The best entrepreneurs are great at failing. After all, you must be prepared for it when 75% of venture-backed companies never make it.
While this may sound like bad news, the silver lining is that entrepreneurs are also great at reflecting on their failures. This means there is tons of data available at your disposal, most of it coming from startup team post mortems.
And according to an analysis of 101 failed startups, 23% blame it on having the wrong team. It is, shockingly, the third most common reason, after running out of cash (29%) and failing to meet market need (42%).
Today we’ll see how to avoid the pitfall of launching with the wrong team. We’ll give tips on how to improve funding chances through the right hires, and how to create startup leadership that is, hopefully, successful for many years to come.
What VCs Want to See in a Startup Team
The first step to understanding how teams affect funding is to step into the shoes of a venture capitalist. There is no shortage of articles on what kind of key metrics, technological and competitive advantages you must demonstrate. But when it comes to proving your team is the right one, information is harder to come by.
However, a good pointer is the resources provided by startup accelerators themselves. For Quake Capital, for instance, here are the traits that define an exceptional founding startup team:
- Intellectual ability to grow the business
- Honesty and curiosity
- Complementary skills and chemistry
- Exceptional CEO
- Domain knowledge
- Relevant experience
- Vision and product focus
VCs, in short, are looking for motivation, persistence and cohesion in a team made of diversely-skilled individuals. These are easier traits to break down at the individual level. For a whole startup, it is essentially down to one question: why is this team the right fit for the product?
Answering the Question: Why Us?
Not all VCs are after the same thing. There are industry trends, but one persistent theme is the fact that founders should be in a unique position to deliver a meaningful product.
In other words: personal stories matter. According to Stephanie Palmeri, partner at Uncork Capital, “Your personal story is paramount when raising money for the first time”.
The startup idea must be one the founder has been preparing for their entire life. Ideally, the whole staff should follow the same vision. Stories from startup team members who communicate experience, perseverance and passion related to the project can go a long way in securing funding.
And more than that, since 41% of US employers claim bad hires cost them at least $25,000, it’s also a good way to ensure your startup doesn’t start hemorrhaging money as soon as it’s secured it.
Why Startup Teams Fail
Circling back to the study of startup failures, Patrick henry, Founder of QuestFusion, breaks down the mistakes into the following key points:
- Lack of focus
- Lack of motivation, commitment and passion
- Too much pride, or unwillingness to listen
- Taking advice from the wrong people
- Lacking good mentorship
- Lack of general and domain-specific business knowledge: finance, operations, and marketing
The main takeaway here is that most of these failures stem from a lack of successful leadership. That is to say, hiring the right talent to form the right team isn’t necessarily something startup founders want to think about. But it’s something they must definitely address to secure funding and become viable.
Stronger Startup Leadership for Better Funding
Startup founders aren’t necessarily born leaders. Some are inventors, others are developing geniuses. But one thing they’ll all have to demonstrate, at some point, is strong leadership. Here’s why:
- Better leaders attract talent: increasing your talent pool helps build better startup teams. In the startup world, proven quality leadership can go a long way in acting as social proof for future employees.
- They know how to define team roles: leading isn’t managing. But great leaders know what key roles are needed for a strong execution, which helps smooth operations in a rapidly-changing startup environment.
- They give confidence to VCs: demonstrating an ability to lead isn’t just great for employee morale. It also increases funding opportunities by showing cohesion, vision, and a willingness to take charge, all qualities venture capitalists and incubators put at the top of their list for offering seed money.
Becoming a great team leader isn’t easy. It takes practice, perseverance, and equanimity. But one thing is for certain, it is a skill that can go a long way in launching your startup with all the odds in your favour.
And Remember: A Good Team Can Outlast The Product
The final point to make here is about how creating a strong team is never wasted time. Even if the startup fails or doesn’t secure funding, you are building long-term relationships with team members, co-founders, managers and contractors from all walks of life.
Just remember, Google acquired an app company called Bump in 2013 for $35 million. After spending $20 million in a few months to make it work, they closed the company. But they kept the whole team on their roster, because they understand that good teams are hard to come by. And if it’s good enough for Google, it’s surely good enough for your startup.
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