137
Chapter 7
Organizational Structure
7.1 Introduction
This chapter focuses on the crucially important task of building a new ven-
ture team. The point emphasized is that a rm’s new venture team doesn’t
consist merely of its founders and its initial management and employees, but
of its board of directors (if it is incorporated), its board of advisors, its lend-
ers and investors (if applicable), plus all other professionals that compose the
stakeholders.
The founders must also be aware of the “liability of newness.” New ven-
tures historically have a high propensity to fail. The high failure rate of the
ventures is due primarily to three reasons:
1. The founders are incapable of adjusting to their new roles.
2. The rm lacks a “track record” with outside buyers and sellers.
3. Failure to assemble a talented and experienced founding team of
risk-takers.
7.2 The Founding Team
“The rst responsibility of the founder is to dene reality.”
—Mark DePree
In nearly 80% of startups, there is a founding team. Particularly in the early
stages, the hours are excessive, the challenges are constant, and entrepre-
neurs nd themselves in the company of a few other people who they will
138 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
work insanely hard with the goal of “getting the ship to port.” This initial
founding team is the anchor of every startup, and is what will ultimately
determine its destiny.
1
What are the main characteristics of an effective founding team?
Figure7.1 summarizes the ideal characteristics of an effective founding team.
However, for you (the founder), establishing a founding team is easier
said than done. Most seasoned executives are terried of leaving their com-
fortable day jobs in a large organization. Perhaps “downsized” executives are
your best bet for getting talent. Besides the founder, who actually composes
the founding team? Figure7.2 attempts to give objective answers.
An Effective Founding Team
Managerial capabilities – skills, knowledge, experience
Technical competencies
Common vision
Worked together previously
At least one member with experience in the industry
A network of industry contacts
Expertise in the basic functional areas of the business
Dedicated to the startup and able to endure any financial
constraints.
Figure 7.1 An effective founding team—The eight ideal characteristics that dene an
effective founding team.
e people who get to claim victory?
e scapegoats for a failed business or
investment?
e reason investors make investments?
e reason other people join the company?
e reason the company succeeds or fails?
Who is the founding team?
Figure 7.2 Who is the founding team?—If you are the founder, do you also have a
founding team?
Organizational Structure ◾ 139
7.3 Hiring Your Executive Team
“As hire As. Bs hire Cs.”
People, people, and more people. More than anything else, the hiring of
your executive team will decide the ultimate fate of your company. In the
author’s experience, at the Board level (during our formative years), we spent
more time dealing with executive team “issues” than any other subject.
In their executive team, entrepreneurs should select people whose talents are
recognizably complementary to their own weaknesses. To select the optimal
executive team, start by objectively understanding yourself, what you know, and
what your weakest areas of expertise are. This is easier said than done because
self-criticism is as rare as rain in the desert, particularly after you have climbed
to the top of the ladder by talent, perseverance, and guts (Figure7.3).
In hiring your executive team, you will need to decide between a hetero-
geneous and a homogenous group.
2
The members of a heterogeneous executive team are diverse in terms of
their abilities and experiences.
In contrast, the members of a homogeneous executive team are similar to
one another in terms of their abilities and experiences.
Your Startup Executive Team
Setup for success Morale-building High standards Meritocracy
Executive Team
Fair treatment
Objectivity
Teamwork
Discipline
Hiring and
promotions
Technical
Sales/marketing
Product
development
Manufacturing
Innovation
Positioning
Account
management
Technical service
Distribution
Governmental
Industrial
Trade relationships
International
Recognized
authority
Authoritative not
authoritarian
Face reality
Fortitude
Human
relations
Personal
Qualifications
Competitive
Strategy
Regulatory
Ability
Figure 7.3 Your startup executive team—Select executives with complementary
skills to yours.
140 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
Heterogeneous teams are traditionally favored by investors because (1)
there is a shared intense effort that is required by a startup; (2) the loss of
one member is less likely to result in startup abandonment; (3) the team
concept allows expertise across major functional areas: marketing, nance,
operations, sales, etc., and (4) a skilled team lends credibility to the startup
and lowers risks to investors.
3
7.3.1 Teamwork Not Titles
A real team is a small number of people with complementary skills, com-
mitted to a common vision. The vision includes (1) common purpose, (2)
agreed approach, (3) performance standards, and (4) realistic goals for
which they hold themselves mutually accountable.
4
In addition, goals at the
executive team level are assigned based on individual skills (specialization),
regardless of formal titles.
7.3.2 Team Discipline
The executive team must be goal oriented. Goals specify in advance what
each member must accomplish, and periodically evaluate the degree to
which members have met those goals. This is illustrated in Figure7.4.
Strategic issues
Focus
Mission, vision, values,
tactical goals
Feedback
Accountability and coaching
Conict resolution
Problem solving
Executive Team Goals
Cooperation, communication and coordination
Protability
Figure 7.4 Executive team goals—Be crystal-clear about your goals to reach
protability.
Organizational Structure ◾ 141
7.3.3 Focus on Outcomes, Not Activities
“What gets measured gets done.”
In most large companies, the vast majority of objectives are nothing more
than activity-based goals. In his 1999 book, Douglas K. Smith laid out a
guide for evaluating and realigning goals to achieve specic outcomes.
“Activities are not objectives. Activities are how we achieve the objectives,
the outcome-based goals.”
5
It is not enough to say, “This week I will visit a minimum of four custom-
ers.” That is activity. Instead, “This week, out of the four customers, I will
get a large purchase order from at least one.” That is outcome. Figure7.5
illustrates some important differences between activities and outcomes.
7.4 Too Many Chiefs, and Not Enough Productive Indians
“When a great executive meets up with a bad business, it is usually
the business whose reputation remains intact.” —Warren Buffett
When someone says there are too many chiefs and not enough Indians what
they are really saying is that there are too many people wanting to be, or
acting like, the boss and not enough people actually doing any work. The
meaning of this expression is similar to the expressiontoo many cooks spoil
the broth.
Activities vs Outcomes
Activities
(Inputs)
Outcomes
(Outputs)
Market research
Meetings, conferences
Development plans
B2B Proposals
Reengineering
Competitive intelligence
Repeat sales
Cost reductions
Product launches
Product extensions
Increased market share
Winning competitive contracts
Figure 7.5 Activities vs. outcomes—Concentrate on outcomes (and be specic).
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