The 2 Steves of AppleThe 2 Steves of Apple1

Solo or Team

• In recent Harvard dataset, only 16.1% of technology- and science-based ventures were solo founded.

• People Choose to go solo when they already have many of the required resources

• May want to keep all the equity and control

• May Be tempted to keep things simple in the early stages

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Requirements

• Human capital encompasses the knowledge and skills derived from

team members’ formal education and prior experience;

• Social capital reflects the connections—along with the credibility and

legitimacy—that team members bring to the venture through their

interpersonal networks;

• Financial capital refers to money or similar tangible resources that

can be used in the founding process.

• A solo founder rarely has all the human, social, and

financial capitals needed. 3

Solo or Team

• The vast majority of high potential startups have

more than one founder.

• Chosen well, co-founders and early hires increase a

company’s access to human, social, and/or

financial capital.

• How do you choose?4

Team--Downside

• Each individual added to a founding team increases

coordination costs, which may increase the startup’s risk.

• The larger the team, the higher the risk that roles will

overlap and cause conflict within the team. Further, each new person adds more nodes to the firm’s internal

communication network, slowing things down and potentially weakening accountability.

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• A relational startup team(friends and/or family)—

common because: easy to form and level of trust.

• At the other end is a startup team comprised of

strangers or acquaintances. Drawbacks—to build trust

and knowledge of working together.

• Options in the middle of the spectrum—in particular, a

startup team comprised of past coworkers—can

address some of the drawbacks mentioned above while maintaining many of the advantages.

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• Starting a venture with close friends,

however, is playing with fire.

• With Apple, we see two very good friends who end up not understanding each other at all, not valuing the contributions of the other, and personally clashing.

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• If Wozniak had had a discussion with Jobs about the equity split (both with Break-Out and at Apple) and their roles, they may have arrived at a more realistic arrangement, and avoided some of the damage done to their relationship.

• Ironically, it was that very relationship that made it hard to have the conversation in the first place (the tendency to avoid the “elephants in the room.”)

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The Danger of Founding with Family and Friends: The “Playing with Fire” Gap

FamilyBest Friends

Acquaintances Past co-weorkers

Damage if relationship

blows up

Likelihood of discussing “Elephant”

GAP

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Causes of Failure in VC-backed Ventures

Product development, functional

management, market problems,

etc

35%

Senior manageme

nt team

65%

35%

65%

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Does Apple Computer have a good founding team?

Question - 3

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o Skills and Characteristics: Job’s vision and drive

balanced almost perfectly with Wozniak’s

technical capability. Jobs was the (hot-headed)

passionate visionary, while Wozniak was the

(more measured and level-headed) analyzer.

o Network : Jobs was able to build a large network.

Wozniak had contacts at HP and Homebrew.

o Goals : Both wanted to make a large impact on

society with the personal computer.

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o Funding: Neither Jobs nor Wozniak had great

personal wealth or direct access to funding; Mike

Markkula was able to provide this piece.

o Values: Wozniak placed on honesty, fair play and

friendship with Jobs, who acted as if money power

were more important. Job’s unhappiness with his

employee number and Lisa Computer Wozniak

values the past and remains loyal to friends, Jobs

focuses on the future 13

Attributes Wozniak Jobs Wayne

Complimentary• Skills

• Network

• Goals

Technical

Low

Invent a personal computer, impact mankind for the better

Visionary. Salesmanship, driving force, making connection

High

Make money, gain control, make a “dent in the universe”

Legal, business

High

Make money (?) Keep a high quality of life, stay healthy

Concurring• Values

•Money as motivator

•Styles

Honest/fair play, friendship, the past

Low

Level-headed, honest

Winning, the future

High

Hot-headed, passionate

Health, peace of mind

Low

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Team

• The tangible reasons for making a team include the

human, social, and financial capital that can be

brought to the venture by the right cofounder

• The intangible reasons for adding cofounders

include task preferences, collaborative

style, support and validation 15

• Founders, when trying to fill holes in a founding team, often look for people with complementary skills, ….but neglect to consider and

discuss all of the potential partner’s other attributes, such as value system, motivations, and personal styles and goals.

