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Start-up Entrepreneurs: Smells Like Team Spirit

Published: August 02, 2011 in Knowledge@Australian School of Business
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The recent movie, The Social Network – a dramatisation of Facebook's launch phase – highlighted the tensions and dramas of an entrepreneurial start-up. The eventual bitter estrangement of co-founders, Mark Zuckerberg and Eduardo Saverin, was central to the plot line. They began as best friends, but Saverin, who initially was Facebook's CFO and business manager, was eventually forced from the company.

It has long been assumed that "team chemistry" – particularly a positive emotional bond between founders and key staff – in entrepreneurial start-ups is critical to success. But the story told in The Social Network illustrates how the issue of team chemistry is far more complex: the relationship between Zuckerberg and Saverin fell apart under the strains of launching a new company. Despite that, Facebook has thrived and now has a reported valuation of $US50 billion.

The success of Facebook – in spite of the rift in the founders' friendship – suggests that the chemistry required to bond a team through difficult times is about more than emotions. A crucial requisite is an intellectual decision based on an overwhelming commitment to a shared goal, the start-up.

Building team chemistry through an intellectual, rather than emotional, connection has significant implications for start-ups, and particularly for founders and entrepreneurs looking for prospective partners. It puts friendship well below the importance of finding personnel with a strong commitment to the company and the achievement of its goals. "Team chemistry is important but it's something that comes as a result of discussion, a bit of success and a bit of smarts; it doesn't need to come upfront when you're first starting a company," says Peter Davison, a venture capitalist with major successes, including a seed stage investment in electronic transaction site, PayPal, and early stage involvement with anonymizer.com, which sells software that protects a user's identity as they surf the web.

PayPal co-founders, Peter Thiel and Max Levchin, are two very different people, notes Davison, who is completing a PhD in entrepreneurship at the University of New South Wales. "They were very smart people who made the decision: 'I know finance and you know technology. Let's get together and try to raise some money.' They weren't mates, they just shared the same goals and realised they both needed each other to get there," he says.

Davison recently took part in a debate hosted by the Australian School of Business on whether entrepreneurial team chemistry is critical to success. The debate's host, Martin Bliemel, director of the Centre for Innovation & Entrepreneurship at the Australian School of Business, says there's no strict academic definition of entrepreneurial team chemistry. While academic literature has focused on team diversity, he believes the essence of team chemistry is at an emotional level, everybody getting along. "Often, chemistry on a personal or social level rather than professional diversity can help smooth things along and help foster agreement with the team, which you might not get as quickly if the founders don't get along," Bliemel argues.

Mixing It Up

Mike Casey, who also participated in the debate, is co-founder of Australian-based graduate employment site, GradConnection, launched in June 2008. "Team chemistry in general is incredibly important," Casey says. "There are benefits in being in a team that's functioning, can spread the work load, and has a large diversity of skill sets."

GradConnection's three founders met on the Westpac Banking Corporation's graduate program. "We weren't close mates at the time – we were co-workers – but we decided to form GradConnection. It was a fortunate situation. We've had no real director difficulties," Casey reports. There were a few disagreements initially, but "in general it has been really productive and we have done a really good job. I don't think we would be in the position we are now without the team behind us". Being part of a team rather than a one-man band has been important to success, according to Casey, who points out that statistics show a single entrepreneur in the tech space is unlikely to go far, whereas a team of two or three is more likely to succeed. "I like three, because with three democracy usually prevails," he insists.

But Bliemel has a blunt warning: "You're not founding a social club, you're founding a business." In their quest for team chemistry many entrepreneurs focus on the social club aspect and not the business.

GradConnection is a good example of a company that has fostered team chemistry across very different personalities, Davison indicates. "They've self-organised into very different roles in order to get a number of different jobs done. Mike is very much a positive outgoing sociable person who is always on the front foot. Dan (co-founder Dan Purchas) is about tying up loose ends; he's a little bit sceptical."

But Davison argues that GradConnection's success grew out of an intellectual decision. Although they were not great friends, Casey, Purchas and David Jenkins chose to have team chemistry. "It was an intellectual decision based on mutual respect for each other's capabilities, rather than 'this guy's a great mate'," Davison says. "… they self organised (and adopted) a more mature approach to goal setting that causes the chemistry to work. You might still have doubts and arguments, but you have respect and acknowledge they will need to come through."

