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Equity in Start-ups
A Case Study
and Data
Hervé Lebret
2019
As a Fast Track: Google
As a Fast Track: Nexthink
A professor advises his PhD Student to create
a start-up as the results of the research are
promising. The professor knows an
experienced business person who is ready to
join.
How should they split equity?
A fictitious example
Another Case Study
Founders Equity Split
There is no single answer.
An equal split could be the initial idea, then should be taken
into account:
- past contribution,
- future commitment & expertise / credibility,
- reverse vesting should exist (i.e. if someone stops activity, he keeps a
pro-rata of a 4-5 year commitment),
- the money invested is a dangerous element and should be left to
future financing rounds,
- when IP belongs to a university, there will be a license which usually
includes some equity to academic institution
(see http://www.startup-book.com/2013/11/05/how-much-equity-universities-take-in-start-ups-from-ip-licensing/)
Founders Equity Split
There is no single answer, but there is a nice little
book, which introduces the concept of dynamic
allocation for the early phase
http://www.slicingpie.com
Founders Pie Calculator
Weight PhD Prof. Biz.
Idea for the solution 7 8 2
Bus. Plan 2 1 3 6
Expertise /Credibility 5 2 3 5
Commitment / Responsibilities 7 4 2 4
Risk 7 5 5
Total 280 131 49 100
Split 47% 18% 36%
http://www.andrew.cmu.edu/user/fd0n/35%20Founders'%20Pie%20Calculator.htm
This was an exercise only, and after a negotiation they
agree on the next table:
Founders Equity Split
Title Name Ownership Shares
Founder's Founder's
f CTO PhD 45.0% 4'500'000
f Chief Scientist Professor 25.0% 2'500'000
f VP Bus. Dev Biz 30.0% 3'000'000
Total 100.0% 10'000'000
Sometimes professors have too much power…
The Role of Professors
When there is a VC Round
The founders need resources and go to a VC they know.
The VC proposes $1M for 40% of the company and asks
also for a 20% ESOP plan. The VC will receive “preferred”
shares (i.e. with special rights).
ESOP is the employee stock option plan. When an
employee exercises his option, he receives “common”
shares (similar to founder shares). The company has
already 7 employees and some options are granted
(outstanding).
Equity Split post Round A
Title Name Ownership Number of shares/stock
Founder's Series A Founder's Series A
f CTO PhD 45.0% 18.0% 4'500'000 4'500'000
f Chief Scientist Professor 25.0% 10.0% 2'500'000 2'500'000
f VP Bus. Dev Biz 30.0% 12.0% 3'000'000 3'000'000
Officers & executives 100.0% 40.0% 10'000'000 10'000'000
Other common
Total common before options 100.0% 40.0% 10'000'000
Options-outstanding 4.0% 1'000'000
Options-Available 16.0% 4'000'000
Options-Total 20.0% 5'000'000
Total - company 54.6% 60.0% 15'000'000
Investors (VCs, not management) 40.0% 10'000'000
Investors (others)
Total- Investors 40.0% 10'000'000
Total 24.1% 100.0% 25'000'000
Number of employees 2 7
The B & C Rounds
It is very usual to see additional rounds of
financing called B and C rounds. Each round will
have its own size, valuation and price per share.
VC rounds Round Date Amount # Shares Price per
share
Ownership
(approx.)
Seed / A mai-07 $1'000'000 10'000'000 $0.10 40.0%
B jan-08 $10'000'000 9'090'909 $1.10 25.0%
C oct-09 $15'000'000 4'155'844 $3.61 10.0%
Total $26'000'000 23'246'753
Employee Stock
The CEO will usually be around 5-10% just before the IPO.
The VPs will be in the 0.5%-2% range.
The stock option plan is kept to a level which enables
attracting new managers & employees (usually 20-30%
including common shares of non-founders)
The vesting period is 4 years with 1 year cliff.
There may be a fiscal impact related to vesting and
exercise.
