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NYU Stern Office of Development
& Alumni Relations

CO-FOUNDERS & START-UPS:
WHAT MAKES A SUCCESSFUL
TEAM?
Jason Greenberg...
Entrepreneurship at NYU: Statistics and
superlatives
• 100+ entrepreneurship-related courses
• 845 patents issued to facul...
Wharton alumni entrepreneurship rate
25%
20%
15%
10%
5%
0%
1

2

3

4

5

6

Jobs post graduation

7

8

9

10
3
Founding team problems = greatest
source of VC-funded startup failure

35

65

Founding team
Source: Gorman and Sahlman (1...
Fred Wilson of USV on the importance of
the right team
“No business is so good that the wrong
people can't mess it up. And...
I can calculate the motions of
the heavenly bodies, but not the
madness of people.
--SIR ISAAC NEWTON

6
Objective: Consider the “madness
of people” in founding teams
• Systematic assessment of “madness”
from
–A social science ...
Three Rs and team issues
Relationships

 Found with friends?
 With strangers? Co-workers? Family?

Team
Tensions
Roles

...
Who should you start a business with?
• Two key types of questions
– Functional considerations (specific skills,
experienc...
“Going into business
with friends or family?
Prepare for disaster.”

10

Source: Boston Globe (12/14/03)
11

Source: Entrepreneur.com (10/05)
Lots of examples of family members or
friends on founding teams

Robert

James

Edward

Sergey Brin

Larry Page

12

Sourc...
Generally speaking, is it a good idea to start
a business with…
1.
2.
3.
4.

Family members
Friends
Co-workers
Strangers

...
Technological startups often include coworkers and friends
% of founding teams including …

50
45
40

35
30
25
20
15

10
5...
Predicted probability venture achieved
viability
0.4
0.35
0.3
0.25
0.2
0.15

0.1
0.05
0
Strangers

Friends who never
worke...
EVIDENCE FROM THE FIELD:
1. How do you identify, evaluate and
“date” potential co-founders?
2. How do you deal with “lost ...
Three Rs and team issues
Relationships

 Found with friends?
 With strangers? Co-workers? Family?

Team
Tensions
Roles

...
What is the most important criterion
when determining which co-founder will
be CEO?
1.
2.
3.
4.
5.
6.
7.

Who came up with...
Positions taken by idea people
VP
12%

Other
9%
COO
3%
CFO
1%

CEO
56%

CTO
12%

Chair
7%

19
Source: Adapted from Noam Wa...
Role agreement critical for founding
team success
Key predictors of viability (odds-ratios)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
...
What kind of company do you want? The
importance of blueprints
Employment Attachment Selection Coordination/
blueprint
Con...
Three Rs and team issues
Relationships

 Found with friends?
 With strangers? Co-workers? Family?

Team
Tensions
Roles

...
Generally speaking, do you believe that
equity should be split equally among all
co-founders?
1. Yes
2. No

23
How important are the following criteria
to you when determining how to split
equity?
1.
2.
3.
4.
5.
6.
7.

Who came up wi...
Equity stakes for idea versus non-idea
people by position
70
60

Equity %

50

40
30
20
10
0
CEO

CFO

Chair

COO

CTO

Ot...
Equity more likely to be split equally
when…
• Initial financial capital investments are the
same
• Founders have similar ...
Generally speaking, do you believe that
“roles” and “rewards” need to be
specified in a formal contract?
1. Yes
2. No

27
Formal contractual agreements predict
founding team success
Key predictors of viability (odds-ratios)
5
4.5
4
3.5
3
2.5
2
...
Known-knowns, know-unknows, and
unknown-unknowns and contracts
“Because we know, there are known knowns; there are things ...
Takeaways
• Finding the right partner(s) may be the most
important step
– Understand that it is a dynamic process

• Align...
THANK YOU!
JGREENBE@STERN.NYU.EDU
5

4.5

Satisfaction

4

3.5

3

2.5

2

Consulting

Finance

Tech
5

4.5

Satisfaction

4

3.5

3

2.5

2

Consulting

Finance

Tech
$500,000

$450,000

$400,000

$350,000

Earnings

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$-

Consultin...
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Co-founders and Startups: What Makes a Successful Team?

