Four Early Steps/Challenges of Building a Company.
Advice from Shaun Stewart, CEO of New Lab at the Brooklyn Navy Yard. New Lab is a collaborative tech hub dedicated to entrepreneurs working on scalable frontier technologies and products. The site houses 130+ companies with a total valuation of nearly $2 billion.
1. Step One: Financing at the start.
We believe and see first hand everyday that the first chapter of startup development, let’s say the initial 12-18 months is always the period where entrepreneurs are the most vulnerable. That is where you have an idea, need to resign from your existing role to focus on the opportunity and essentially have 18 months or so to make enough progress to secure a seed round. So how do you survive financially during that period? The most common answer is that you have friends and family, people in your social network, who can help support you. You get money from your uncle or your aunt, or your parents put you up in their basement because you can't afford your apartment anymore or your close friends pitch in what they can. So during this phase you often see the least diversity from a socioeconomic perspective and what heavily dictates survival is not your tenacity or vision, not your product market fit or overall strategy but really whether you have rich aunts and uncles - some do, many don’t.
For that first period, it is worth looking at different programs and support services out there that level that playing field, support you doing the early stages but also have a path towards a seed investment. We just teamed up with Antler as an example, a team from Singapore that has expanded their program to many cities around the globe. Together we are launching a program in September at New Lab and will invite 100 entrepreneurs that don’t have company concepts yet but have both the background and the desire to build, to be entrepreneurs. Throughout that program we pay them $3K a month to build teams, develop strategies and high level visions as well as test out market fit through our corporate network. So having a rich aunt or uncle isn't a factor. In those early years, do look for the programs that help you survive, develop a strong community of support and offer a path to your first check.
2. Step Two: Skill balance in team formation.
The second pothole is team formation. How do you pick who you work with because with early-stage it is a lot harder to do it on your own and typically people have strengths in one area and weaknesses in another. So if you are a great product manager, who is good at finance? If you are good in finance, who is good at legal? Who is good at pitching and raising money? The Airbnb founders that I worked under during my time there are fantastic examples. If you look at the 3 Airbnb founders, you will find that they are entirely different. You have Joe Gebbia, who is creative and artistic with a design background from RISD and you have Nate Blecharczyk who is an engineer, an analytical mind, but not so much a stage guy who will rally the crowd. And then you have Brian Chesky who is an extrovert, who is passionate, mission driven and incredible at public speaking, pitching and converting. So when you are building your company, you have to look at what skill set you bring to the table and what else does your company need to succeed. Right away, you have to start thinking about who is my team, who is going to do what, and what are the aspects of the business that are important.
3. Step Three: Securing key advisors.
That leads to the third key lesson in early-stage which is advising and mentoring. Who with experience is answering those tough questions for you? I advise 8 or 9 companies. Most of the founders are under the age of 30 who have had one or two jobs and they are now building a company. Things that to me, or anyone with experience, are incredibly simple are tough and challenging to them. How do you write an employment agreement? How do you terminate someone? How much equity do you give an early-stage employee? How much cash do you raise? Who do you call when you have those questions and how much do you trust them? Building that key advisor network early is really key.
I can give you one specific example where I spent a lot of time this month with one of the founders I advise. He had originally reached out to me via LinkedIn, had heard me speak at a few conferences and said he got my name from a few people that said I was good at growing travel businesses. He was launching a company focused on the vacation rental market and asked if he could meet me for a coffee. I am pretty open to that stuff and like to respond and support where possible; it’s important to keep expanding your network and selfishly feels good to be able to help someone going through a similar experience to what you faced earlier in your career. As an advisor you typically secure some equity in the venture and also get to learn about an adjacent or completely new aspect of your industry. Both sides get a good deal from what I have experienced. So he offered me some equity in his company but in exchange he made it clear from day one that I would need to meet with him once a month, attend quarterly advisor meetings and be available from time to time for urgent issues.
So fast forward to last month; although he launched with just three people the business started to really see traction earlier this year that allowed him to raise 5 Million at a 20 Million valuation post-money in Q2. With this cash he quickly needed to expand his team to support the business growth and overall demand; he built a plan to hire 30 people but candidly had no idea how to build an organizational structure. Where do I put these 30 people? Should I pace the hires over time or do I need them ASAP? What type of 30 people do I hire? What are the titles? Do I give away VP titles, C-suite titles? How many people can one manager handle? Is it too early to hire senior execs with solid experience or stay scrappy and hire lower levels of experience? It is things that are basic but important and crucial. Those are the types of questions I have helped him with over the past few years; his business is now growing nicely, his team is expanding and I do believe having a solid advisor group was one of many things he did right. I have seen time and time again how entrepreneurs succeed a lot more if their advisor network is strong vs. if they are going it alone.
4. Step 4: Plan for Success.
The next piece from there is assuming you are going to be successful and being prepared for it. If we continue on the topic of organizational structure as an example - how far out have you planned for? What are your next key hires? What milestones do you need to hit to justify those hires? Plan out both your financial projections for the business but also the head count necessary to reach those goals. What does that new organization that is needed to hit future goals look like and how does it compare to your team today? Plan your organizational structure (or any aspect of the business) for multiple years and ensure it aligns with the financial model and projections you are presenting.