Equity Split post B-C Rounds
Remarks:
- The founder’s ownership numbers represent the ratio they own compared to other employees
on row Total-company and the ratio they own compared to employees and investors in Total-pre
IPO.
- Non-founder employee shares and options is maintained to 20% in this case.
Title Name Ownership Number of shares/stock
Founder's Series A Series B PreIPO /C Founder's Series A Series B PreIPO /C
f CTO PhD 45.0% 18.0% 12.4% 10.8% 4'500'000 4'500'000 4'500'000 4'500'000
f Chief Scientist Professor 25.0% 10.0% 6.9% 6.0% 2'500'000 2'500'000 2'500'000 2'500'000
f VP Bus. Dev Biz 30.0% 12.0% 8.3% 7.2% 3'000'000 3'000'000 3'000'000 3'000'000
CEO 8.3% 7.2% 3'000'000 3'000'000
VP S&M 1.9% 1.7% 700'000 700'000
VP Eng. 1.0% 400'000
VP Prods 1.0% 400'000
CFO 0.5% 200'000
Officers & executives 100.0% 40.0% 37.7% 35.4% 10'000'000 10'000'000 13'700'000 14'700'000
Other common -
Total common before options 100.0% 40.0% 37.7% 35.4% 10'000'000 13'700'000 14'700'000
Options-outstanding 4.0% 5.7% 6.0% 1'000'000 2'072'727 2'500'000
Options-Available 16.0% 4.1% 2.7% 4'000'000 1'500'000 1'111'688
Options-Total 20.0% 9.8% 8.7% 5'000'000 3'572'727 3'611'688
Total - company 54.6% 60.0% 47.5% 44.1% 15'000'000 17'272'727 18'311'688
Investors (VCs, not management) 40.0% 52.5% 45.9% 10'000'000 19'090'909 19'090'909
Investors (others) 10.0% 4'155'844
Total- Investors 40.0% 52.5% 55.9% 10'000'000 19'090'909 23'246'753
Total - PreIPO 24.1% 100.0% 100.0% 100.0% 25'000'000 36'363'636 41'558'441
Number of employees 2 7 25 70
When there is an IPO
The company goes public when revenues and growth are
steady. The company raises additional money to further
grow.
It also brings liquidity to founders and investors.
In 2000 (and over the past 22 years), if the IPO is successful,
the average gave:
- a CEO stock value will be $6-8M.
- a VP stock is around $1M
- and employees have in average $100k.
The investment bank takes a 6-8% fee on the amount raised.
A useful Rule of Thumb
A quick way to synthesize common stock split is given by a
5x hierarchical scale:
- The CEO gets 5-10%
- The VPs get 1-2%
- The directors / senior people get 0.2%-0.4%
- The junior people get 0.04-0.08%...
Position
ind. % # total % ind. % # total % ind. % # total %
CEO 10% 1 10% 7.5% 1 8% 5% 1 5%
VP 2% 2 4% 1.5% 7 11% 1% 10 10%
Senior 0.4% 2 1% 0.3% 17 5% 0.2% 50 10%
Junior 0.08% 15 1% 0.06% 75 5% 0.04% 440 18%
Total 20 16% 100 28% 501 43%
Small size Midsize Large size
Appendix: ESOP Value Curve
Foundation
10% of Series A
($0.01 / share)
30% of Series B
($0.33 / share)
70% of Series C
($2.52 / share)
100% of IPO
($20 / share)
A B C IPO
Ratio
ESOP Price/ Share Value
IPO Capitalization Table
Activity High-Tech Company CS Incorporation
Town, St Lausanne, CH IPO date State CH
f= founder Price per share $200 Market cap. Date oct-06
D= director Symbol CSSA URL www.cs-sa. years to IPO 3.7
Title Name Value
Founder's Series A Series B PreIPO /C Post IPO Founder's Series A Series B PreIPO /C Post IPO
f CTO PhD 45.0% 18.0% 12.4% 10.8% 9.9% 450'000 450'000 450'000 450'000 450'000 $90'000'000