• Some factors should be differing and complementary, but for others, the team must be on the same page, or it will face major conflicts.

• Even team with a perfect mix of skills can blow up if they neglect these other differences.

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Who were the founders of Apple Computer?

Question - 4

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• “Founders” can contribute to a venture in very different ways: Sometimes as early hires, sometimes as active investors and other roles. Even if you may not be going to start a company, you can also pay a major, formative role in building something important, as did Markkula for Apple.

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What defines a Founder?

ContributionIDEA Technical idea Business idea Straight vision

EXECUTION Build product Hire employees Sell product Raise Money Lead Company

WozJobs

Markkula

WozJobs, Markkula

JobsMarkkula

Scott

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• Power dynamics, roles, and relationships

changes as the venture evolves. All roles can build value, if not

at the beginning of a venture, then at some point in its lifecycle.

• “What is the value of the idea versus the execution?” is a timeless question an the subject of ongoing debates in entrepreneurial management. 20

Assess the founding team in terms of its relationships, roles, and

reward systems.

Question - 5

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• Relationships: Whom should founders try to attract as startup team members: Friends? Family? Acquaintances? Strangers? Prior coworkers?

• Roles: How should the founders allocate roles amongst themselves and other senior team members? Who should be involved in making different types of decisions?

• Rewards: When and how should the founders divide equity among the startup team?

Three Characteristics of Startup Teams

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• Relationships, the best-friend relationship between Jobs and Wozniak affected both their roles and rewards. They were unable to have a confrontation, the equity was simply divided equally.

• Markkula’s status as an equal equity partner forced both Wozniak and Jobs to admit him into their inner circle.

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• Roles Originally, Jobs’ role was sales/marketing, Wozniak’s was

technology/product development, and Wayne’s role was

business/legal. Wayne and later Markkula also functioned as a tie

breaker between the two original founders.

• The equal equity split gave Jobs considerable autonomy and

power at Apple; this caused conflict between Jobs and Wozniak,

Markkula, and particularly Scott, whom Jobs challenged on a

number of operational and management issues.

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• Rewards reflect the premium teams place on various contributions of each founding member. For the founding teams of many high-potential ventures, the primary rewards of interest are the shares of the venture’s equity. The equal split between Jobs and Wozniak also could have been the result of their inability to agree to an alternative, since each thought their own contributions were more important.

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• The decisions founders make about whom

to bring on the founding team – the

relationship part of the triangle– affect how

they split equity and what roles each partner

fills.

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• The founders’ relationships determine how easy or difficult it will be to have a conversation about roles and rewards.

• If founders decide to split everything down the

middle and share every role, it may be because

they are avoiding this discussion. Avoiding it, however, may only allow conflicts to fester until they become destructive.

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The Three Rs and Team Tensions: Elephants in the Room

Relationships• Found with friends?• With strangers? Co-workers/ family?

Roles• Division of labor, positions, skills• Decision making

Rewards• Splitting the pie• Compensation

Team Tensions

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• When one partner fails to live up to the

expectations of another partner, close personal

relationships can exacerbate the conflict within

the team. The relationship may be too important

to risk, and thus the venture will suffer.

• The closer the relationship, the greater the risk to

the venture if conflicts arises.

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• Conversely, if founders choose the venture’s

interests over the relationship, the relationship

itself can disintegrate. This has dire

consequences for friends, family members, and

spouses who plan to go into business together.

For these reasons, founding a venture

with friends and family members can be

akin to playing with fire.30

Decision Making

• A startup team also requires a decision-making process. The design of this process must balance trade-offs—around speed, efficiency, accountability, and buy-in—by choosing a point on a

spectrum with two ends: 1) egalitarian (or consensus) decision-

making, and 2) hierarchical (or autocratic) decision-making.

• With an egalitarian process, members make decisions collectively, seeking consensus through majority rule or unanimity.

• A hierarchical process formally designates a single person who is responsible for final decisions of a given type.

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• The Neverland decision-making structure, while promoting a creative environment in the very early stages of a new venture, can hinder the venture from progressing to the next stage of growth.

• When this is combined with an equal equity split, great ambiguity about who is in charge of the venture can result.

