02/14/20 | Founders, Menu-Homepage

Building Great Startup Teams

As part of our Founders + Funders NYC 2019 summit, held on November 8th and co-organized with Seneca VC and SheWorx, we brought together an exciting group of startup founders and investors for a day of learning, networking and growth.

Our CEO, Kate Brodock, sat down with Cat Hernandez, Partner at Primary Ventures, a New York-based, New York-focused fund that primarily invests in Seed and Pre-seed companies. She’s been with the firm since they started, and they now have a couple $100M under management.

She’s spent the majority of her career prior to venture in B2B startups, largely in operations and people roles. She also serves on the Board of NYC Blend, non-profit that acts as a way for underrepresented founders to get more access to general partners, and specifically creating direct channels to the top, not just to the associates and the principals.

Let’s talk about the initial hiring process. When you’re building out a team, at which point or what types of hires do you start thinking about potential vs expertise?

When I think about how you should prioritize hiring, especially in the early days, it’s important to focus on the first ten hires.

The first stage is truly understanding what you as founder and CEO are trying to compliment. At some point, you learn the things you’re not good at, even though you think you’re good at everything, and it’s important to then think through what those missing skill sets are and how they might manifest in another person.

We hear talk about hiring a strong Number 2, or Chief-of-Staff, or someone to augment you in areas you’re weaker. Those are all good things that you should think about. But the most important exercise is to take a look at where the business needs to be.

If you’re at Series C or Series A, you’re constantly thinking about that next milestone. The way I’ve approached it with our founders is, “Let’s talk about what success looks like in 12 to 18 months – what we need to prove, what another investor needs to be able to see in your business in order to believe in it and to take it to that next level.” Usually, if you can fixate on the one or two business metrics that you’re optimizing for, you can then start to think about, “What kind of team do I have today? Where do I have holes?”

Oftentimes, Founders take the working title of CEO immediately. What have you seen in terms of that transition from a Founder into the actual role of CEO?

In my opinion, there’s a big difference – or can be – between Founder and CEO. What it means to truly be a leader of a business long-term is that you need to grow with your business as it evolves. Just because you’ve arbitrarily given yourselves and your Co-Founders C-level titles doesn’t mean – unless you’re super experienced – that you know everything there is to know out of the gate.

It’s important to have humility around what it means to be an early-stage Founder and CEO and take notes of the things you want to be actively working on as you rise into that role, because your business is going to get more complex. You’ll have way more stakeholders as it scales, and you carry a ton of responsibility.

The scenarios that you see with Founders getting replaced and Co-Founders being rude are often situations where they’re not carefully managing the pace of growth of the business or the pace of growth of the individuals.

We as investors try to pay very close attention to how do we support you in your growth because we don’t want the business to outgrow you.

Are there any actions or things to think about as a Founder who’s inexperienced at being CEO or being in a leadership position, any concrete actions that you’ve seen to help with that transition?

There are a couple of things.

Join a peer group. There are plenty of organizations that create peer groups for you or you can create one yourself.

If you’re well connected and it can be part of what you do, get an executive coach. Most investors these days are very supportive of you using early capital to make sure that you are getting the coaching and support you’d want to give to the rest of your team as well.

Another thing is to focus on tactically going through network-expanding conversations. You grow best when you’re talking to people who are not like you. One of the things that I’ve been trying to do just for myself is to meet one or two people who are not in venture or not in startups at least a few times a month because I think it makes you a better thinker long-term, and it opens your perspective.

On the flip side of that, at what point could a founder say to themselves, “Maybe I’m not the right person for the actual CEO role.”? And at what point do you start taking that a seriously?

That’s a tough one. You have to be a really self-aware founder to come to that realization. The investors you bring into your rounds of financing are supposed to be there to help champion your business long term. That doesn’t necessarily mean they’re championing you forever. It’s important that you as a founder pay close attention to those signals.

If you inevitably believe you’re not the best person to run the business as a CEO, you have to figure out what to do. If it means you move into a product role, and the company runs a true CEO search, we also have to figure out the parts of your skill set we need to augment or complement.

CEO swaps and switches are one of the hardest things to do, and there’s no good time to do one. We just did one for one of our Series A investments, and I tell you, if we could go back in time, we probably would have tried to do it a long, long time ago. But it’s complicated, and there’s a lot that rides on making sure that transition moves really well. The only way we saw it go successfully was because were as transparent as we could be with the team and we actively managed that process. Three different partners at my firm spent six months, one day a week with that company to make sure that it went smoothly.

Good segue into chatting about Co-Founders. Many Founders are told that they need a Co-Founder. But the process of finding a one is a big, important task. If you didn’t start out with a Co-Founder, or don’t have anyone close or from your past that’s already stepping into the role, how should we think about finding one? What do investors feel are some the most important pieces of that relationship?

If someone’s telling you you need a bigger option pool, I’d stress test some of those assumptions. I spend a lot of time making sure that we’re not being biased in those recommendations as well.

