The elusive third co-founder

Shripati Acharya, co-founder and managing partner at Prime Venture Partners, believes that once a startup achieves the product-market-fit and the execution pace picks up, the co-founding team might need to bring in the third senior person in the team.

What happens once a startup has got off the ground with one or two founders? Two co-founders at the beginning are the most common startup configuration in my experience.

Two person founding teams, however, struggle with a common dynamic - the inability to add a third senior person to the team at the right time.

Two person founding teams have several benefits – fast decision making having a trusted person to discuss thorny issues with, a partner with whom to share in the thrills and spills of the journey, at the same time having sufficient equity among the founders.

As the startup evolves, and especially once it begins to get customer validation – commonly referred to as the product market fit – the execution pace picks up. All of sudden the startup now needs focused effort on engineering, marketing, BD (for enterprise SaaS), finance and product. And two people at the helm of the ship are not sufficient anymore.

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In typical tech driven startups, engineering and business functions (BD/sales) are well covered. It is imperative in the early days for one of the founders to be the product person as well, but at what time does this become self defeating? The areas that tend to get neglected are typically those required to drive traction after the initial validation – product management and marketing. As the company grows, the role for product champion defining the priorities or a marketing head driving online acquisition becomes critical.

This is the time to add a third person to the senior team.

This person does not necessarily have to be brought in as a co-founder, but needs to be thought of as someone who has an equal voice at the decision making table in the company.

The challenge is that the moment the founders need to start thinking of adding such a person is exactly the time when a whole host of things clamor for attention – ongoing pilots at customers, marketing experiments, engineering platform considerations and more. Recruiting ends up taking a back seat.

The urgency of tactical execution wins over the strategic recruiting activity.

That is exactly the problem. Identifying and recruiting the head of product, or head of marketing is usually a two to three month activity in itself. And not having the right person on board early enough becomes a double whammy. Now even more activities require immediate attention from the founders and recruiting is further kicked down the road to be revisited at a later date.

The tussle is for the most precious resource in the company – mindshare of the founders

The more the recruiting is postponed, the greater the pressures on the founders’ time and less time they have to step back and focus on something that will only have a return three months down the road. Making mid and junior level team additions are not as difficult but what is it about senior hires that makes it tough? A few reasons:

1.    Senior hires are hard to find. The candidate pool is simply smaller and for startups, and external recruiting firms usually do not yield results.

2.    The stakes are higher. Making a wrong hire at the senior level can set the company back in a big way. So the process is lot longer and more rigorous than other hires as it involves ascertaining cultural fit along with lots of reference checks. (see Amit Somani’s article on this here).

3.     Founders are used to working like a well oiled machine making decisions between them and are uncomfortable adding another cog in the wheel.

4.    Senior hires who are not founders will typically demand a higher cash compensation than founders are used to seeing in the company. This is reasonable since the equity portion is a lot smaller than that of the founders. But the sticker shock often makes it more difficult for the founders to proceed.

Consequently, founders are unable to pull the trigger even when the right candidate shows up.

So, what can you do to address these issues? First and foremost,

Since the addition of this person will surely change the decision making dynamic - do a realistic self assessment. Is your culture prepared to accept a new element and function effectively?

If you feel are comfortable with that, consider the following:

1.    Have a three to six month look ahead discussion on the future organisation in your weekly meetings between the founders. Who would you add to the team? What is the profile of such a person and where can you find them?

2.    Budget 30 percent of the time of one of the founders for recruiting. While it might not be practical to spend this time every week, on the whole anything less is unlikely to yield the desired results.

3.    Get a realistic baseline on the market rate for compensation. It is easy to get anchored to the boot-strap early-startup salary ranges that the first employees come in at (though they'd have a higher equity compensation).

4.    Monitor progress diligently every week. Set a target date for the person coming on board. It is not uncommon to miss recruiting targets by several months or even a year. Having a target date helps you benchmark if you are falling behind in your efforts. Use all channels – your own contacts, recruiting channels such as LinkedIn or agencies, social media – to spread the word. The best talent is not looking out for a job, they need to be recruited into one.

Getting product market fit is hard. But once you have achieved that, missing critical talent can be a major roadblock towards achieving your dream of creating a blockbuster company. Adding the right member to your team – as a co-founder or otherwise – can pay rich dividends.

If you are a founder who has successfully navigated additions to the senior team, please share your comments.

[This article first appeared on LinkedIn]

Edited by Megha Reddy