One of the most common mentor meetings I have consists of multiple founders of very early stage ventures, often before they have even formed a business entity.
One of the key questions I ask of these founders is “Are you building a product or a company?” This is a vital distinction! While building a company requires the founders to build a product (or a service); building a product does not necessarily require building a company.
I emphasize that there is no right answer to this question. But what is important is that the founders are all in alignment in their intentions to work together. For example, if one founder is really motivated by making enough money to take a year off and travel the world and the other founder is motivated and intends to build a company that can have a lasting impact on a particular market or set of customers, conflict will be inevitable.
And the answer “building a business” needs refinement. In general, there are three types of businesses one may start:
- Lifestyle business or boutique business – the founder(s) make enough money to cover their living expenses and ideally generate profit to enhance their lifestyle, pay for their children’s education, save for retirement or other personal financial goals. Artisans, like woodworkers or graphic designers, often run lifestyle businesses.
- Growth oriented businesses – the goal of these type of businesses is to grow beyond dependence on the founders. At the least to be in a position to hire contractors, but more typically to hire employees and increase productivity beyond what a founder or founders would be capable of. Small consulting businesses are typical growth oriented businesses.
- High growth scalable businesses – these are the typical VC-backed businesses whose goal is to be acquired or to go public, generating a substantial financial returns for the founders and investors. These type of businesses are often capital-intensive, required large sums to fund product development, sales, and marketing and may take years to become profitable.
It’s critical that the founders are in alignment of what type of business they want to start. Again, there are no right or wrong answers. But without agreement amongst the founders on their goals, conflict and failure are very likely.
And if the answer is building a product, then further exploration of the goals of the founders is also necessary. Is the goal to sell the product to another company? To license the product to generate a stream of royalty payments over time? To eventually develop a product line?
So while many very early stage ventures are focused on product development and how and when to raise capital, I almost always ask the founders to take a step back, to have each founder share his hopes, dreams and goals of the venture with the co-founders and insure that everyone is aligned with the goals for the venture – before investing time and effort in product development or attempting to raise capital.
While alignment of the founders is mission critical before forming a business entity, alignment is not a one-time exercise. It is important that the founders be wary of “mission skew” – where they start with one mission (build a lasting company) but over time the mission changes in the minds of one or more founders, often due to the stresses and strains of a startup, for example to “let’s sell the company ASAP so we can move on to something else!”
Like a car, the steering system of a startup must start out aligned and often be re-aligned after it hits the bumps and potholes that are inevitably found on the startup highway.