A few weeks ago, the director of the Columbia Business School’s Lang Center for Entrepreneurship mentioned to me that the most asked question by our MBA students is the following: When is the right time to bring on a tech co-founder? So let me outline a few considerations as a response to this question.
As a starting point, I consider this question a more significant concern about selecting the right human resources for your venture. While the above is a much broader concern, many considerations for choosing a tech co-founder or team member such as a chief technology officer will be the same for any key venture team member. Some of the forthcoming practices will be useful if you hire anyone with the needed domain expertise or relevant industrial experience.
You need to consider several issues associated with the current status of the venture. These issues include the customer discovery status, product development, testing status, and technical and position needs. See the worksheet below.
Problem/Solution Validation and Product Development Status
The central issue is deciding when is the right time to bring a vital team member on board. As a founder, determining when to add to the team is always an important albeit challenging decision. From your perspective, you want to bring in a person who aligns with your company’s vision. Additionally, the person needs to have the requisite skills and experience to provide value at this point of venture development and later stages. At the same time, you need to understand the person’s needs to determine whether the venture is the right fit for them. For example, are you offering the right degree of challenge? Will the person be able to apply their knowledge and skills to the venture in a satisfying way? Does the venue provide professional growth? What are their financial needs, and can the venture meet them?
These are just some of the concerns you should have as you begin to think about bringing on board a key person. So now, let’s look at this when looking to add technological expertise to the team.
To start, as a founder, you should be honest with yourself in terms of what you currently know about the marketplace and the needs of your target customer. As I have stated in earlier posts, you should not be focused on a specific solution until you have a deep understanding of the customer’s problem. Without this level of knowledge, you cannot determine what technology you need for an effective solution. If you had completed extensive customer discovery, you are not ready to add key team members.
Once you have a validated understanding of the problem and have started to hone into possible solutions, the next question is, what actions have you taken to prove that your solution solves the customer’s problem? What methods have you used to solicit feedback from your target customers on the solution in question?
At this stage, you are considering what is the best approach to show customers your proposed solution. If you are applying the lean product methodology, you should consider getting something into your customers’ hands quickly and inexpensively. You want to provide the customer with a sense of how the solution can work and solve some critical aspects of their problem. Under the vast majority of circumstances, these test versions are possible with minimal technical capabilities. With the emergence of no or low code design applications, many products can be illustrated to give the customer an early vision of the look and possible feel of the solution. These early solution designs do not require any significant technical skill.
My recommendation is that you will not need any significant technical knowledge and skills to solicit feedback from the customer at this minimal viable product stage and acquire a sufficient degree of learning about the problem-solution fit. As part of assessing when you may require specific technical skills, you should create an MVP roadmap. To the best of your ability, what do the successive MVP iterations look like at this point? When to expect to schedule them over the next few months?
Once you have tested early versions of your product with enough target customers to demonstrate that they cannot live without your product, you should consider what technical skills you need to develop higher functioning prototypes.
One final consideration has to do with funding. Do you have a reasonable estimation of the funds required to develop a full version of your solution in preparation for launch? Do you have access to the right type of funders for the amount needed? How much cash will be available for founders and key team members during this period, and is it enough to sustain the team? If the answer is no, I suggest that you are not ready to hire a technical co-founder.
Technical and Position Needs
Once you ascertain that the timing is right to bring on a technical person, the next decision is how to best bring them on board. Unfortunately, many founders think that they must look for a technical co-founder. But you can take many other directions to acquire the required technical knowledge and skills needed during the early stages of new venture realization.
I would generate a job description for the technical position you want to fill as a starting point. This document is not just an exercise. It forces you to consider what knowledge and skills are needed and provides a roadmap for what to look for during recruitment and interviews. You must understand what technical knowledge and skills are required for short-term product development and at least a three-year timeframe. I find it helpful, and, most times, it is necessary to find an advisor who has the solid technical background to help. Whether it be someone in your network, a current or former professor, or staff at local small business development centers, have someone help you develop a clear description of what you are looking for in the right technical person.
Once you have the technical specifications for the position, the next decision is to decide whether you need the person to be a co-founder or key employee, your chief technology officer. There are other options that you may want to consider first. These options include hiring someone as a part-time employee or as an independent contractor.
One best practice is to hire someone temporarily or on a project basis. This temporary position provides an opportunity to test how they will fit with you and other team members. This practice allows you to see if they have the knowledge and skills needed to develop and execute your business model. This condition is especially true when hiring someone who says they have specific technical skills, such as software development. You can readily hire them on a project basis with clear goals and measurable outcomes. If they meet the specified goals and work well with the team, you will feel more comfortable about their fit in your team
Skills & Experience. There are several things to consider when considering hiring a co-founder or key team member. You can categorize these considerations into three areas: Personal, Domain Expertise, and Work Experience.
Personal considerations focus on characteristics required by anyone who is to be associated with your venture and its brand. It is easier to build an exciting, to trust, and supportive startup culture if the people you hire have personal values that match. In a small company, one wrong hire can do a lot of damage quickly. So it is vital to apply the best hiring practices to facilitate the recruitment, hiring, and retaining of the best team members for your venture.
Domain considerations include the knowledge, skills, and abilities (KSAs) required to do the task in question. This post will focus on the technical areas needed to develop the product and help grow your venture.
Work experience is another critical criterion. You are looking for someone who is the right fit for your venture and fellow team members. While there are several considerations, you should ensure that the individual in question has experience working with new venture teams and early growth companies. While it can work, bring someone on board that only has considerable company experience can create challenges. You will want to learn more about their new product experience and how they navigated the process in the past.
The Offer. Once you have reached a decision, make an offer. In a startup situation with limited resources, it is customary to keep salaries as low as possible and enroll critical employees in a stock-option program. Options provide the employee the right to purchase stock at an agreed-on price. It is crucial to have a legal agreement for these offers (I will address this in future posts). But for now, the options should be subject to a vesting schedule where the employee earns a certain percentage of the options each year, usually for a four-year period. A critical best practice is to offer the vesting schedule with a one-year cliff. This vesting policy means that the new employee does not earn the first year’s percentage of ownership until the end of the 12 months. This policy allows the founders to assess performance over the first year before allocating the agreed-upon equity share. As part of the employment and equity agreement, concrete goals and measurable outcomes are agreed upon this first year. This way, if the new employee does not meet the specified objectives, you can rightly terminate the employment before the end of the first year.
These plans, if managed correctly, can be an excellent way of building a solid team and organizational culture. In addition to equity plans, certain positions, such as marketing and sales, may have part of the compensation based on measurable revenue or new customer acquisition performance. Once you have agreed on compensation and role, you will execute the appropriate legal documents and set up a starting date.
I will review legal considerations for protecting the venture’s intellectual property and hiring key team members in upcoming posts.
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