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This is a presentation from NYU Stern Professor Jason Greenberg about what makes for a successful startup founding team. He highlights the necessary mix of relationships, roles, and rewards that lead to company viability.

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Co-founders and Startups: What Makes a Successful Team?

  1. 1. NYU Stern Office of Development & Alumni Relations CO-FOUNDERS & START-UPS: WHAT MAKES A SUCCESSFUL TEAM? Jason Greenberg, MA, MPP, PhD New York University © 2013 Jason Greenberg, PhD
  2. 2. Entrepreneurship at NYU: Statistics and superlatives • 100+ entrepreneurship-related courses • 845 patents issued to faculty/students – 82 startups launched based on NYU IP • 3 NYU Incubators (partnership with NYC EDCo.) – 106 companies since ‘09 • • • • $65 million raised 5 companies acquired 900 jobs created $250 million in local economic impact • NYU Innovation Venture Fund – Seed-stage fund • MadeByNYU.org 2 *As of June 2013
  3. 3. Wharton alumni entrepreneurship rate 25% 20% 15% 10% 5% 0% 1 2 3 4 5 6 Jobs post graduation 7 8 9 10 3
  4. 4. Founding team problems = greatest source of VC-funded startup failure 35 65 Founding team Source: Gorman and Sahlman (1989) Product, marketing, function 4
  5. 5. Fred Wilson of USV on the importance of the right team “No business is so good that the wrong people can't mess it up. And no business is so bad that the right people can't fix it. […] So if you don't get the people part of the equation right, everything else is really immaterial.” 5 Source: http://www.usv.com/2007/01/founders-and-ma.php
  6. 6. I can calculate the motions of the heavenly bodies, but not the madness of people. --SIR ISAAC NEWTON 6
  7. 7. Objective: Consider the “madness of people” in founding teams • Systematic assessment of “madness” from –A social science perspective –Extensive first hand-experience • Mike Chan, Founder & Principal, MWC Consulting –B.S. (Lehigh); M.S. (Georgia Tech); MBA (NYU) • Philip Rosenthal, Pres. & CEO, Fastcase –B.S. (Yale); M.A., PhD (Cal. Tech); J.D. (Harvard)7
  8. 8. Three Rs and team issues Relationships  Found with friends?  With strangers? Co-workers? Family? Team Tensions Roles  Division of labor, positions, skills  Decision making  Model for how business should be organized Source: Noam Wasserman Rewards  Splitting the pie  Compensation 8
  9. 9. Who should you start a business with? • Two key types of questions – Functional considerations (specific skills, experience, education, time) – Social relationships • An important mechanism of team formation • Lots of received wisdom on the matter 9
  10. 10. “Going into business with friends or family? Prepare for disaster.” 10 Source: Boston Globe (12/14/03)
  11. 11. 11 Source: Entrepreneur.com (10/05)
  12. 12. Lots of examples of family members or friends on founding teams Robert James Edward Sergey Brin Larry Page 12 Sources: The Guardian; designhistory.com; http://www.kilmerhouse.com/2009/04/how-much-do-you-really-know-about-our-annual-meeting/
  13. 13. Generally speaking, is it a good idea to start a business with… 1. 2. 3. 4. Family members Friends Co-workers Strangers 13
  14. 14. Technological startups often include coworkers and friends % of founding teams including … 50 45 40 35 30 25 20 15 10 5 0 Co-workers Friends Family 14
  15. 15. Predicted probability venture achieved viability 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Strangers Friends who never worked together Co-workers Family Note: Transparent bars are not statistically significant; dashed line denotes overall avg. Significant coefficients differ from each other and all other coefficients. Model includes extensive controls. Source: Greenberg (2013) 15
  16. 16. EVIDENCE FROM THE FIELD: 1. How do you identify, evaluate and “date” potential co-founders? 2. How do you deal with “lost in translation” issues—tech/business or business/tech? 16
  17. 17. Three Rs and team issues Relationships  Found with friends?  With strangers? Co-workers? Family? Team Tensions Roles  Division of labor, positions, skills  Decision making  Model for how business should be organized Source: Noam Wasserman Rewards  Splitting the pie  Compensation 17