The reality is, if you’re building a tech product and you’re not a tech person, you probably need a tech Co-Founder. If not that, somebody on your founding team that deeply knows how to bring a product to market and has brought other products to market that many companies and individual users have used for a long time.

There’s no straightforward calculation. The first tranche of your business is about building an MVP and getting it in the hands of enough customers that you can figure out exactly what you’re building. You may or may not want to have a Co-Founder for that journey. That would mean you have to be willing to give up ownership.

There are other options. You can create a founding team, so slightly less dilution. But if you’re a Founder, you have to think about the long-term. If you’re thinking about short-term dilution, this is going to be a very short journey, most likely. Find people that complement the skill you don’t have – a narrative I’ve shared for every part of the answers I’ve given so far today. It’s really important.

But especially as a woman in an industry like this where most GPs are still men, make sure you’re stress-testing the narrative of finding a Co-Founder before you can raise capital because I don’t believe that all the time.

How do you give out equity – especially early equity – to team members?

This is maybe a more contrarian view than the Fred Wilson approach, which is to give out equity based on seniority and function.

The reality of performance is that 80% of the value and the impact on a business is going to be produced by 20% of your team. Really early-on thinking is key.

Giving people more equity because you don’t necessarily have a lot of cash to give is an important exercise. Once you get to the point where you’re starting to scale the business, using calculators and proper methods for giving out equity matters. There are also certain roles in this ecosystem that just command a certain percentage. You won’t get away from hiring a really credible CMO for less than a couple points of equity. You won’t get away with hiring the founding team CTO for 5, maybe 10, depending on whether or not that person has a Co-Founding status with you. Use your investors to better understand that landscape.

But it’s important to be fair and somewhat generous in the early days because oftentimes people are coming to you and taking pay cuts. While I agree it’s not worth anything until it’s worth something, people rationalize their pay cuts based on the increased value they believe they can create in a short period of time with you.

I still say the way to pitch equity isn’t about giving people a more complete package. It’s giving people an option to invest in something in the future, assuming that you do all the things that you say you’re going to do.

Question from the Audience: We often get questions about using a local engineering team or offshoring, or a combo. Some of the more conservative investors still want to see the team here versus an offshoring solution. What’s your opinion?

In the super-early days, I recommend having as much of your team close to you, and that’s only because you can be side-by-side with people, especially when you’re doing a ton of customer discovery. You haven’t really figured out what works, you’re constantly hearing different things from your customers, and there’s a lot of side conversation that engineers and product people will not hear if they’re not in your office physically.

Over time, it’s economical and totally doable with all the options available today to have strong-functioning remote teams. You just have to have a CTO or a Head of Product that also is a good manager. Yes, it might make really good sense business-wise, but if you hire a CTO that has never, ever managed a team in any other region outside of New York City, then you set yourself up for failure, and that person will inevitably be terrible at their job.

But we have a handful of portfolio companies that have operations in Belfast, in Belize, in Macedonia. It’s something you can do successfully, you just have to think about the right frameworks for it.

Question from the Audience: Once you realize what pieces of your team or your structure you might be missing, how do you go about finding the right people for those holes?

You know how people say, “Always be selling.”? It’s the same thing for recruiting, “Always be recruiting.” Very few businesses are like Instagram and can be built with 15 people. So you will inevitably need expertise across every single function in your business.

Let’s say in the beginning you’re optimizing for go-to-market. You should probably be meeting great revenue leaders and great marketing leaders constantly. For executive hiring in particular, those things don’t happen overnight. People like to know who they’re going into business with, especially at a startup where the expectation is that you’re going to work 80 hours a week. When I was on the other side of the table, I spent a lot of time over several months getting to know the founders that I would’ve inevitably run operations for because I would be their extension.

The only real advice I can give on how to find them is that New York is one of the most collaborative ecosystems I’ve ever seen. Very few people say no to me when I say, “Let’s hang out.” If you take a real and genuine interest in people, they will want to get to know you too. And those conversations often end in a place where they’re recommending talent and founders. I think that’s just truly the only thing you can do, and it’s a really hard thing to prioritize as a founder. It constantly feels like he or she is running out of time. But it makes recruiting less painful. You don’t always have to be 30 or 60 days behind the curve.

Question from the Audience: What’s your rule of thumb in terms of what the team should look like up against revenue, at $0, $1M, or $10M?

No rule of thumb. We invest in B2B and consumer companies, so all of those teams look different. It’s important for you to know how other teams are structured to figure out what works for your business. But again, it’s all about milestones and what’s important to your business. So if customer acquisition and your lifetime value of the customer is going to be the metric that investors and other people in your business fixate on, then you probably have to have a pretty decent level of expertise there. If it’s about retention and loyalty, then your team looks different. If your sale is enterprise versus SMB, it’s different. So I think that’s a hard question to put a wide generalization around. But again, organizational design is easily the most important thing you need to be doing every single quarter your company is in existence.



The Switch Editorial Team.

Straight to your inbox.

The best content on the future faces of tech and startups.

This field is for validation purposes and should be left unchanged.


Join the Angel Sessions

Develop strategic relationships, build skills, and increase your deal flow through our global angel group and investing course.