Commitment to shared goals is vitally important, says Bliemel, who randomly assigns students and forces them to work with people whether they like it or not. "The better teams form contracts and agree they will work together towards the project goals," he states. "They don't need to agree to get along with each other."

Too much alike?

In reality, many entrepreneurs choose their business partners primarily based on the emotional chemistry of friendship, which has advantages and disadvantages. "Some are great friends but horrible business partners," Casey observes.

"Most of the companies I have seen work actually don't start off with mates. They start off with mutual respect, a mutual dream and mutual goals," asserts Davison. A risk for friends who go into business together is in all thinking alike, he points out. "If you think too closely you may not have the complete skill set you need. You might all be good at sales, but no one wants to take care of the finances."

Bliemel picks up on this issue. "If you get along too well the business can get relatively myopic and you can start shutting people out." An example is a company he helped to run as an interim-CEO. The two founders were chemical engineers and brought him in to head up the company. They knew the product but not how to manage the company. Not only were their skills sets the same but they were husband and wife. "Decisions agreed upon with one partner were often overturned that same evening by the other," Bliemel recalls. "They got on too well and ended up losing my support and that of the advisory board."

Another problem for friends in start-ups is the absence of serious "what if" discussions. They fail to canvas the possibilities that their relationship may falter or that one may be greedier than the other. "You don't talk about that with your mates, because they're your mates," says Davison. "But with a professional who's coming in from outside, you do have that discussion." Davison has seen this problem play out. "They're equal partners but one guy's doing all the work. How do you get out of that? One person's there and 50% of his company is with this guy who is not doing anything. They haven't had that discussion upfront about contracts and responsibilities and 'what ifs'."

Serious discussions between friends starting a business are like pre-nuptial agreements, he suggests. "You love this person, you want to marry but then present them with a pre-nup. Most people say, 'that's not love'."

Davison points to Zuckerberg and Saverin's relationship. "One guy (Saverin) didn't pull his weight. And, when you inject a lot of money into mateship, people change," says Davison who advises to "expect the unexpected when money is involved". Going into business with mates demands an understanding that hard discussions will be needed down the track, and the relationship will shift from mates to business partners, he says. "You will still be mates, but there will be boundaries."

Ultimately, "it's cleaner not to have mates", Davison concludes. "You make an intellectual decision and have that discussion, then build the chemistry of the team, which is critical to success. It requires guys you really get on with. But it's a bit more complex than that."

Think of the situation the other way around, Davison suggests. "What happens if you go into business with someone you really don't like but that person brings in a tonne of sales. If you're both hooked on the same goal you start to overcome this dislike."

If team chemistry is primarily an intellectual decision, a working relationship can be developed. But Casey says everyone is slightly different, which makes a strict formula hard to pin down. He has advised other start-ups on founding partnerships and suggests three key questions are:

  1.  Are they willing to be a salesman? To go out and talk to people about the product and put their reputation on the line?

  2. Are they willing to work all hours of the night to get something delivered?

  3. Are they willing to quit their job and work on this full time?

It's important to determine if the prospective partner is committed to the company and achieving the company's goals. In the case of Facebook, The Social Network suggested that Saverin's commitment to the company's success was not as strong as Zuckerberg's. Indeed, part of Facebook's success involved Zuckerberg forgoing his emotional bond with Saverin as he found others who were as committed as him.

Davison said the issue of team chemistry is also about priorities. The first goal of a start-up is to get yourself to the next step – to survive and to make those first few sales – before you think about success. "After that you definitely need an understanding of each other," he says.

In the early days of GradConnection, the founders were "incredibly, incredibly poor" but they remained highly motivated, Casey recalls. It was six months before the first invoice, and another three months before the second. "We were in a brutal financial position really. The two other guys I was with were fully on the same wavelength in terms of that. And we went through very difficult times. But it got easier over time."

GradConnection's co-founders socialised but had a more important bond. "We all hung out together and had beers together and went to the social club together, that was pretty common. But we also had a shared vision and shared goal. It fell into line pretty nicely without us having to think about it at all. We all wanted to do it and for that reason the chemistry was pretty spot on."

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