f Chief Scientist Professor 25.0% 10.0% 6.9% 6.0% 5.5% 250'000 250'000 250'000 250'000 250'000 $50'000'000
f VP Bus. Dev Biz 30.0% 12.0% 8.2% 7.2% 6.6% 300'000 300'000 300'000 300'000 300'000 $60'000'000
CEO 8.2% 7.2% 6.6% 300'000 300'000 300'000 $60'000'000
VP S&M 1.9% 1.7% 1.5% 70'000 70'000 70'000 $14'000'000
VP Eng. 1.0% 0.9% 40'000 40'000 $8'000'000
VP Prods 1.0% 0.9% 40'000 40'000 $8'000'000
CFO 0.5% 0.4% 20'000 20'000 $4'000'000
Officers & executives 100.0% 40.0% 37.7% 35.4% 32.3% 1'000'000 1'000'000 1'370'000 1'470'000 1'470'000 $294'000'000
Other common - -
Total common before options 100.0% 40.0% 37.7% 35.4% 32.3% 1'000'000 1'370'000 1'470'000 1'470'000 $294'000'000
Options-outstanding 4.0% 5.7% 6.0% 5.5% 100'000 207'273 250'000 250'000 $50'000'000
Options-Available 16.0% 4.1% 2.7% 3.3% 400'000 150'000 111'168 150'000 $30'000'000
Options-Total 20.0% 9.8% 8.7% 8.8% 500'000 357'273 361'168 400'000 $80'000'000
Total - company 54.6% 60.0% 47.5% 44.1% 41.1% 1'500'000 1'727'273 1'831'168 1'870'000 $374'000'000
Investors (VCs, not management) 40.0% 52.5% 45.9% 42.0% 1'000'000 1'909'091 1'909'091 1'909'091 $381'818'200
Investors (others) 10.0% 9.1% 415'584 415'584 $83'116'886
Total- Investors 40.0% 52.5% 55.9% 51.2% 1'000'000 1'909'091 2'324'675 2'324'675 $464'935'086
Total - PreIPO 24.1% 100.0% 100.0% 100.0% 92.3% 2'500'000 3'636'364 4'155'843 4'194'675 $838'935'086
IPO 7.7% 350'000 $70'000'000
Option (underwriters) 0.0% $0
Total outstanding 22.0% 100.0% 3'636'364 4'155'843 4'544'675 $908'935'086
Number of employees 2 7 25 70 200
* The difference between common shares IPO Total cash before fees $70'000'000
and options is very small. In this case, Paid to underwriters $4'900'000 Revenues 2009 2008
the number of non-founder shares Others $600'000 Amount $100'000'000 $20'000'000
and ESOP is maintained to 20% Net $64'500'000 Growth 400%
of the company at each VC round sold by company 350'000 Number of employees 200
sold by shareholders 100'000 Avg. val. of stock per emp $250'000
Total shares sold 450'000
Option to underwriters -
6-juin-10
$908'935'086
Ownership Number of shares/stock
! : note the 10-1 stock split inducing 10x fewer shares (and an equivalent $20 share prior split)
More quotes
“How to be Silicon Valley?”
Few startups happen in Miami, for example,
because although it's full of rich people, it has few
nerds. It's not the kind of place nerds like.
Whereas Pittsburgh has the opposite problem:
plenty of nerds, but no rich people.
Paul Graham (Y-combinator)
http://www.paulgraham.com/
“Look around who the heroes are. They aren’t
lawyers, nor are they even so much the financiers.
They’re the guys who start companies”
Robert Noyce (founder of Intel)
The Five Dysfunctions of a Team
by Patrick Lencioni, Copyright 2002
Team culture
Inattention to
Results
Avoidance of
Accountability
Lack of
Commitment
Fear of
Conflict
Absence of
Trust
The Five Dysfunctions of a Team
The 5 Dysfunctions of a Team
1. The first dysfunction is an absence
of trust among team members.
