In our previous Equanimity Insights, we shared our viewpoints to one of the most frequently asked question: What do we look for in an early stage business? Amongst others, the most important factor came about to be the Team. This time around, we delve a bit deeper into the team aspect and share with you our way of evaluating founding teams.
According to some estimates, of the approximate 3000 odd startups founded in India every year, around 90% fail. So what are the traits of those that survive and thrive from the ones that go the Dodo way? Among many others, we believe the foremost reason we attribute to survival and success is the founder and the team.
At Equanimity, when we evaluate founders and their teams, we seek to understand a host of things. We do not have a standard recipe for you as we believe there is none. Whether entrepreneurs are born or made is another debate that we do not claim to have resolved. What we want to share are some learnings from our experience. Here we list a few, not necessarily in any order of importance.
Clarity: steering a startup from inception to a successful, sustainable business is an extremely challenging task, filled with constant chaos. Startups are constantly faced with a plethora of opportunities and challenges requiring swift decision making to nudge the business in the desired direction. In our experience, having clarity about the broader direction the business needs to move in and common shared goals and aspirations among the team has been a good precursor of a successful team. There is another dimension to clarity and it pertains to people and the overall team. Star performers at large corporates may not be the ideal fit for the startup environment. Individuals working in startup have to have the clarity of why they are there in the first place. What is their motivation?
Experience: this has proved to be a very persistent trait of winning teams. Success begets success. If the founder and/or his team can demonstrate how their experience has delivered successful results in the past, we believe it to be a strong indicator of future success. There have been cases where startup teams have made very impressive pitches to us on how they will disrupt a certain industry. Upon deeper diligence, we found that they have very limited experience in that line of work. We struggle to understand how an industry can be disrupted by a team that doesn’t even understand whether an industry is ripe for disruption. According to research published by Pierre Azoulay, Benjamin Jones, et al. in the Harvard Business Review, the average age of a successful startup founder is 45.
When we look at India and the ecosystem here, we see a similar trend. Experience matters!!
Team Dynamics: this is one of the cornerstones of success in the startup ecosystem. If you think about it, every large organization has quite a number of employees who, to be polite, are mediocre. Sometimes we know this first hand by being part of these organisations and at other times we experience it as a customer or supplier to them. We wonder how these organisations sustain and even excel in their line of business with such kind of mediocrity. When it comes to startups, teams are small and close knit. Even a single mediocre team member can bring down the entire business. We pay close attention to team chemistry at these early stage firms in our diligence process and then all through our relationship with the business.
Listen: entrepreneurs are by definition, action-oriented. They are the doers. We have experienced that founders who listen to the advise of investors, who seek advice from mentors, listen to their customers, engage with customers and suppliers have an edge. Action is important but listening helps in ensuring the best and most successful actions.
Deliver: we like to see results and progress. Our engagement with startups from the time we identify and meet them to the time we end up investing in them ranges from a month to sometime six months. This is time enough for us to gauge on how they have executed on their original plans and how much progress they have achieved. There are teams that excel in this and then there are those who have a variety of reasons about why they have lagged behind. More often than not, we tend to prefer those teams that have delivered on their plans.
Motivation: at a startup level, business and emotions are entangled. This is what keeps the entrepreneur and the team motivated and bring in their brand of passion to the workplace. Pecuniary factors are not always the biggest motivator for early stage teams and employees, though in the long run all stakeholders would love to see value and wealth being created. Opportunity and innovation seems to be powerful motivators for growth oriented entrepreneurs as they spot vacant spaces and create a business where none existed. Motivation also goes a long way in ensuring the right team chemistry as we shared above.
Vision: a shared vision is the basic criteria for startup teams to have in order to get a reasonable shot at glory. Top teams excel in their ability to plan and envision their idea as a viable business. They are focused on the product and the business plan that can best complement it. They are extremely aware of the possible revenue streams and monetization opportunities available to them. The key is then to translate the vision into short term and long term milestones and then set about to ensure infallible execution in a timely manner.
“Running a startup is like chewing glass and staring into the abyss. After a while, you stop staring, but the glass chewing never ends.” - Elon Musk
All factors mentioned above are meaningless if the team lacks passion and perseverance.
We look for founders that are passionate about their projects. Founders who are capable of standing up after being knocked down constantly, with fire in their bellies to achieve eternal glory and wear their battle scars with pride, for ultimately, they are soldiers perpetually prepared for war.