The startup journey is each exciting and arduous. An excellent product idea is a must, but it is not enough. The true success of a startup depends on the team behind the idea.
While investors such as you rigorously assess market potential and review financial projections, many fail to ask a key query: Are the co-founders a good fit?
Imagine this: you meet a team of founders who have a revolutionary idea for a product, perfectly prepared for the needs of a growing market. They prepared a compelling presentation and secured initial funding. It seems obvious, so you invest.
But months after the check clears, tensions arise between co-founders over strategic direction, work ethic and communication styles. This disharmony hampers your startup’s progress and puts your investment at risk.
What if you possibly can discover these problems before investing? You could help your team develop and grow together by mitigating risks and stopping problems before they escalated. Sounds too good to be true, right?
This is not. Over a century of research in organizational psychology may also help investors understand how people realize their potential, improve organizational performance and work together to realize goals.
Let’s look at what psychological science is discovering about high-performing founding teams. Here are five inquiries to assist you assess founding fit and two ways to accurately assess the situation.
Five inquiries to ask when evaluating co-founders
- Do the co-founders share the same vision?
Co-founders have almost no ability to show a vision into reality if they have different mental models of that vision. This could appear obvious, but I’ve interviewed co-founders who consider they’re on the same page when in reality they see the future very in a different way.
Independently ask your co-founders about their vision for the future to make sure they are aligned.
- Do the co-founders share values?
Founders often feel they needn’t articulate their values until they create an HR department. However, this needs to be one of the first things they do, as it should help them determine whether potential co-founders are the right fit.
Imagine two co-founders: one is a conservative and believes in slow, thoughtful decision-making. The second is a one that takes risks and values decisive motion. When it comes time to make vital decisions, these two founders will disagree on the path forward.
- Do the co-founders have complementary skills?
It’s quite common for co-founders to decide on each other because of their friendship or past collaboration. While this initially looks as if a good idea because they have already gained trust, the final result is a team of individuals with unequal opportunities.
The research have shown that the simplest teams are composed of individuals with diverse backgrounds and skills. Imagine a team of three visionary co-founders who excel at abstract considering. Sure, there will likely be a lot of synergy and energy at the starting, but when it comes time to execute, there will likely be no co-founder with concrete considering skills who will plan the smallest details of the operation.
- Do co-founders show the same level of commitment?
Building a startup is a long and demanding process. As an investor, you want to make sure that your co-founders are equally committed to starting the business.
I often see co-founder teams consisting of one fully committed lead co-founder and one or two others who have not yet quit their full-time jobs and made a decision. Very rarely does the latter stay in the team for long. Eventually, the lead co-founder will get uninterested in carrying the heavy burden and will look for someone who can share the responsibilities.
- Do the co-founders trust each other?
Trust is the basis of every relationship. Open and honest communication is essential to resolve misunderstandings, build trust, and align on key decisions. Without trust, the co-founders’ relationship is doomed to failure.
Two effective ways to evaluate co-founder fit
Most investors rely on traditional approaches resembling unstructured interviews, reference calls and hunches when evaluating co-founders. However, research shows that these methods are the least effective at predicting performance.
Yes, these approaches can offer precious insights, but they have limitations. Intuition and hunches could also be subjective, and individual interviews may not reveal underlying tensions between co-founders.
Instead, try these two research-backed methods:
- Structured interviews. In a structured interview, you may ask each founder a standardized set of questions, making it easier to match and contrast founders’ answers. To elevate your structured interviews, consider hiring an industrial and organizational psychologist to assist you discover the most predictable responses.
- Psychometric assessment. A psychometric assessment is a tool (often a questionnaire) designed to measure psychological characteristics resembling personality, cognitive abilities, and behavioral styles that may predict how well individuals will work together. Using psychometric assessments saves time and money and provides the most accurate picture of the founding team inside a short period of due diligence.
Using one or each of those methods will assist you:
- Discover hidden strengths and weaknesses. Looking through a CV or asking about previous experience only gives you a superficial understanding of the founders. Studying their psychological traits allows for a much deeper understanding of founders on a human level.
- Anticipate team dynamics. At the starting of a founder-founder relationship, it could be difficult to look at and gain insight into how co-founders will work together under pressure or make difficult decisions. Assessing team dynamics through a psychometric assessment will enable a quick “deep dive” into the core dynamics of the founding team.
- Identify potential warning signs. Data-driven assessments can reveal underlying tensions or discrepancies that traditional methods miss. Sometimes founders may not even pay attention to these discrepancies, so digging deeper can highlight future threats and help mitigate them instantly.
- Facilitate open conversations: The newly formed founding team won’t ever be perfect because they have just began to build relationships and get to know each other, and they may have to add latest members in the future.
Understanding the human capital elements of your team opens the door to open conversations about how your team must approach development and growth, building a stronger foundation from the start.
Remember that the human dynamics in a startup are just one piece of the puzzle. You should still evaluate the overall market opportunity. However, a market opportunity is only as strong as the team behind it. Be smart and spend more time during your due diligence examining the founding team.