Essentially, this stems from their
unwillingness to be vulnerable within
the group. Team members who are not
genuinely open with one another about
their mistakes and weaknesses make
it impossible to build a foundation for
trust.
Absence of trust
Absence of
Trust
2. This failure to build trust is
damaging because it sets the tone for
the second dysfunction: fear of conflict.
Teams that lack trust are incapable of
engaging in unfiltered and passionate
debate of ideas. Instead they resort to
veiled discussions and guarded
comments.
The 5 Dysfunctions of a Team
Fear of Conflict
Absence of
Trust
Fear of
Conflict
3. A lack of healthy conflict is a
problem because it ensures the third
dysfunction of a team: lack of
commitment. Without having aired
their opinions in the course of
passionate and open debate, team
member rarely, if ever, buy in and
commit to decisions, though they may
feign agreement during meetings.
The 5 Dysfunctions of a Team
Lack of Commitment
Absence of
Trust
Fear of
Conflict
Lack of
Commitment
4. Because of this lack of real commitment and buy-in, team
members develop an avoidance of accountability, the fourth
dysfunction. Without committing to a clear plan of action, even the
most focused and driven people often hesitate to call their peers on
actions and behaviors that seem counterproductive to the good of
the team.
The 5 Dysfunctions of a Team
Avoidance of Accountability
Absence of
Trust
Fear of
Conflict
Lack of
Commitment
Avoidance of
Accountability
5. Failure to hold one another accountable creates an
environment where the fifth dysfunction can thrive.
Inattention to results occurs when team members put
their individual needs (such as ego, career development,
or recognition) or even the needs of their divisions above
the collective goals of the team.
The 5 Dysfunctions of a Team
Truly cohesive teams are obvious
1. They trust one another
2. They engage in unfiltered
conflict around ideas
3. They commit to decisions and
plans of actions.
4. They hold one another
accountable for delivering against
those plans.
5. They focus on the achievement
of collective results.
Inattention to Results
Absence of
Trust
Fear of
Conflict
Lack of
Commitment
Avoidance of
Accountability
Inattention to
Results

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Startup Equity Split Study - Hervé Lebret

  • 1. Equity in Start-ups A Case Study and Data Hervé Lebret 2019
  • 2. As a Fast Track: Google
  • 3. As a Fast Track: Nexthink
  • 4. A professor advises his PhD Student to create a start-up as the results of the research are promising. The professor knows an experienced business person who is ready to join. How should they split equity? A fictitious example Another Case Study
  • 5. Founders Equity Split There is no single answer. An equal split could be the initial idea, then should be taken into account: - past contribution, - future commitment & expertise / credibility, - reverse vesting should exist (i.e. if someone stops activity, he keeps a pro-rata of a 4-5 year commitment), - the money invested is a dangerous element and should be left to future financing rounds, - when IP belongs to a university, there will be a license which usually includes some equity to academic institution (see http://www.startup-book.com/2013/11/05/how-much-equity-universities-take-in-start-ups-from-ip-licensing/)
  • 6. Founders Equity Split There is no single answer, but there is a nice little book, which introduces the concept of dynamic allocation for the early phase http://www.slicingpie.com
  • 7. Founders Pie Calculator Weight PhD Prof. Biz. Idea for the solution 7 8 2 Bus. Plan 2 1 3 6 Expertise /Credibility 5 2 3 5 Commitment / Responsibilities 7 4 2 4 Risk 7 5 5 Total 280 131 49 100 Split 47% 18% 36% http://www.andrew.cmu.edu/user/fd0n/35%20Founders'%20Pie%20Calculator.htm This was an exercise only, and after a negotiation they agree on the next table:
  • 8. Founders Equity Split Title Name Ownership Shares Founder's Founder's f CTO PhD 45.0% 4'500'000 f Chief Scientist Professor 25.0% 2'500'000 f VP Bus. Dev Biz 30.0% 3'000'000 Total 100.0% 10'000'000 Sometimes professors have too much power…
  • 9. The Role of Professors
  • 10. When there is a VC Round The founders need resources and go to a VC they know. The VC proposes $1M for 40% of the company and asks also for a 20% ESOP plan. The VC will receive “preferred” shares (i.e. with special rights). ESOP is the employee stock option plan. When an employee exercises his option, he receives “common” shares (similar to founder shares). The company has already 7 employees and some options are granted (outstanding).
