Presentation 5 - Entrepreneurship Goethe

Entrepreneurship

WPMM: EPSH

Winter 2015

Sebastian Schäfer Sebastian.schaefer@wiwi.uni-frankfurt.de

Thomas Funke funke@wiwi.uni-frankfurt.de

Entrepreneurship - WiSe 2015/2016 2

Start-up Teams

Research: What entrepreneurs need

• Leadership qualities, inspiration, enthusiasm

• Creativity, vision, openness

• Persistence

• Responsibility

• Experience

• Team player qualities

• Pragmatism

• Analytical skills

• Negotiation, presentation, “selling” skills

• Etc.

Investors: What do they look at?

Business founders / management team: Does it cover technological and economic/market expertise?

Are they willing to take new members? Do they show growth orientation?

• “We look for a strong technical founder and a sales oriented entrepreneur … typically it is at least two people, sometimes three.“ (Siegelman)

• “I tend to invest behind an entrepreneur, not behind a professional managers as the CEO. Often the person who can professionally manage as CEO in the later stages is not as effective in the earlier stages. It requires a different skill set…“ (Siegelmann)

• “If we have a founder who is in it for the lifestyle or who is unwilling to upgrade the team, we have a conversation…“ (Hoel)

• “One thing we don’t do is back a wild eyed technologist…”(Wang)

• “We think about the CEO. One trait of all our successful companies is that the CEO we backed at funding was still the CEO at the sale of the company or IPO (…) We spent a lot of time focused in the CEO and the members of the management team: the quality of people they attract, their biases, their strong points and their overall depth.“ (Wang)

• “We want to keep the existing team if possible…we get a little concerned when the entrepreneur come in and says I‘m in this to flip it in a year (…) if they are not in it for the tough times, then it‘s definitely a problem.“ (Simon)

How many ventures start in teams?

2014: Overall Founding Rates: 23% Team Founders

2014: High Tech Start-ups: 76% Team Founders

1980: High Tech Start-ups: 20 % Team Founders

How many Cofounders?

1 2 3 4 5 6 7

Web & Software

Technology

Life Sciences

Sources: Data for Technology and Life Sciences adopted from Wassermann (2012: 74); data for Web and

Software taken from own dataset

# Founding members

How many Cofounders?

Team vs. Solo

Form a team if

• Lack of knowledge, social and financial capital

• Task preferences (delegation)

• Collaborative Style (share ideas)

• Support and Validation (get encouraged)

• Volatile industry context (bear together)

Otherwise stay solo

1,742 1,779

Acquired Closed Operating All

ø education level within founding team

Education level

ø prior jobs within founding team

Prior jobs

1,492 1,506

ø industry-variety within founding team

Industry-variety

Education level: Average education level for founder team (1= Bachelor degree, 2= Master degree, 3= MBA, 4= PhD)

Prior work-experience: Average amount of total prior jobs of founders.

Industry variety: Average amount of previous jobs in different industries of founders.

Composition of Founding Teams (1/2)

Composition of Founding Teams (2/2)

Serial Entrepreneurs: Percentage of ventures with at least one founding team member, who founded one or more ventures before

59% 59%

ø share of founding teams with serial

entrepreneur

Serial Entrepreneurs

65% 65%

ø share of founding teams with industry-specific experience

Industry-specific experience

ø share of founding teams with high executive

experience

Executive experience

Industry-specific experience: Percentage of ventures with at least one founding team member with previous jobs in the same industry.

Executive-experience: Percentage of ventures with at least one founding team member, who have been in more than 2 executive positions before.

Founding Teams from an Investor’s

Perspective

„Always consider investing in a grade A man with a grade B idea.

Never invest in a grade B man with a grade A idea.“

Georges Doriot

„I invest in management, not ideas.“

Eugene Kleiner (Kleiner Perkins)

Investors: What do they look at?

Team First time founder or serial entrepreneur?

Team or one-man show?

Indication, previous proofpoints of entrepreneurial spirit? Crisis resistant?

Fundraising skills? How much babysitting will they need strategically?

What HR gaps have we identified? What are the obvious weaknesses of the

Are there any other red flags we could see?

Clear strenghts of the team, where are we sure that they will perform well?

Why do startups fail?

Importance of the Team

No business is so good that the wrong people can't mess it up. And no business is so bad that the right people can't fix it. […] So if you don't get the people part of the equation right, everything else is really immaterial.”

Team: What is it really?

T E A M O L L

N D E R E R

A C H T S

Team: What is it really?

