While it is true that valuing a business is part art and part science, specific…
Hiring at seed stage: for 10X users, look for “10X” people
As the co-founder of one of the fastest growing Dutch companies, Daniel has experience in forming a team and shaping the culture of a seed-stage startup.
Given Equidam’s success and knowledge in fundraising, we decided to pick his brains also about the role of hiring choices on both the overall value of the company and fundraising success.
At this stage, companies are not established and do not have unlimited resources at their disposal. So how do you go about choosing your team under these circumstances?
Team is the main source of competitive advantage at this stage. There are numerous challenges that you face on a daily basis – for instance, processes are not well established, no one in the company is knowledgeable on one specific area and everyone is sort of learning things on the spot. So at seed stage the team is going to determine whether the company wins or loses.
The team needs to be equipped to make the right decisions, have the right attitude, or even the right scrappiness to realise production.
In my opinion, the smaller you are as a company, the more various people you need to have in terms of their skills and expertise – shortly, generalists. To expand more on that, your team needs to consist of people that are capable of and willing to do multiple things, as opposed to one specific thing that they are extremely good at.
The focus of the whole company at seed and pre-seed stage should be pushing towards product-market fit, while maintaining low costs. Generalists are ideal for this type of setting.
However, at the moment you reach PMF, you start thinking about the ways in which you can scale as fast as possible. Then you need a different kind of people. In the scaling stage, you need people who are more specific, have expertise and – in the ideal scenario – people who have scaled companies before.
Hiring depends on Product-Market Fit more than it depends on fundraising
What you see usually, is that pre-seed and seed capital is raised before PMF and serves as a means to reach PMF. On the other hand, series A funding rounds are done to get enough capital to scale operations. In a sense, the more consolidated your team is and the more your company is ready to scale, the easier it will be to raise series A and get these expansion money.
Naturally, growing the company and moving through the stages of development entail a constant flux of change. People within the company need to be able to adjust to the changes that are happening. One of the issues that comes up is that some people might not be able to make this change. It might be difficult for them to make the leap from creating 10 features a day to producing something solid and reliable over a longer period of time. So you need to train the team to make the transformation from generalists to specialists or rather from scrappiness to solidity. On top of that, you have a lot of new hires coming in, so this is also something to look out for.
The composition of your team affects your overall business value. Find out how much team expertise influences your valuation at Equidam!
Let’s take the case of generalists. What should founders be aware of when dealing with this type of people?
One of the risks you may come across is that certain people don’t want to be generalists. Imagine this – a person does what they like to do for about 5% of the time they spend in the office, but end up doing something else that they might not enjoy the rest of the time. This makes for an unhappy person who is probably not going to deliver. In my experience, it is always best to seek out the people with the right attitude.
The people that fit best at this stage are generally the ones that love what the company does, rather than what they do specifically
The people who love what the company does are the people who will look for ways to improve the overall performance of the company, rather than just their own area or department.
You can sort of lay out the types of people on two axis – scope and responsibility. A generalist usually falls in the category of large scope and big responsibility. However, not everybody is ready for this from the start. Depending on your team, you might have to ease people into the expansion of their scope. The faster you make this transition, the more you can iterate on both product and people.
How do you align and motivate the team of generalists in this stage?
Generalists are motivated by the things they can learn, their own contribution to the company and working with very good people that they can learn from. Generalists also tend to strive in chaos. Their motivation comes from the responsibility. The more empowered a generalist feels, the more he or she is going to be motivated.
It would be easy to keep the first 5 to 10 people of your team motivated, since you are going to have a pretty close contact with them. In the initial stage, when the whole team is working all together at the same table, it feels more like a group project rather than a business. The general feeling around that is also quite positive and happy.
In the subsequent stages, however, you have to find a balance between seriousness and happiness and positivity. The more you grow, the less the company and the work would feel like a group project. Nevertheless, you should try to preserve this feeling of positivity and personal bond at least at the subgroups level.
But there are many people who are generalists and are able to handle the workload and tasks in a seed-stage startup. How do you identify the right ones out of this talent pool?
What we look for is people who are these three things – passionate about something that they are going to be involved with in Equidam, quick learners and opinionated.
1| You should be looking for passion in general. The reason is that it is quite difficult to do things well or educate yourself on topics that you need to perform well if you are not passionate about these things.
2| The second point is learning capability or how quickly a person could learn something. This could be communicated just by talking to someone or by going through their previous achievements.
3| The third sign that this is the right person is if they have an opinion. Generalists need to drive the area that they are working on towards a certain point. First they need to pinpoint that future state and they need to be able to drive the organisation in that direction. So if you see that a person is not able to drive their own free time or their own tasks in one direction, then this is a red flag.
Your company culture is going to be shaped by the first 5-6 people, so you really need to get the right first hires. When you are looking for PMF you are focused on releasing features almost immediately or at least as fast as possible.