  • 11. Equity Split post Round A Title Name Ownership Number of shares/stock Founder's Series A Founder's Series A f CTO PhD 45.0% 18.0% 4'500'000 4'500'000 f Chief Scientist Professor 25.0% 10.0% 2'500'000 2'500'000 f VP Bus. Dev Biz 30.0% 12.0% 3'000'000 3'000'000 Officers & executives 100.0% 40.0% 10'000'000 10'000'000 Other common Total common before options 100.0% 40.0% 10'000'000 Options-outstanding 4.0% 1'000'000 Options-Available 16.0% 4'000'000 Options-Total 20.0% 5'000'000 Total - company 54.6% 60.0% 15'000'000 Investors (VCs, not management) 40.0% 10'000'000 Investors (others) Total- Investors 40.0% 10'000'000 Total 24.1% 100.0% 25'000'000 Number of employees 2 7
  • 12. The B & C Rounds It is very usual to see additional rounds of financing called B and C rounds. Each round will have its own size, valuation and price per share. VC rounds Round Date Amount # Shares Price per share Ownership (approx.) Seed / A mai-07 $1'000'000 10'000'000 $0.10 40.0% B jan-08 $10'000'000 9'090'909 $1.10 25.0% C oct-09 $15'000'000 4'155'844 $3.61 10.0% Total $26'000'000 23'246'753
  • 13. Employee Stock The CEO will usually be around 5-10% just before the IPO. The VPs will be in the 0.5%-2% range. The stock option plan is kept to a level which enables attracting new managers & employees (usually 20-30% including common shares of non-founders) The vesting period is 4 years with 1 year cliff. There may be a fiscal impact related to vesting and exercise.
  • 14. Equity Split post B-C Rounds Remarks: - The founder’s ownership numbers represent the ratio they own compared to other employees on row Total-company and the ratio they own compared to employees and investors in Total-pre IPO. - Non-founder employee shares and options is maintained to 20% in this case. Title Name Ownership Number of shares/stock Founder's Series A Series B PreIPO /C Founder's Series A Series B PreIPO /C f CTO PhD 45.0% 18.0% 12.4% 10.8% 4'500'000 4'500'000 4'500'000 4'500'000 f Chief Scientist Professor 25.0% 10.0% 6.9% 6.0% 2'500'000 2'500'000 2'500'000 2'500'000 f VP Bus. Dev Biz 30.0% 12.0% 8.3% 7.2% 3'000'000 3'000'000 3'000'000 3'000'000 CEO 8.3% 7.2% 3'000'000 3'000'000 VP S&M 1.9% 1.7% 700'000 700'000 VP Eng. 1.0% 400'000 VP Prods 1.0% 400'000 CFO 0.5% 200'000 Officers & executives 100.0% 40.0% 37.7% 35.4% 10'000'000 10'000'000 13'700'000 14'700'000 Other common - Total common before options 100.0% 40.0% 37.7% 35.4% 10'000'000 13'700'000 14'700'000 Options-outstanding 4.0% 5.7% 6.0% 1'000'000 2'072'727 2'500'000 Options-Available 16.0% 4.1% 2.7% 4'000'000 1'500'000 1'111'688 Options-Total 20.0% 9.8% 8.7% 5'000'000 3'572'727 3'611'688 Total - company 54.6% 60.0% 47.5% 44.1% 15'000'000 17'272'727 18'311'688 Investors (VCs, not management) 40.0% 52.5% 45.9% 10'000'000 19'090'909 19'090'909 Investors (others) 10.0% 4'155'844 Total- Investors 40.0% 52.5% 55.9% 10'000'000 19'090'909 23'246'753 Total - PreIPO 24.1% 100.0% 100.0% 100.0% 25'000'000 36'363'636 41'558'441 Number of employees 2 7 25 70
  • 15. When there is an IPO The company goes public when revenues and growth are steady. The company raises additional money to further grow. It also brings liquidity to founders and investors. In 2000 (and over the past 22 years), if the IPO is successful, the average gave: - a CEO stock value will be $6-8M. - a VP stock is around $1M - and employees have in average $100k. The investment bank takes a 6-8% fee on the amount raised.