In 2014 we interviewed a 107 Startups in Austria and Germany about

their major challenges in team constellations (average age: 2,5 years)

(5=lowest; 1=highest)

4,08 Uncertainty about splitting the pie (equity splits)

1,96 Personal conflicts

1,87 Making strategic decisions

1,81 Clear goals all team members are working towards to

1,61 Clear responsibilities for team members

Who is the better Co-Founder?

The No. 1 need when searching for a co-founder:

= highly qualified, like-minded (business wise) and motivated individuals!

Be honest! How many of your family and friends are this? Statistics say…

Only 10 %!

The propbabilty that a team member will leave when the startup is founded

within a family is…

28,6 % higher!

Clean Tech Teams: Relationships

How important is Communication?

No Communication

How important is Communication?

Perfect Communication

The 5 Problem Sets of Team Relationships

How can I test those problemsets?

- “Gut Feeling”: Do you trust your co-founder?

- Dealing with stressful situations

- Dealing with uncertainty

- Dealing with negotiations

- 360 Degree References

- "Spend a lot of time"

- Salaries

- Consistency in process

The answer: Find the right team

Finding the right partners to work with is a crucial

way to success!

Plan carefully whom you work with…!!

Don’t choose your partners because of comfort!

The No Asshole Rule by Robert Sutton (http://ecorner.stanford.edu/authorMaterialInfo.

html?mid=2571)

The answer: Find the right team

Team Issues

„Every success, every mishap, every opportunity seized or missed is the result of a decision that someone made or failed to make. At many companies, decisions routinely get stuck inside the organization like loose change. But it’s more than loose change that’s at stake, of course; it’s the performance of the entire organization”

Challenges when making decisions

(1) Cognitive and Affective conflicts (2) Consensus orientation (3) Communication (4) Formalization (5) Intuition (6) Including external people

Clean Tech Teams: When should the founding

team be complete?

Clean Tech Teams: CEO change

Team Issues

What is the difference between? Develop profiles and activities for each type.

1. Mentor

2. Advisor

3. Tutor

Time: 10 Min

Team Issues

Distiguish between

1. Mentor = helps with everything and cares about „good feeling“

2. Advisor = specific backgroud and network

3. Tutor = controls on a weekly basis

Team Composition

First, obvious reasoning:

Functional, skill related Roles

Lets play the game of finding a Chief for everything!

(CEO, CFO, CSO, COO, CVO …)

Team Composition

Functional, skill related Roles (CEO, CFO, CSO, …)

What is better: Homogeneity or Heterogeneity?

Pro Heterogeneity: Better decisions, early detection of problems etc.

Pro Homogeneity: less „affective“ conflicts, more trust, sharing same interests

Attention: Birds of a feather flock together!

What most of the time nobody thinks of or evaluates…

Personal, soft-skill related Roles

The Consultant

Short description: Constantly analyzes the current situation and derives recommendations from the analysis

Strengths: ability to learn, empathy, apprehension

The Boss

Short description: Leads, gives orientation, keeps team together, supports and motivates

Strengths: initiative, risk taking, ability to motivate, ability to make decisions

The Artist

Short description: asks non-conventional questions, helps to have different viewpoints, impulsive

Strengths: creativity, ability to communicate, open, risk Initiative, risk taking, ability to motivate, ability to make decisions

The Maker

Short description: focus on execution, pushes others

Strengths: endurance, discpline, ability to motivate

The Enthusiast

Short description: brings the fun, is able to inspire

Strengths: team worker, optimist, ability to communicate and motivate

The Organizer

Short description: plans and controls, has the overview

Strengthes: flexibility, team worker, structured, reliable

The Helper

Short description: always there

Strengthes: Initiative, Open, Empathy

Entrepreneur‘s Dilemma: Control vs.Money

Rewards: Equity Splits

Discuss: When to split?

73 % do it right away

Rewards: Employee Equity

ESOP = Employee Stock Option Plan

Based on this Plan Employers to get equity in the company

The Plan is really critical!

A couple more facts…

Team size: What is the optimal size?

The team should be fed by two pizzas. If they are still hungry, the team is too big.

Team size: What is the optimal size?

In the beginning its always too small and people are missing.

After a while there are always too many people!

Possible Exam Questions

- If you do want to start a business and you need a co-founder: What would the steps you would make to find one? What would you pay attention to while searching?

- What kind of roles are necessary in a startup team? What needs to be done if certain roles are missing in the beginning?

- How can cofounders be rewareded? What do you need to take care of if you do agree on certain equity splits?

3 Cases

Thank You!

Presentation 5 - Entrepreneurship Goethe

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