros and Cons of Scalable Business Models
- Why Do Start-ups Fail After Receiving Funding?
- Start-ups and Arbitration
- What is a Revenue Model?
- Understanding Investor Focus on Burn Rate
- How Investors Evaluate Start-up Ideas?
- Government Regulations Which Impact Start-Ups
- What is a Start-up Accelerator?
- Managing the Operational Metrics of a Startup
- Different Types of Investors
- The Founder’s Dilemma
- Role of Social Media In Start-Up Funding
- Start-Ups and Public Relations
- Red Flags for Start-Up Investors
- IPO: An Exit Route for Start-Ups
- What is Acqui-Hire?
- How to Build a Start-Up that gets Acquired?
- Legal Issues Faced by Start-up Companies
- Corporate Venturing
- How Reverse Pitching Works?
- Aggregator Business Model
- Marketplace Business Model
- Difference between Aggregator and Marketplace Business Models
- Product as a Service (PaaS)
- Benefits of Product as a Service (PaaS) Model
- Disadvantages of Product as a Service (PaaS) Model
- The Co-Working Business Model
- How Co-Working Spaces Make Money?
- Peer to Peer (P2P) Business Model
- The Instacart Business Model
- The Goodleap Business Model
- The Twitter Story
- How Tesla Reinvented the Automobile Industry?
- How Epic Games Changed the Gaming Industry?
- The SpaceX Success Story
- The Stripe Business Model
- The TikTok Business Model
- Zillow Story - The Real Estate Marketplace
- How Business Cycles Affect Start-Up Companies
- Managing Start-ups During an Economic Downturn