  • 16. A useful Rule of Thumb A quick way to synthesize common stock split is given by a 5x hierarchical scale: - The CEO gets 5-10% - The VPs get 1-2% - The directors / senior people get 0.2%-0.4% - The junior people get 0.04-0.08%... Position ind. % # total % ind. % # total % ind. % # total % CEO 10% 1 10% 7.5% 1 8% 5% 1 5% VP 2% 2 4% 1.5% 7 11% 1% 10 10% Senior 0.4% 2 1% 0.3% 17 5% 0.2% 50 10% Junior 0.08% 15 1% 0.06% 75 5% 0.04% 440 18% Total 20 16% 100 28% 501 43% Small size Midsize Large size
  • 17. Appendix: ESOP Value Curve Foundation 10% of Series A ($0.01 / share) 30% of Series B ($0.33 / share) 70% of Series C ($2.52 / share) 100% of IPO ($20 / share) A B C IPO Ratio ESOP Price/ Share Value
  • 18. IPO Capitalization Table Activity High-Tech Company CS Incorporation Town, St Lausanne, CH IPO date State CH f= founder Price per share $200 Market cap. Date oct-06 D= director Symbol CSSA URL www.cs-sa. years to IPO 3.7 Title Name Value Founder's Series A Series B PreIPO /C Post IPO Founder's Series A Series B PreIPO /C Post IPO f CTO PhD 45.0% 18.0% 12.4% 10.8% 9.9% 450'000 450'000 450'000 450'000 450'000 $90'000'000 f Chief Scientist Professor 25.0% 10.0% 6.9% 6.0% 5.5% 250'000 250'000 250'000 250'000 250'000 $50'000'000 f VP Bus. Dev Biz 30.0% 12.0% 8.2% 7.2% 6.6% 300'000 300'000 300'000 300'000 300'000 $60'000'000 CEO 8.2% 7.2% 6.6% 300'000 300'000 300'000 $60'000'000 VP S&M 1.9% 1.7% 1.5% 70'000 70'000 70'000 $14'000'000 VP Eng. 1.0% 0.9% 40'000 40'000 $8'000'000 VP Prods 1.0% 0.9% 40'000 40'000 $8'000'000 CFO 0.5% 0.4% 20'000 20'000 $4'000'000 Officers & executives 100.0% 40.0% 37.7% 35.4% 32.3% 1'000'000 1'000'000 1'370'000 1'470'000 1'470'000 $294'000'000 Other common - - Total common before options 100.0% 40.0% 37.7% 35.4% 32.3% 1'000'000 1'370'000 1'470'000 1'470'000 $294'000'000 Options-outstanding 4.0% 5.7% 6.0% 5.5% 100'000 207'273 250'000 250'000 $50'000'000 Options-Available 16.0% 4.1% 2.7% 3.3% 400'000 150'000 111'168 150'000 $30'000'000 Options-Total 20.0% 9.8% 8.7% 8.8% 500'000 357'273 361'168 400'000 $80'000'000 Total - company 54.6% 60.0% 47.5% 44.1% 41.1% 1'500'000 1'727'273 1'831'168 1'870'000 $374'000'000 Investors (VCs, not management) 40.0% 52.5% 45.9% 42.0% 1'000'000 1'909'091 1'909'091 1'909'091 $381'818'200 Investors (others) 10.0% 9.1% 415'584 415'584 $83'116'886 Total- Investors 40.0% 52.5% 55.9% 51.2% 1'000'000 1'909'091 2'324'675 2'324'675 $464'935'086 Total - PreIPO 24.1% 100.0% 100.0% 100.0% 92.3% 2'500'000 3'636'364 4'155'843 4'194'675 $838'935'086 IPO 7.7% 350'000 $70'000'000 Option (underwriters) 0.0% $0 Total outstanding 22.0% 100.0% 3'636'364 4'155'843 4'544'675 $908'935'086 Number of employees 2 7 25 70 200 * The difference between common shares IPO Total cash before fees $70'000'000 and options is very small. In this case, Paid to underwriters $4'900'000 Revenues 2009 2008 the number of non-founder shares Others $600'000 Amount $100'000'000 $20'000'000 and ESOP is maintained to 20% Net $64'500'000 Growth 400% of the company at each VC round sold by company 350'000 Number of employees 200 sold by shareholders 100'000 Avg. val. of stock per emp $250'000 Total shares sold 450'000 Option to underwriters - 6-juin-10 $908'935'086 Ownership Number of shares/stock ! : note the 10-1 stock split inducing 10x fewer shares (and an equivalent $20 share prior split)
