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BUILDING WINNING TEAMS

Patrick Turner Affiliate Professor of Entrepreneurship INSEAD Asia Campus

IIT Bombay 22 October 2005

Game plan
1. General considerations 2. The importance of networks 3. Some thoughts on team structuring

Building winning teams

Game plan
 General considerations  The importance of networks  Some thoughts on team structuring

Building winning teams

Key points in team formation
      the needs of the opportunity entrepreneur’s weak points values, goals and commitment definition of roles trust family support

Building winning teams

Other key points
 in general, successful entrepreneurs and their teams have prior experience in and know well their particular market  avoid the temptation of equality for everyone - someone has to take the final decision. Democracy doesn’t work  the same comment applies to financial rewards, stockholding, etc
Building winning teams

Always remember….
 team-building is a dynamic process, and in a lot of cases, one or more of the original launch team leaves or is forced out after a while

Building winning teams

Something to think about...
 Forming and building a team is, like marriage, a rather unscientific, occasionally unpredictable, and frequently surprising exercise. Decisions are partly based on emotions such as admiration, respect and often fierce loyalty.
Building winning teams

What an entrepreneur must be able to do with his team
 communicate his vision  motivate the team so that everyone shares his vision  have the courage and lucidity to remove anyone whose performance or attitude is holding back the venture  lead
Building winning teams

Key things the team must realise and accept
 participating in a new venture is rarely a get-rich-quick exercise - the long haul is important  sacrifices will be involved, both financial and personal - especially at the beginning it is a question of long hours and no guaranteed monthly salary  the lead entrepreneur has the last Building winning teams word

The golden rule...

 The key is getting and working with the right partner or partners, and not assuming that your best friend or brother-in-law will do

Building winning teams

Hire the best people you can
 Bear in mind the Class A,B and C idea

Class A people will attract and hire other Class A people Class B people will do that for Class C people Class C people won’t attract anybody at all
Building winning teams

Hire people with the right experience
 do as VCs do – go for clones  if you are not convinced someone is the right person, keep looking  become your own in-house headhunter make yourself a hit list of people you would love to have in your company  look into the future and start planning today the management team configuration that you think will be optimal down the road
Building winning teams

Why would the best people work in startups?
 A good many of them are already  For those who aren’t…
 

 

challenge chance to really influence things from the most senior level fed up with large corporations all sorts of combinations of circumstances
Building winning teams

What do these people look for?
 Great company
  

well managed good fit great culture demanding, stretching elbow room headroom
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 Great job
  

How to attract such people
 Network, but targetted networking  Be committed to what you are doing and make it exciting  Make your work environment an attractive one  Make your targets feel that their contribution will be really valued  Attach magnets to yourself (eg, strong funding, very strong team, credibilitygiving advisors etc)
Building winning teams

Outside directors
Outside directors can be of inestimable value in:  recruiting key management  introductions to potential customers  advising on deals  locating additional funding However, be careful with the legal implications  adding credibility/prestige affecting board members  simply providing shoulders to lean on
Building winning teams

Advisory boards
 in some cases, entrepreneurs constitute a panel of outside advisors into an advisory board  this can add expertise, credibility, reality checks  avoids the legal implications attached to formal board membership  use your network to identify and approach potential advisory board members  don’t be shy! winning teams Building

Outside advisors (eg, lawyers)
 consider them as part of the team  never hesitate to consult them  however, always remember that they do not necessarily see things from the businessman’s standpoint

Building winning teams

Game plan
 General considerations  The importance of networks  Some thoughts on team structuring

Building winning teams

Two generic modes of access
 Market intermediaries
 

Head Hunting firms >> expensive Online job portals >> inefficient for senior hires

 Personal networks
>> Can be low cost & efficient How do you structure your network to maximise access to top talent?
Building winning teams

Network: Myth + Reality
The set of relationships critical to your ability to get things done, get ahead and develop professionally “Those who work at their networking are selfinterested and political” “My network will develop naturally on its own” Your power to mobilise resources rests on your network You have to know your network in order to
Building winning teams

A networking model
Personality Network Structure Networking Style Accessing Resources

Your network influences your access to: Knowledge (e.g. on undervalued talent) Timely information (e.g. An ‘A’ player’s intention to be on the job market) Referrals (e.g. “low down” on a candidate) Your network limits your ability to mobilise: Opportunities (e.g. access to new talent pools) Support (mentors, advisors, friends, trouble-shooters)
Building winning teams

Personality
Personality Network Structure Networking Style Accessing Resources

Personality Preference or predisposition Involves both thinking and acting Relatively fixed – genetic and early upbringing
Building winning teams

Personality: implications
Some aspects of personality promote networking: High-self monitors sense situations better Extraverted people are constantly in the company of others Agreeable people are nice to talk from the first interaction Conscientious people are more predictable and dependable Be aware of how personality enables and limits your choices: We naturally prefer our own personality Building winning teams

Networking style
Personality Network Structure Networking Style Accessing Resources

