Part 2 - The cornerstones for a successful start-up team

Introduction

I have started a lot of companies and many of them have been successful. Some may say too many. I often get asked what is the “secret sauce” behind a successful start-up company, and after uumming and aaahing a while, I inevitably say that it’s the team. We win awards – we thank the team. We succeed in doing impossible things – thanks to the team. We recover from a seemingly impossible downturn – once again it’s the team.

So what makes a great start-up team ?

In this series of articles, I thought that rather than giving my personal thoughts on the subject, I would share some of the academic theories and research. If you can plough your way through this, you may be better equipped to start your own team – or even to identify problems and issues within your existing team. And maybe not ….. but at least it will make you think. As ever, I wish you “good luck” in your entrepreneurial quest.

As they say in Hamilton “see you on the other side”.

Part 2 - The cornerstones for a successful start-up team

Despite extensive literature on the subject of teams and their construction, relatively little has been written on the team structure of small start-up companies.

Belbin’s (1981) work suggests that an ideal team will consist of eight core roles (with the later addition of a ninth Specialist role) but acknowledges that it is common to find teams in which individuals play multiple roles (Belbin (1981), Higgs (1996), and hence an ideal team may be smaller than eight members. This is important to note, as empirical evidence can be found of successful teams which comprise an Entrepreneur and a team which may well be far fewer than eight people – indeed a number of successful start-up companies exist where the total employee count does not reach double figures. Katzenbach & Smith (1994) claim that very few top teams really work, and continue to state that this is caused by many factors including the situation where leadership is determined by external hierarchy rather than internal need. In comparing a working group with a so-called real team, Katzenbach & Smith (1994) reveal the key weakness with much of the literature in this area – it is all based upon large companies. Even Higgs (1996) when comparing MBTI and Belbin (1981) team roles states that this study was based on data from a group of managers in a life assurance company – by its very nature a substantial company with a significant balance sheet.

For the sake of clarity, anecdotal evidence would suggest that a majority of UK VC backed start-ups never exceed 200 staff – it is rarely the goal of the investors to back a future IBM – their goals are more short-term and usually involve a trade sale or merger with a more established player. A recent example of this is Cisco’s recent acquisition of NetSift as reported by Sanders (2004). This one-year-old company grew to 15 staff before being acquired by Cisco for $30 million, which is rumoured to have created a five-fold return on investment for its backers.

However, one common feature of leadership in both small and large companies is that a clear leader is needed at certain stages of the company’s existence. Katzenbach & Smith (1994) state that “the most salient quality for team leadership is attitude, not formal position or seniority.” Whether this attitude is derived from inherent character type or environmental factors is not clear, but many of these attitude factors are inherent in multiple Belbin (1981) team roles – the drive and readiness of a Shaper, the genius and imagination of the Plant, the big picture view of the Chairman/Coordinator, the willingness to explore new areas of the Resource Investigator. This focus on larger company studies is possibly one reason for the success of Southon & West’s (2002) Beermat Entrepreneur book – it is one of the few targeted on small start-up businesses. The foreword to this book is written by Charles Dunstone, the founder of Carphone Warehouse, a very successful UK start-up (based in a converted BBC props warehouse) which did not result in a trade-sale to a US conglomerate but provided an exit for its VC backers by way of a listing on the London Stock Market. This company was not included in the primary research detailed below as it has progressed beyond being a start-up, and consequently, most of the original team have left. However, in the foreword, Dunstone states that Entrepreneurs need not only passion and clarity but great people around them.

Southon & West (2002) explain that while the popular concept of a start-up may be a group of followers huddled around a charismatic Entrepreneur, that there are “concentric rings of very special people” surrounding every Entrepreneur, and that these people provide the key enabler which moves a bright idea from dream to successful execution. They elaborate on this ring theory, stating that there are two key rings around the Entrepreneur – the Cornerstones and the Dream Team – and that a successful start-up will initially consist of five key players, followed by an enlarged team who will generally be involved in the execution of agreed tactics. Southon & West (2002) justify their choice of five in suitable pop culture symbolism – Oasis, the Rolling Stones, and even claim that the Fab Four (Beatles) would have been unsuccessful without the contributions of Brian Epstein and then Sir George Martin providing the Mentor role. Although this makes for more interesting reading, the involvement of various academics (notably City University Business School) in the background research to this book, underlines its key feature – to get an Entrepreneur or members of his team to read some theory – it must be presented in an entertaining and accessible style.

It is also highly significant that this book has been written by a successful UK based technology Entrepreneur - Southon’s first IT start-up was successfully sold in 1989, and he has since (according to his book) been a consultant to seven other small start-up enterprises, although he confirmed in an email to the author that it was “more like seventeen”. These included Micromuse and Riversoft, both successful UK VC backed start-ups which listed on the stock market.

The Cornerstones

Aside from the initial cornerstones, the key first recruit termed the Mentor, is described as being an experienced and senior business person who clearly understands the big picture of the Entrepreneur, has a genuine warmth towards him or her, and is someone the Entrepreneur enjoys. This would seem to correlate with the Chairman/Coordinator role defined by Belbin (1981), which Higgs (1996) hypothesizes to an ESTJ. Despite the reliance on large company typology, this may still be valid for a smaller company – anecdotal evidence would suggest that many small company mentors are themselves former large company senior directors, and certainly VCs prefer seem to prefer such a person. Two such examples are Mike McTighe, Chairman of one of the surveyed companies – formerly CEO of Global Operations for Cable & Wireless, and held senior positions at Philips, Motorola, and General Electric, and Alan Lamb, Chairman of another surveyed company, and Henley MBA Alumnus, who worked for many years in senior positions at Racal.

These Chairmen bring a wealth of experience, credibility, and contacts to a start-up. However, their typology may find some friction with the flamboyance of an Entrepreneurial team. Some may welcome this; McTighe, as quoted by Osmer (2004) stated: “I had become jaundiced by the big corporate machine and realised that my personality was drawn towards a more straightforward direct dealing culture”. He went on to state that he believed that there are three key factors which dictate his choice of company – he must be able to work with the CEO; must believe that the business has a chance for success “by nature I'm a risk taker, but like my risks to be thought through and manageable”; and that the investors must share the vision of the company: “The investors must give me freedom of action and have trust in me.” This supports the core of Southon & West’s (2002) Mentor criteria, although it is important to note that McTighe’s comments are less emotional than Southon & West’s (2002): he only “must be able to work with the CEO” rather than “the Mentor likes you and you like him” and he must “believe in the business proposition” as opposed to “really gets the idea”. This may well support the ESTJ characterization described by Rogers (1997) as communicating formerly and that they “do not overlook the need for tact and sensitivity”.

The ideal line-up as proposed by Southon & West (2002) consists of a five person cornerstone team consisting of an Entrepreneur, a Technical Innovator, a Delivery Specialist, a Sales Specialist, and a Financier. They observe that the Entrepreneur would probably come from a sales or technical background.

An analysis of the language used to describe each of these cornerstone roles may be cross-referenced to that of Higgs (1996) to hypothesize the MBTI typology and possible Belbin (1981) roles of these key individuals. The following chart shows these hypotheses : 

Figure: Cornerstones, MBTI and Belbin

It is interesting to note that as described by Belbin (1981) individuals may play different roles, and for this Entrepreneurial start-up culture, the role of Team Worker, is entirely missing.