  • 19. More quotes “How to be Silicon Valley?” Few startups happen in Miami, for example, because although it's full of rich people, it has few nerds. It's not the kind of place nerds like. Whereas Pittsburgh has the opposite problem: plenty of nerds, but no rich people. Paul Graham (Y-combinator) http://www.paulgraham.com/ “Look around who the heroes are. They aren’t lawyers, nor are they even so much the financiers. They’re the guys who start companies” Robert Noyce (founder of Intel)
  • 20. The Five Dysfunctions of a Team by Patrick Lencioni, Copyright 2002 Team culture Inattention to Results Avoidance of Accountability Lack of Commitment Fear of Conflict Absence of Trust The Five Dysfunctions of a Team
  • 21. The 5 Dysfunctions of a Team 1. The first dysfunction is an absence of trust among team members. Essentially, this stems from their unwillingness to be vulnerable within the group. Team members who are not genuinely open with one another about their mistakes and weaknesses make it impossible to build a foundation for trust. Absence of trust Absence of Trust
  • 22. 2. This failure to build trust is damaging because it sets the tone for the second dysfunction: fear of conflict. Teams that lack trust are incapable of engaging in unfiltered and passionate debate of ideas. Instead they resort to veiled discussions and guarded comments. The 5 Dysfunctions of a Team Fear of Conflict Absence of Trust Fear of Conflict
  • 23. 3. A lack of healthy conflict is a problem because it ensures the third dysfunction of a team: lack of commitment. Without having aired their opinions in the course of passionate and open debate, team member rarely, if ever, buy in and commit to decisions, though they may feign agreement during meetings. The 5 Dysfunctions of a Team Lack of Commitment Absence of Trust Fear of Conflict Lack of Commitment
  • 24. 4. Because of this lack of real commitment and buy-in, team members develop an avoidance of accountability, the fourth dysfunction. Without committing to a clear plan of action, even the most focused and driven people often hesitate to call their peers on actions and behaviors that seem counterproductive to the good of the team. The 5 Dysfunctions of a Team Avoidance of Accountability Absence of Trust Fear of Conflict Lack of Commitment Avoidance of Accountability
  • 25. 5. Failure to hold one another accountable creates an environment where the fifth dysfunction can thrive. Inattention to results occurs when team members put their individual needs (such as ego, career development, or recognition) or even the needs of their divisions above the collective goals of the team. The 5 Dysfunctions of a Team Truly cohesive teams are obvious 1. They trust one another 2. They engage in unfiltered conflict around ideas 3. They commit to decisions and plans of actions. 4. They hold one another accountable for delivering against those plans. 5. They focus on the achievement of collective results. Inattention to Results Absence of Trust Fear of Conflict Lack of Commitment Avoidance of Accountability Inattention to Results