Build a team and go further, faster

Within the Sprout and entrepreneurial community in general, there is ongoing discussion about why teams are, or might be, better than solo founders in building successful start-ups. We’ve put together some very simple thoughts to help you understand why accelerators (not just Sprout), might suggest a start-up team can go further and achieve more than a solo founder in an accelerator. 

In summary:

  • A co-founder/ start-up team would only use an estimated 15% of the cash required if you were outsourcing the product development work
  • There is greater intellectual property retained in the start-up when both the business development and the product development are done internally
  • The start-up can move 2x - 3x faster due to simply having more hours in the day applied to the business
  • The supportive culture created by working in a team makes the roller coaster journey a lot more enjoyable and manageable 
  • Synergy of co-founders creates better decision making for the start-up.

If you’re interested in these ideas, keep reading below and see how we break them down.

Economics

A balanced founding team with a person who can actually build the product themselves results in straight up cost savings. When entrepreneurs are beginning to work on building their products they often consider outsourcing development to capable engineers (hardware, software or industrial). This will cost between $80 - $250 per hour.

To build a proof of concept or a prototype, here is what generally could be involved time wise:

The proof of concept will be tested with customers and the learnings will result in a requirement to make changes. Once the concept is proved, if it is at all, you will then move to prototyping. 

The below table is a summarised version of what might be involved, cost wise, to get a product ready to sell. Remember, this is based on an MVP (Minimum Viable Product) with very few bell’s and whistles.

As a broad generalisation, In total you will be looking at, at least $110,000 - $170,000 to get a product ready for the market and generating revenue.  Remember this doesn’t include marketing, sales, administration or inventory.  

While this is not the same for every type of product, this is a relatively realistic, if not under estimated time/cash investment required in getting a basic hardware/software product ready for market. 

If the bulk of that development work was completed by a co-founder, the total cost for getting to MVP would be between $5,000 - $10,000 in cash.  For everyone involved, the founders, an investor and a mentor, this significantly reduces the potential loses given the fact the following is likely to happen to the start-up:

  • The customer’s requirements change before the product is even ready
  • A competitor enters the market with the same product
  • It takes further prototyping than originally expected to get the product into the market.

In summary, the difference in cash required between having a co-founder and outsourcing is:

Intellectual Property

We discuss Intellectual Property under two core categories:

  • Tangible intellectual property assets
    • This includes assets like patents, design registrations, trademarks
  • Intangible intellectual property assets
    • This includes know-how (essentially the knowledge created during the product development process), trade secrets and negative know-how

At an early stage, the intangible assets are best described as the knowledge that has been generated in solving every single little problem that has been identified by the development team in the product development process.

Those problems and learnings could be in the following areas:

  • Componentry that does/doesn’t work
  • Ergonomics or usability of the product – why things are designed a certain way and what benefit that provides the customer
  • What features customers require the most and how they want those features exposed to them in the product.

This know-how, is very valuable and will be retained by the outsourced partner if they have been engaged for product development.  As a start-up moves very fast and needs to make decisions quickly, the downside of having this know-how outsourced is that it makes it difficult for operational decisions to be made quickly without consulting the outsourced partner, meaning you have to set meetings and go through the logistics of collaborating with them easily. Not conducive to moving quickly!

Team Energy

Starting a company is often described as requiring more work than most people can handle.  It is incredibly exciting, scary, heart breaking, inspiring…..It’s a roller coaster of emotions. That roller coaster of emotions can take a toll, not only on the founder but also the founder’s family and friends.  Sharing the burden with other people can smooth out those up’s and down’s.

Time capacity = Speed of progress

This one is really simple. There are 24 hours in the day. With two people there are 48 hours in the day. With three people there are 72 hours in a day. You get the idea.

Over a month period, this equates to the following:

A team of people can accomplish three months worth of work in one month. 

Start-ups are on a race to generate revenue. Why?

  • It means they start getting a return for the money/time they’re investing
  • They can reduce the spending of investor dollars, which means less dilution of your ownership
  • You can stop the dive into debt you might be getting yourselves into…this means less money on interest and your less likely to lose your home if the debt is secured against it
  • Competitors who are better funded, with more access to resources, will come chasing.

Start-ups always have more to do than hours in the day. During an accelerator there is often multiple tasks being worked on e.g. market validation, business plan writing, investment pitching, financial planning, talking with partners etc. The more of this work that can be done during the programme, the higher the likelihood of a company making progress toward becoming investment ready. 

Our experience with solo founders is that there is purely not enough hours in the day to do all the work required to get the most out of an accelerator programme.

Diversity

A team of people that have different skill-sets and abilities, and natural tendencies to work on different parts of the business will accomplish more and achieve better results than a single person working on their own. It is rare to find a single person who is extremely strong in all aspects of business, including project management, engineering, product development, in-field testing, customer support, accounting, legal, marketing, etc. If someone is strong in all of these areas, there are just not enough hours in a day for them to achieve everything effectively.

A strong team will have members that exemplify diversity in their talents and areas that they naturally prefer to work on. This results in Synergy.

Synergy

Synergy is a basic management concept, meaning the sum of the parts is greater than the individual parts themselves. The founding team of a start-up, which can include founder, advisors, board members, creates a significant opportunity for synergy to drive the start-up faster and more effectively than it would have with a solo founder.

Start-up Genome Study

Below are some statistics that were generated from a study of 650+ start-ups, that also allude to the benefits of starting a company with a team. This study was undertaken by Compass (formerly Start-up Genome):

  • Solo founders take 3.6x longer to reach scale stage
  • Balanced teams with one technical founder and one business founder raise 30% more money from investors
  • Balanced teams with one technical founder and one business founder have 2.9x the user growth rate than those with solo founders.

You can read the full study here.

Risk

With every component of building a company that is outsourced (development, marketing, etc) there are several risks taken on.

Some risks include:

  • Not getting the desired outcome from the outsourcing – may come back to the way things were initially communicated or differences in style
  • Communication breakdown – with limited touch-points, it is more difficult to communicate as effectively or frequently with some outsourced resources. This can lead to things going slower than anticipated and costing more to get the desired outcome
  • Less control – as explained in the section about IP, there are several factors that need to be considered such as retaining know-how, but also having a finger on the pulse so that plans can be changed immediately if necessary to react to new findings (which happens frequently for a start-up). This saves time and cost that can otherwise be wasted if the company that is outsourced, does not have the same information as the founding company
  • Prioritisation/Time-management – when a task is being completed internally, you have control of how it is prioritised. Therefore, you can project manage more effectively than when it is being outsourced, as you can never be sure when the task will be completed to your satisfaction (this compounds if relationship issues arise!)

By keeping as much as possible in-house during the start-up development phase, as long as you have the resources required, it can be much easier to manage and mitigate risk.