Chapter 7- Building the Founding Team

Presented by:Baccay, Myelen Grace Q.

Cabanglan, Agatha Julia L.

Cordez, Joanna

Dinao, Neil Richard S.

Paglinawan, Marcelino Jr. S.

Penarroyo, Nerwin R.

Rago, Chloie M.

Salamida, Jomel

Saplagio, Quennie Jane N.

LEARNING OBJECTIVES

• Explain how to effectively build a founding team.

• Understand how to work with professional advisers.

• Discuss when to add a board of directors.

• Compare and contrast the pros and cons of outsourcing with independent contractors versus hiring employees.

Creating Effective Founding Teams

• Team effort is much successful than solo for variety of reasons:

• Shared intense effort required by a startup• Loss of one member less likely to result in

startup abandonment• Team permits expertise across 4 major

functional areas: Marketing, Finance, Operations, SCM.

• Skilled team lends legitimacy to the new venture in the eyes of lenders, investors, etc.

• Diverse experience and expertise of the team members allows entrepreneur to make better decisions.

Key Terms

• Lead Entrepreneur • Extended Networks

The Entrepreneur’s Network

Creating the Founding Team

• Benchmarks for an effective team:– Shared vision between lead entrepreneur

and the team– Shared passion leads to shared hard work– Industry experience relevant to the new

venture– Solid industry contacts with sources of

capital– Functional areas of the business are

represented– Team members have good credit ratings– Team members have the time and money to

endure startup constraints

A Founding Team Quiz

Table 7.2

Special Issues for High-Tech Teams

• Putting structure on the organization before it’s time.

• Pretending there are sales form beta customers.

- Beta customers - the value is “free”- Bonafide customers - those who pay

for entrepreneurs’ products and services.• Suffocating under opportunity overload.• Believing that engineers can do marketing.• Licensing the technology too soon.

Unique Issues SurroundingVirtual Teams

• Virtual Teams - are distinctly different from face-to-face teams in both spatial distance and communication.

• Synchronous-asynchronous communication media alleviate physical distance issues.

• Trust is critical to effective virtual teamwork.

Founding Teams for International Ventures

• Success in the international market depends on the skills and knowledge of the team.

• Successful characteristics include: – Extent to which founding team members

have traveled or worked abroad – The number of languages they speak

• Experienced founding teams likely to form partnerships to facilitate entering the foreign market.

Rules for Friends and Families

• Friends/family members must possess real skills and expertise required by the venture.

• They need to share the same work ethic as the entrepreneur.

• If there are family members on the start-up team, there should be outsiders on the advisory board and/or board of directors.

• All relationships are business oriented and must be stated clearly spelled out.

Seeking Professional Advisers

• Outsourcing solutions for professional help:– Attorneys– Accountants– Bankers– Insurance agents

• “As-needed” assistance for information, assistance in reviewing business concept, and reality checks

Seeking Personal Advisors

• Building a board of directors– Legal form of the business influences the

decision to have a Board of Directors.– Boards provide beneficial expertise in

establishing corporate strategy and philosophy.

– Boards of publicly traded companies are elected by shareholders and represent their interests.

– Members assist with business development, act as arbitrators for dispute resolution, and give credibility to the new company’s image.

Building a Board of Directors

• Considerations when choosing board members:– The necessary technical skill related to the

business.– Significant, successful experience in the industry.– Experience running a company at the level the

entrepreneur wants to grow to next.– Important contacts in the industry.– Experience in finance, capital acquisition, or IPOs.– A personality compatible with the rest of the

Board– Good problem-solving skills.– Honesty and integrity, to engender a sense of

mutual trust.

Board Members and the Business Life Stage

Figure 7.2

Advisory Board

• Consists of an informal panel of experts and other people interested in the new venture’s success.

• Less costly that meet once or twice a year, no pay to frequent meetings and provided equity stake in company.

• Helps the entrepreneur to overcome “tunnel vision”.

• Advisory board is step in the direction of creating a more professional organization.

The Mentor Board

• They are the entrepreneur’s personal board who serve as a sounding board, coach, advisor

• A safe haven for entrepreneur’s to air their fears, concerns, hopes, dreams

• Serves as a sounding board for ideas and act as coaches to raise entrepreneurs spirit and warn them if he/she is heading down a wrong path.

Mistakes to Avoid

• All team members should have the required experience and qualifications, and the same goals for the business.

• Avoid using only family and friends.• Only give stock incentives after an

individual has proven him or herself.

Mistakes to Avoid

• Equity distribution: it is important to clearly understand what each team member is contributing and value it appropriately.

• Equity equates power• Founders may contribute

– Patents– Viral connections– Reputation– Unique Business/ Technical expertise

Mistakes to Avoid

• Buy-sell agreement: used to prevent an owner from selling his/her interests in company without consent of the other owners and to determine what happens should owner leave the business.

2 types:»Cross purchase agreement» Stock redemption agreement

Outsourcing with Independent Contractors

• Outsourcing a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.• Independent contractors (ICs) own their own businesses and are hired by the entrepreneur to do a specific job.

Including: consultants, manufacturers, distributors, employee leasing firms, and professional advisers.

The IRS and Independent Contractors

• Law of Agency:– Defines the terms employee and

independent contractor.

“While an employee acts under the direction and control of the employer, an independent contractor contracts to produce a certain result and has full control over the means and methods that shall be used in producing the result.”

The IRS and Independent Contractors

• Ensure compliance with IRS (Internal Revenue Services) regulations:– Consult an attorney– Draw up a contract– Indicate only the desired result– Verify the IC’s workers’ compensation

insurance– Verify the IC’s licenses to do business

Types of Independent Contractors

• Consultants• Professional employer organizations

(PEOs) • Manufacturing support• Sales support

New Venture Action Plan Identify the members of the founding team or

at least the expertise needed to start the venture.

Determine what expertise is missing from the management team and how you will supply it.

Begin asking questions about potential professional advisors, such as an attorney or accountant.

Determine whether you will need a board of directors, an advisor board, or a mentor board.

Identify at least one type of independent contractor that the new venture could use.