One of the most critical factors in starting a new company is the founding team. Launching a new venture with the right founders has significant implications that affect its long-term success. In this post, we look at the startup company Filentia and its founders Tom and Sven to understand which questions matter when building a startup team.
Filentia aims to provide student finance to selected individuals, that show an aptitude and ability to succeed at top performing universities.
What we know about startup team building
We know that building the right founding team has a major impact on the overall success of a venture. CBInsights’ research on startup failure attributes 23% of failures to ventures not having the right team.[i] A recent article in Harvard Business Review put the percentage even higher at 60%.[ii]
We also know that for investors, the founding team is a critical factor in their decision making before investing.
Investors aren’t looking at hard data to judge if a startup is worthy of its investment. Instead, they weigh up the founder’s soft skills such as the ability to listen, absorb new information and interact effectively.
This leads us to ask some essential questions about what constitutes the ‘right’ attributes for members of a founding team.
What makes a person a good startup team member?
It is often said that to succeed, company founders require three capabilities: startup experience, industry connections and product knowledge. But these skills may not necessarily exist in one person. The best startup teams are formed when each member brings a strength to the table that complements the rest of the group.
In the case of Filentia, Tom brought with him significant experience in banking and fintech, including expertise in consumer lending such as professional study loans. His cofounder Sven started his career as a medical doctor in Germany before becoming involved in various startups, where he led venture development and talent scouting activities.
With the hard skills covered, lets now turn our attention to the soft skills.
Does a startup team benefit more from similarity or team diversity?
Excellent communication within a startup is critical. However, this simple fact could steer us in the wrong direction and lead us to believe that to build successful startup teams, we should seek founders from similar backgrounds with agreeable viewpoints.
Indeed, the thought of friends founding a startup team conjures up images of Ben & Jerry enjoying ice cream together, the Airbnb founders sharing a flat, or Warby Parker as grad students fretting over the high cost of glasses before deciding to take on the established players in the market and annihilating them. In some cases, friendships unquestionably help companies to succeed.
However, there is also considerable evidence that a lack of diversity in new ventures multiplies the weaknesses of the founders and creates blind spots. This suggests it is better to have complementary skills and at least some degree of cognitive diversity.
Tom and Sven of Filentia start with strong market and customer experience. These hard skills are certainly required, but the Filentia team also have many valuable soft skills.
An abundant supply of soft skills is required for innovation and often leads to greater customer satisfaction as founders are more in tune with their customers. Ideally, the founding team should cover as many diverse skills as possible hard and soft. However, there is another vital point about soft skills, which relates to working as a team. The task of starting a new company is huge, and the motivating driving forces for each founder are passion and a vision for the product.
Once a successful startup gets going, it is not feasible for one individual to take on all the responsibilities for every task that needs to be performed. It is therefore vital that the team members share a common vision for their product.
A recent article[iii] looking into the benefits of different types of diversity in teams concluded that:
“Entrepreneurs need to consider three key dimensions of diversity and form teams that are: moderate in diversity of opinions; high in diversity of expertise; and low in diversity of power.”
Which is better, a formal startup team structure or power-sharing?
If you start from the point of view that each founding member brings both hard and soft skills that are indispensable for the venture, it becomes hard to determine who should be CEO.
Fortunately for Filentia, relevant research suggests that shared leadership is better for startups than vertical leadership.[iv]
Present-day attitudes look for leaders that can be first amongst equals. Essentially leadership is the process of moving people to act to accomplish a shared objective. Moreover, because everyone needs a purpose to work effectively, it turns out that shared leadership improves business performance substantially.
What can be gained by the cofounders of Filentia working together?
Tom and Sven can clearly demonstrate expertise in the areas of business which offer the most promising opportunities for Filentia. Importantly they also agree on key issues that will be drivers for their business.
For example, both see the importance of their customers gaining a qualification from a top-ranking university as a critical part for the success of their customers. Tom and Sven both agree that the business opportunity lies in the unique combination of offering student finance based on a strict selection and scouting process combined with lifestyle coaching for the students.
Tom has connections to Poland and Eastern Europe a market that offers the best value proposition for students and a promising starting point for the venture. Sven understands that frequently, students aim for top qualifications in the best institutions, but do so for the wrong reasons.
Watch the video of Sven pitching Filentia to investors and hear him say during the discussions at the end, that some of his fellow students decided to study medicine because they liked Grey’s Anatomy.
Two heads are better than one
We often think of the ideal entrepreneur as someone who has an incredible idea and single-handedly takes down larger, more established competitors and changes the world. But as the example of Filentia shows a complimentary set of hard skills together with a generous reserve of soft skills in both founders may be the better recipe.
Tom and Sven are students of the Master of Studies in Entrepreneurship programmes at Cambridge Judge Business School. They first met during their residential week in Cambridge and shortly after decided to start Filentia.