*(noun): a person who organizes and manages any enterprise, esp. a business, usually with considerable initiative and risk. *
Last week we discussed idea generation and evolution. Here we're assuming that you've got an idea, developed it into a planned product or service and you are now working out who else you need to work with to help turn your dream into reality.
First of all, you probably need co-founders. A quick analysis of all the recent success stories points to 2 or 3 being the optimal number. For example, Bill Gates had Steve Ballmer at Microsoft, Larry Page has Sergey Brin at Google and Mark Zuckerberg initially had Andrew McCollum and Dustin Moskovitz at Facebook.
Setting up a business on your own occasionally works e.g. Jeff Bezos with Amazon, but the process of bouncing ideas around just isn't possible in the same way. Finally, if the core team start off as 4 or more, people often end up dropping out due to having differing expectations or effectively becoming a 'spare part' due to there being an overlap of skills within the team.
A good way to improve your understanding of these sort of relationships is by reading Founders at Work (by Jessica Livingston, Partner, Y Combinator) - a collection of 32 candid interviews about the early days with founders from the likes of Apple, Hotmail, Yahoo!, PayPal and Firefox.
Having read the book myself, it seems that a common pattern emerges - complimentary skill sets. Guy Kawasaki (Author, The Art of the Start) explained the dynamic well at the annual TiE conference in 2006:
"If you're a great engineer, you need to find a great marketer. If you've got a great engineer and a great marketer, then maybe you need to find someone who's good at operations. If you're a youthful young visionary, then you need to find adult supervision."
OK. The last sentence is slightly tongue in cheek, but the point is clear enough and you can draw upon analogies from any number of sporting teams. However, it's not necessarily essential to cover every single base of skills in the initial team. You'll learn and develop skills on the job. For example, with GroupSpaces I started off having done a couple of banking internships and an alumni fundraising campaign which furnished me with reasonable finance and sales skills; and my co-founder Andy Young started off with several years of Web development under his belt. After working together for a couple of years, Andy's developed into a top graphic designer and my understanding of management, marketing and corporate law has developed tremendously. That's now resulted in us having pretty much all the bases covered.
The other thing to bear in mind is quality. And finally, remember - lots of people have exciting ideas, but they're worthless without good execution- it doesn't matter how fantastic your idea is if you don't have a sufficiently talented team to make it happen.
I've got a team, who else do I need?
Find the right mentors. For any first time entrepreneur, this is absolutely crucial. Unfortunately entrepreneurship isn't something you can learn by studying, you learn by doing. I remember a Harvard MBA saying something particularly memorable to me while we were having dinner at Smollensky's in Oxford last August:
"Business is a trade; you learn with an apprenticeship and you improve by practising."
Where this school of thought derives from is mistakes. You learn about how to start a business by trying stuff out and making mistakes. Gradually you realise what works and what doesn't and this is called "experience". This is where the mentor comes in particularly useful. Any good mentor will have lots of experience and can hopefully share the lessons from many of the mistakes which they themselves have made in the past so that you don't have to make them yourself.
The PayPal Mafia are a prime example of the benefit which good mentors have. PayPal's original CEO Peter Thiel invested $500,000 in Facebook when Zuckerberg went to meet him in June 2004, 5 months after they launched the website. Having already taken PayPal from zero to a $1.5bn sale to eBay in 2002, Thiel clearly knew his way around Internet business. Now that Facebook has over 50 million users and has been valued at 10 times this figure ($15bn) with 23-year old Zuckerberg and Thiel still composing 2 members of the 3-man board, most would credit Thiel's guidance significantly.
My idea needs money to make it happen. Where do I go?
1. You've probably heard of Venture Capital. VCs (Venture Capitalists) give entrepreneurs cash in exchange for shares in their company. Generally, Venture Capital investments are £500,000+ and firms often don't want to invest less than £1M in companies for their portfolio. In the UK, VCs tend to only invest in proven concepts; now this could be the entrepreneur running the company (i.e. he/she's been successful before) or it could be that the company already has a well-developed product and lots of customers. It takes time to get to this sort of stage and a VC would almost certainly want the entrepreneurs they invest in to work full-time on their company. Therefore, this one's unlikely to work for you.
2.Angel Investors are affluent individuals who provide capital for start-ups and they typically invest their own funds. This is in contrast to VCs, who manage the pooled money of others in a professionally managed fund. Investments of £50,000-£500,000 are normally angel territory, and like VCs, they probably want shares in your business. Connecting early-stage companies and angel investors can be difficult outside of personal networks, so angels often get together in "angel networks". Formed out of a group of angels, these function like a real-time version of Dragon's Den. Once every couple of months, a few lucky entrepreneurs get to pitch their idea to the network at a presentation and they are subsequently asked questions. Hopefully they end up receiving offers of investment too. Popular angel networks in the UK include London Business Angels (LBA), Oxford Investment Opportunity Network and Oxford Early Investments (OION & OEI) and the Great Eastern Investment Forum (GEIF).
3. Micro seed funding (as oppose to "seed funding" which is synonymous with "angel-level funding") has been pioneered by Y Combinator (YC) in recent years. It is a biannual scheme with an intensely competitive application process: first, hundreds of entrepreneurs around the world submit answers to 25-30 questions; next, a chosen few teams are interviewed; finally, around 10 receive funding each cycle. For the chosen ones it was well worth running the gauntlet - not only do they receive somewhere between £5,000 - £15,000, but the teams also spend 3 months living in a start-up hub, get the opportunity to meet many successful entrepreneurs and at the end pitch their ideas and products at an Investor Day. In addition to YC which runs in Boston each summer and Silicon Valley each winter, Techstars (Colarado) and Seedcamp (London) have also launched micro seed funds.
4. If all the above options sound like too much hard work or you don't feel confident of going through the gruelling process necessary to get financed through one of them, you can always resort to the three "Fs":
Typically, people in these groups might give you money up to £50,000. The great benefit here is that you're unlikely to have to do lots of legal work agreeing everything and you can work under a more relaxed arrangement.
So, now you've got an idea, you've worked out what product or service you're going to provide, you've formed an initial team, got your mentor(s) in place and hopefully raised a little bit of start-up capital. Surely this is great news. But wait. Don't you still have a degree to do?