Team Building · Entrepreneurship

How to build a team when all you have is equity?

Bethany Hilt First, only brand to simultaneously improve the appearance of aging, hyperpigmentation and adult acne with one regimen

January 26th, 2015

I'm the founder of my skin care company and have been bootstrapping and self-funding. I'm seeking angel investment because I need capital to realize greater growth due to requirements of large retailers already interested in my brand - and to be able to build out a strong team. Without investment, all I can offer is equity but I believe having one or two key individuals as part of the team will help my conversations with angels (chicken and the egg). Plus, I truly need a couple people in key positions to help with strategic imperatives. For those who have been in this situation, how did you add key people to your management team? 

Robert Koenekamp CEO at Aerial Look Inc

January 27th, 2015

Having built three companies with teams derived from sweat equity, I have seen great men and woman come and go. Not all possess the patience and financial freedom to invest their time into a start up.

In your case, it seems your product has attracted the attention of a few large retailers. This is can be utilized to build value in your offer to a potential candidate. I recently invested into a start-up based upon a potential contract they arranged with a large organization. When we approached a developer to help finish the application, he saw great value in our product and possible contract. His pay was negotiated in equity.

The best candidates possess well paying jobs and excess free time. If you can reach out to someone within your industry who will see the value in your product, it is possible to approach them in regard to a partnership. For example, "Mary works at Revlon as a VP of sales, after conducting research you find that she has interest in skin care. You then approach her with your idea and a proposal. If she sees value, not only will you benefit from her industry knowledge, she will also be more inclined to open up new doors for your company and product." I suggest researching executives within your industry and reach out to ones who meet your criteria via email. Ask for their advise and opinion. They will be more inclined to respond. When one responds, this is your opportunity to build interest in your product without trying to sell them.

Finally, do not forget about your local market. This includes your family, friends, coworkers and acquaintances. If you have a finished product and it is safe, sell it! I am sure your family and friends will have no problem promoting and purchasing your product, knowing that it will benefit your growth. More revenue could provide a pay check to a new team member.

I know it seems easier said then done, but I promise it is all possible utilizing your drive, determination and passion. I have faith in you.

Andrew Lockley

January 26th, 2015

Get validation first. Then build a team. Then raise funding. Everyone normally does it in the wrong order. A

Jenise Lee Agent of Choice | Entrepreneur & Consultant

January 26th, 2015

You've done an amazing job on your branding. Awesome for getting noticed by large retailers.  But you do need to get some more numbers under your belt if you want to attract amazing people.

It is easy (relatively) to get your products into stores, but really difficult to ensure that your products will turn (sell).  If your products do not turn as fast as the other products that the retailers carry, then these large retailers will kick your brand/products out. You will then be left with a lot of inventory, and would have had invested heavily to ramp up your operations.  If this were to happen, how would this affect your cash flow and financial projections?  Can you stay afloat?

Pilot first - see how your products sell (rather, figure out what you can do to make sure your products sell!).  In the beauty space, you're competing with big players with million dollar marketing budget. Your brand/product may be unique, and your products may do wonders, but reaching and convincing the end-consumers that? THAT is tough.

Once you've proven that your brand can sell, then look for a team.  By then, not only will your company appear much more enticing to potential partners but you will also know what you don't know how to do, what you dread doing, etc...giving you a much better picture of what you're looking for in a partner.

If you already have piloted and your numbers work out, then you need to start founder flirting & dating.  I'll leave it to others to give you their opinions on that one.

Hope this helps. 

Jenise

Lane Campbell Lifelong Entrepreneur

January 27th, 2015

Others have touched on the importance of driving revenue and building the brand.  No one has touched upon how to get there.  If you are from within industry you should consider putting together a board of advisors with insiders who you think can help.  

Advisors should be compensated with small amounts of equity given out over a several year "vesting period" that will compensate them for staying involved over that term.  

Go out and try to find someone who built and sold a company in your space and is now retired.  Their help as an advisor will be invaluable in driving growth and securing capital investment when the time comes.  

Lalit Sarna Business & Technology Leader

January 26th, 2015

I agree with Andrew. For founders without an existing brand, validation is just about the only thing that helps with capital and team.  

Hiring good people at your stage is nearly impossible as the risk vs reward equation is incredibly lopsided .  

However for co-founders this is the perfect stage. So here is what I recommend. 

  1. Find high energy people with great aptitude who are passionate about your idea
  2. Convince them to be co-founders.
  3. Hustle your way to validation
  4. Get funding.
For single founders, bringing on co-founders at a later stage can be very emotional. Especially when it comes to sharing founder equity.  

While I can relate to the hardships in getting some momentum behind a new idea, chances are that majority of the work still lies ahead of you. 

Even after raising seed, most startups still have to do 98% of the work to get to a decent exit. 
99% will fail and most of them due to bad execution. 

So I urge my peers to pick co-founders wisely. Once you are sure about the candidate, focus on maximizing the chances of success by sharing equity based on the workload you expect your co-founder to carry.  

Hope this is helpful. 

Edward Robertshaw Started TinyCall

January 26th, 2015

What you are looking to do is difficult. Creating a start up team that is. Best solution is to use people you know you work well with.

Regardless, you have a choice. You can either spend money or give away equity (or a combination).

Giving away equity means getting less money later if the business is successful. That said owning 100% of something thats worth $0 means very little payout.

Giving away cash (if you have it) means giving away cash but keeping control and more of the payout later. If the business fails you are left with the entire loss.

My suggestion is: Find a co-founder or co-founders. Set up vesting so your founders stock is paided out over 3-4 years. Bring in good people who will make the equity lost worth it (as in they double or triple the value of the business from day 1).

Every situation is different, so do what works for you.