A good rule of thumb is to think 10X about people, the same way you think 10X about users and systems
From the very start, you need to find the people that are able to handle ten times more of what you have right now. At one point they will get to the level where they will start hiring and they will hire the people that they click with – so more people like themselves. So to conclude, at seed stage you need to be looking for the people that you would want to have 100 more of.
How do you attract these people, as a company that doesn’t have a big brand and also cannot offer a high compensation?
As a startup you have a few advantages that you can use in terms of attracting talent to your team – you have passion for the company and the company mission, freedom, responsibility and empowerment. You cannot compete on salary or benefits with companies such as Google, for example. What you should rely heavily on in your hiring is non-monetary benefits. For example, employee empowerment and the ability to affect a lot of lives with the work they do for your company are two very strong points to attract talent.
You mentioned before briefly about the company culture, how important is it at this stage?
Culture is a very ephemeral thing. Undeniably, it’s one of the main drivers of why people stay together. Everyone that comes in will either become part of the culture or bounce. As I said before, the culture will be shaped by the first 5-10 people in the company and it will determine who are the people that will stay and who are the people that will have to go simply because they cannot adopt the same practices.
For example, the attitude we try to set in Equidam is one of a balance between individualism, cooperation, and growth. I believe in roles, in the sense that a person is responsible for bringing forward a project or idea. In this case, the group input is obviously very important, but mainly as a contributor to the initial idea. The purpose of the group discussion is not only to make the original suggestion better but also to alleviate this person as an individual.
What about when you witness behaviour that is not aligned with your company’s values or culture?
Behaviours are generally handled by the group. You can really see people that do not fit, who have different values, get isolated pretty quickly. They also realise it themselves. It’s simple, if you want to be part of the group you need to adopt a certain type of behaviour. If they don’t see it for themselves, you need to talk to them and explain this to them, because most of the times it is just a communication issue. But sometimes the person themselves has such different values that it is not worth it to fix this relationship.
What was the moment you actually realised that you are shaping a team and the culture within the team?
For me the realisation came when I saw people from my team talking to other team members the way I would talk to them. When you see that they have changed their communication and working style, you can definitely see how you as a founder affected these people in this waterfall of learning and communication.
In terms of supporting team members in their growth, you are not a specialist yourself, you need to learn a lot beforehand and set aside time to teach, how do you deal with this?
An important aspect to consider here is that the capabilities of a company in a given area are limited by the knowledge of people working in this area. So the founder cannot be the person who knows the most – it just limits the potential of the company. The founder needs to encourage people to learn on their own.
The founder cannot be the person who knows the most – it just limits the potential of the company
In the very early stage of the company, the founders probably did everything themselves. So they are familiar with the basics of almost every aspect of running a business. In my opinion, in the majority of the time, training and unlocking someone’s knowledge is the highest leverage activity that I, as the founder, can do. I am not an expert in everything, but I can give direction on how to improve yourself and how to learn.
What does the composition of the team look like from the perspective of fundraising? Experts would probably reduce the perceived risk from an investor’s point of view.
A team of generalists is going to be able to produce more – a larger output, faster in terms of production, achieving traction, etc.
A team of specialists, on the other hand, looks good on a pitch deck, from investors’ perspective.
There are obviously advantages in both. You should just think long term, because in the end the goal is to build a good company and the funding is sort of a consequence of that.
There is no way to tell which one is better, but my advice is to not hire people that look good on a pitch deck just to raise capital.
Preparing for fundraising? Check out our free-to-download pitch deck template!
Continuing our talk about the differences between generalists and specialists, If you had the resources to hire an initial team of experts, would you do it?
In the ideal case scenario, you would have both – generalists and specialists. The generalists and their attitude are going to attract the specialist. However, maybe the specialists are not going to contribute that much at seed stage. Of course, an experienced designer will attract other designers that would like to work with him. But at the early stage, this specialist might not be able to show off their skills and capabilities and they are probably aware of that themselves.
Before we identified the difference between generalists and specialists to be the drive to learn new things outside of your comfort zone. You can definitely have a specialist who is interested in expanding their knowledge beyond their area of expertise. In this case, we go back to the previous points that we identified – passion, learning capability and opinion.
It also depends on what you’re trying to accomplish. At an early stage, you need the best team to accomplish your mission. If you are building rockets, you need to have people that know what they are doing – it is the source of your competitive advantage.
From investment perspective – it’s always better when you have superstars on your team. But that’s not because of their CV, but because they provide the competitive advantage that you need. An expert is very familiar with the industry and market, and having him on the team reduces the perceived risk of failure for potential investors. This also means that the people who had already a startup, or who have worked in the space of operation of the company have higher chances of getting funded. Thus, they also bring more value and influence the overall company value.
People who had already a startup, or who have worked in a particular space have higher chances of getting funded
Such people, apart from experience, will also bring their network to the table. This will, in turn, influence the valuation of the company. All in all, this is definitely a consideration that you have to make when building and scaling your team.
What is your experience with shaping your team and company culture? Share it with us in the comments!
To find out what influence the experience of your team has on your business valuation, check out Equidam!