From the outside, it looks like great companies are great because of their founders. Since we don’t see the work of the company’s team, we assign credit to the externally visible founder.
From the inside, we know that great companies are great because of their teams. The founder is great only in so far as they are able to attract and motivate great people to work with them towards a common vision.
In other words, as Simon Sinek points out in the tweet below, great teams make their founders look good, not the other way around.
I was recently speaking with the co-founder of a successful regional tech business. We’re not investors in the company, and the co-founder was looking for insights into the Turkish market.
In the middle of the discussion, I was caught by surprise when the co-founder asked whether I’d like to join the company. This is the first time that I’ve been on the receiving end of a startup co-founder offering an investor a job.
I like investing too much to make the shift, so I politely declined.
However, the anecdote is a great reminder that great founders are always recruiting.
Missionary founders create value for their customers which eventually produces value for themselves. Opportunistic founders seek to capture value for themselves before creating value for their customers.
Missionary founders know that if one investor doesn’t fund them, another will. Their conviction makes them stick to their business plan despite short-term setbacks. Opportunistic founders change their business plan to accommodate signs of investor interest.
Missionary founders share their company’s upside with their team because that helps them attract great teammates who increase the company’s chance of success. Opportunistic founders preserve their company’s theoretical upside for themselves, thereby practically lowering it.
Both can succeed, but the former do so more often and at greater scale than the latter.
Most investors agree that a startup’s founding team is the most important factor when making an investment decision. I think that the underlying attributes of a great founder include authenticity, caring a great deal about what you’re doing, and getting things done.
One way to evaluate founders is to evaluate each of these attributes one by one.
Another way is to think of another founder feature which is the direct result of having each of these underlying attributes. A great example of such a feature is whether you look forward to seeing or hearing from the founder. Independent of how a startup is performing at a specific moment in time, if the founder is authentic, cares about what they’re doing, and gets things done, chances are that you look forward to seeing and hearing from them. If they fall short on one or more of these attributes, chances are that you don’t look forward to seeing and hearing from them.
Startups take a lot of time and effort to build. So it makes sense for investors to work with founders who they look forward to seeing and hearing from.
Similarly, founders benefit from working with investors who, independent of the short-term pleasure or pain which their honest feedback may provide, they look forward to seeing and hearing from. If an investor isn’t authentic, doesn’t care about what you’re doing, or doesn’t get things done when they say they will, they’re unlikely to be the right partner for you.
In fact, it’s even more important for founders to work with investors who they look forward to seeing and hearing from than for investors to work with founders who fit this profile. The reason is that a founder has one business while an investor has many. If an investor doesn’t enjoy seeing and hearing from a founder, they can spend more time with other founders. If a founder doesn’t enjoy seeing and hearing from an investor, until they develop into a later stage company with a greater number of larger investors, they have to continue dealing with their current investor.
Talking with founders helps investors understand the future of a company. The founders have a vision for what they want to do and their ability to clearly articulate this vision to others is a key determinant of their success.
However, when founders speak with investors, they can be tempted to paint an overly optimistic view of the future in order to increase their chance of getting funded. If investors base their investment decision only on discussions with the founders, this is unlikely to be a fully accurate representation.
There are two reasons for this. The first is that the founders may be fooling themselves. If an investor believes that the founders believe in their vision but aren’t aware of the sacrifices that they will need to make in order to realize it, they shouldn’t invest. Ideals are peaceful, history is violent, and people often misjudge the extent of the violence which they will need to go through to reach their ideals.
The second reason why talking with founders isn’t enough to give investors a comprehensive picture of the company’s future is because founders rely on their employees in order to execute their vision. As a result, it’s not enough for founders to believe in what they’re doing. Employees need to feel the same way. The employees also need to feel good in their work environment so that they have the motivation to perform to the best of their abilities.
This is why it’s very important for investors to complement their discussions with founders by talking with the company’s employees. Do the employees share the founder’s vision? This doesn’t mean that they need to agree with every part of the strategy, but they do need to have enough respect for the founder’s intellect and drive to carry out their part of the mission. Do the employees enjoy working at the company? This doesn’t mean that they won’t experience stress and moments of anger, but they need to place enough value in their teammates to put forth the group effort necessary to overcome these short-term challenges.
The founders of most startups really believe in what they’re doing. But this isn’t always the case for employees. Understanding if this is the case, and if not why this divergence exists, can tell investors a lot about a startup’s eventual chance of success.