  18. 18. What is the most important criterion when determining which co-founder will be CEO? 1. 2. 3. 4. 5. 6. 7. Who came up with the idea Prior social relationships Research/tech skills Ability to raise funds Business acumen Social network – size and reach Executing idea 18
  19. 19. Positions taken by idea people VP 12% Other 9% COO 3% CFO 1% CEO 56% CTO 12% Chair 7% 19 Source: Adapted from Noam Wasserman, “Idea People and Their Initial Roles within Founding Teams,” May 1, 2008, post on research blog, “Founder Frustrations”
  20. 20. Role agreement critical for founding team success Key predictors of viability (odds-ratios) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Source: Greenberg (2013); Note: Model includes extensive controls. 20
  21. 21. What kind of company do you want? The importance of blueprints Employment Attachment Selection Coordination/ blueprint Control Star Work Potential Professional -40% -55% Engineering Work Skills Peer/ cultural Baseline Commitment Love Fit Peer/ cultural Bureaucracy Work Skills Formal Autocracy Money Skills Direct 200% -100% 30% -45% 5% -200% -100% 0% Pr(IPO) 150% 100% 200% Pr(Failure) 21 Source: Baron and Hannan (2002) 300%
  22. 22. Three Rs and team issues Relationships  Found with friends?  With strangers? Co-workers? Family? Team Tensions Roles  Division of labor, positions, skills  Decision making  Model for how business should be organized Source: Noam Wasserman Rewards  Splitting the pie  Compensation 22
  23. 23. Generally speaking, do you believe that equity should be split equally among all co-founders? 1. Yes 2. No 23
  24. 24. How important are the following criteria to you when determining how to split equity? 1. 2. 3. 4. 5. 6. 7. Who came up with the idea Prior social relationships Research/tech skills Ability to raise funds Business acumen Social network – size and reach Executing idea 24
  25. 25. Equity stakes for idea versus non-idea people by position 70 60 Equity % 50 40 30 20 10 0 CEO CFO Chair COO CTO Other 5.5 VP Premium for being idea person 20.0 16.7 24.6 21.2 5.6 2.3 Equity % if not the idea person 42.1 13.3 35.1 28.5 27.6 14.3 22.3 Source: Noam Wasserman, “The Idea Premium: How Much (Equity) is Your Idea Worth?” June 17, 2008, post on blog, “Founder Frustrations” 25
  26. 26. Equity more likely to be split equally when… • Initial financial capital investments are the same • Founders have similar levels of industry experience • All founders are first timers • Equity is split early in the process • Founders are friends • Team is smaller 26
  27. 27. Generally speaking, do you believe that “roles” and “rewards” need to be specified in a formal contract? 1. Yes 2. No 27
  28. 28. Formal contractual agreements predict founding team success Key predictors of viability (odds-ratios) 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 28 Source: Greenberg (2011). Model includes extensive controls.
  29. 29. Known-knowns, know-unknows, and unknown-unknowns and contracts “Because we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns--the ones we don’t know we don’t know.” Know-knowns Known-unknowns Unknown-unknowns Each founder’s What the final ? financial contribution business model will to date be Who came up with What part of the idea ? the original idea can be monitized Static contractual provisions Dynamic contractual provisions Trust! 29
  30. 30. Takeaways • Finding the right partner(s) may be the most important step – Understand that it is a dynamic process • Aligning the “three Rs” critical • Also ensure that you are “in sync” with respect to role expectations • Don’t wait too long to discuss – Contracts • Always incomplete—consider as a process-defining tool for discussing rights/responsibilities – Equity splits • Equal split not always the best – Especially true if contributions not equal 30
  31. 31. THANK YOU! JGREENBE@STERN.NYU.EDU
  32. 32. 5 4.5 Satisfaction 4 3.5 3 2.5 2 Consulting Finance Tech
  33. 33. 5 4.5 Satisfaction 4 3.5 3 2.5 2 Consulting Finance Tech
  34. 34. $500,000 $450,000 $400,000 $350,000 Earnings $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- Consulting Finance Tech

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