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The Equity Split

• The most important reward—and the one with the

most potential pitfalls—is the equity split. First-time founders sometimes underestimate how powerful a motivator equity can be for themselves as well as for attracting, motivating, and retaining talented cofounders and early employees. (Equity also is the main attraction for both angel and venture capital investors.)

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The Equity Split

• A natural inclination is to take the easiest route and split the equity equally to avoid conflict. Founders should resist this urge, which is fraught with longer-term peril, because it is rare that all individuals contributed or will contribute equally to the venture’s success.

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When to conduct this negotiation

• Splitting equity too early is a recipe for continual renegotiation; founders should wait until there is adequate definition around the business model and each individual’s past and expected future contributions.

• Founders should resist the urge to postpone what will likely be an emotional, complicated, and tension-filled discussion that often gets more challenging the longer it is delayed.

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• Facing Forks in the Road with Friends – Every

company faces seminal “forks in the road”: decision

points that affect the future of the venture. Prior,

close social relationship prevent the founders from

productively resolving their conflicts. Research

shows that these “soft” issues or “people problems”

are responsible for 65% of new venture failures.

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• Balancing the Founding Team – Challenge is to differ on what each member brings to the table, but also to be in agreement on other dimensions. A successful founding team needs differing complementary skills, networks, and sometimes personal goals. Conversely, the team should share similar value systems, motivations, and goals for the company.

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FOUNDING TEAM

• Even with strong, complementary, and effective

founding teams, problems will arise as the venture

grows and changes. Founders must continually

reevaluate what is working and what is not working

on a founding team and within a new venture.

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• Even if you *think* you know them, you must recognise that friends change over time.

• One person gets more risk averse, the other has more risk appetite. One person gets married or has kids and starts to de-prioritize the business. One person loses the passion for what you do. Or you have disagreements about strategy, recruiting, funding, etc.

• It is best to consider these eventualities

Friends as Founders

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• Make sure you have founder vesting for all of you.

• Make sure you have a very clearly established governance structure. Have a clear path to resolving conflicts if they arise.

• Discuss topics such as funding, risk orientation, how long each of you wants to be doing this business, what happens when one partner wants to leave or one isn’t performing?

Friends as Founders

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Many founders believe that the struggle to

build a successful team ends with the

formation of the founding group.

Actually choosing whom to hire requires the

same level of careful analysis as does the

choice of co-founders.

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HR RESOURCES

• Assembling strategic human resources at three

levels of the organization:

• within the founding team,

• within the board of directors,

• and regarding the operating/technology team.

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Employees hired at the start-up stage are

jack-all-trades;

Are young and inexperienced, and need a high level of training and supervision.

They tend to be flexible, comfortable with taking risks, enthusiastic,

May have limited alternative employment options.

Stage 1: Start-up

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Stage 2: Transition

The advent of External funding/VC funding brings pressure to “professionalize” the venture.

The movement from product development to marketing changes the venture’s focus

- from the technical expertise of the founders/founding team

-toward the need for more professional sales and marketing employees..

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Stage 2: Transition

• The size of the company is also a factor.

• As it grows there is a need for• more middle level managers,• more formal processes, • and less centralized consensus-

driven decision making

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Stage 3: Maturing

Decision making is decentralized across functions and hierarchical.

The key employees hired at this stage are usually specialists and experienced A-players.

CEOs often resort to executive search firms and referrals from VCs to obtain these employees. 46

Founders tend to hire employees to fulfill the

needs of the moment. The company’s

needs, however, do not stay static.

A jack-of-all-trades or best athlete may fit

perfectly in the earlier stages of a venture,

but will flounder when the company

develops a formal structure. 47

A-players—mature experienced people with

impressive resumes—bring much to a

company, including leadership skills, a

strong network of business contacts, and a

deep understanding of their industry.

However, they do not have the flexibility of

an all-around best athlete

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The downside to hiring A-players is

that they are not used to a fluid,

developing product and company,

and need the structure, strong

culture, and support of a long-

standing company.49

Seven Important People Practices of Successful Organizations

People practices of successful

organizations

Employment security

Selective hiring

decentralized decision making

Regular Training

Compensation linked to

organizational performance

Limited differences

in Status

Information sharing

– Scaling up

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