Networking Style * Behaviours * Generally consistent with personality * Maybe learned through skill, experience, or awareness * Can and does change over time
Building winning teams

Networking guidelines
 Maximise the value of each interaction  Invest time in developing relationships with interesting people  Keep confidences, build trust, be consistent and predictable  For key meetings, do research and be prepared  Practice and expect reciprocity – balance give and take  Show respect and empathy with regard to time and resources  Only connect when all involved will benefit
Building winning teams

Game plan
 General considerations  The importance of networks  Some thoughts on team structuring

Building winning teams

Team performance: myth + reality
“Teams whose members work together harmoniously perform better than those that have lots of conflict” “When people get together to do a job – the job will probably get finished faster” Most commonly, teamwork really takes longer to finish or doesn’t even get done at all The likelihood of teams performing like magic rests on how winning teams structured and they are Building

Three elements of team design
 Incentives faced by team members – including equity split  Composition of the team  Norms within the team

Building winning teams

Team performance model
Incentives Composition Norms Quality of Decision Making Venture Performance Outcomes

Member incentives, composition and norms influence how team’s decision making processes and this drives performance outcomes
Building winning teams

Team member incentives
 Generally consists of  Salary (fixed + variable) & benefits  Stocks / stock options  In the early stages of the venture cash rewards will be low / non-existent

Building winning teams

Equity allocation – some general principles
 Share the wealth with those who helped you create it  Usually better to follow the Contribution rule rather than the Equality rule for equity allocation  Build in flexibility since contributions of members will vary over time  Have clear stock holder agreements to handle exits of founders and other equity Building winning teams

Money is important but not everything…
 Obviously financial compensation is important, but so are other things –
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environment culture people challenge future growth possibilities etc…
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…and money is not necessarily today
 Performance-related bonuses  Shareholdings  Stock options

Building winning teams

Stock options
 Pros
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share in future value anticipated high future returns compensating lowish (or sometimes non- existent present earnings) worthless if no future value very difficult to negotiate if no IPO Building winning teams

 Cons
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DEFT model of team composition
Diversity within the team Expertise of team members Faultlines within the team Totality of team’s skills

Building winning teams

Assessing Totality of team skills
Step 1: Map the skills required – based on the venture’s business concept & life stage Step 2: Identify gaps between skills required & available in the team
Building winning teams

Assess Totality in terms of…
 Functional skills  Industry / domain skills  Start-up context skills

Building winning teams

Expertise of team members
Use when task interdependence is low

Technical skills Adequate Excellent

Grab Avoid
Adequate Excellent

Use when task interdependen ce is very high

Inter-personal skills

Building winning teams

Two kinds of Diversity…
Knowledge Diversity Differences in  functional areas  industry background  work experience  education etc. Social Diversity Differences in  ethnicity  gender  age  language etc.

Building winning teams

…have different effects on new venture performance
 Knowledge diversity is beneficial
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Promotes innovation and creativity Flexibility in thinking Stereotyping leading to interpersonal conflict Opportunity costs of resolving interpersonal frictions Building winning teams

 Social diversity is likely detrimental

Faultlines
 Faultlines divide a team's members on the basis of one or more attributes (e.g.
gender faultlines divide teams into male and female subgroups)

 Faultlines become stronger as more attributes align themselves in the same way (e.g. when two new female hires share the
same nationality)
Building winning teams

Potential Faultlines
CEO Age Ethnicity 30 Western CTO 34 Wester n Male 2 years Softwar e VP Sales & Mktg 30s Chinese /Indian /Western VP Finance & Control 30s Chinese / Western

Gender Team Tenure Functional Area

Male 2 years Software / Medicine

Male/Femal Male/Female e 0 years 0 years Mktg. (no software expr) Finance (no software expr)

Building winning teams

Team Norms
The leader (or the team collectively) must specify core norms that demarcate the team’s behavioral boundaries The Profane – the few things that are NEVER done The Sacred – the few things that are ALWAYS done
Building winning teams

Summary – structuring the team
Incentives Composition Norms
Quality of Decision Making

Venture Performance Outcomes

- Better to have a small share of large pie than 100% of a non-existent pie – equity incentivises teams - Be clear on the Contribution vs Equality issue. Generally better to rely on the contribution principle - Have flexibility to take care of changing contributions of members as well as entry/exit - Document procedures to handle founder or other equity holders’ exit
Building winning teams

Summary – structuring the team
Incentives Composition Norms
Quality of Decision Making

Venture Performance Outcomes

Diversity: Maximise knowledge diversity; minimise social diversity Expertise: Maximise technical skills subject to adequate interpersonal skills Fault lines: Beware of strong fault lines that could distort task conflict into interpersonal conflict Totality: Ensure your team has the full complement of task skills Building winning teams

Summary – structuring the team
Remuneration Composition Norms
Quality of Decision Making

Venture Performance Outcomes

What are the norms that define the behavioral boundaries of your venture team? The PROFANE - the one or two things that are NEVER done The SACRED – the one or two things that are ALWAYS done Building winning teams