What is the difference between a CEO and a Chairman of the board?

The board and the CEO have very different roles. The chairman is one of the board members who is elected by
other members.
The CEO has the responsibility of running the day-to-day operations of the company.
The boards responsibility is to provide the direction, vision & goals, governance & integrity oversight, take major
strategy decisions [e.g. change of the business model], etc.
In addition to the founders and representatives of investors, it is prudent to have a few independent directors on
the board. These are often senior folks with a lot more experience than the operating team and can be very, very
useful as a sounding board while taking tough decisions as well as for the motivation that would be required
when the business is going through rough times.
In many ways a board members can provide adult supervision to young founders and CEOs.
The CEO executes the vision and the direction set by the board.
Check this article on our site on the role of an advisory board member

Would it be considered a bad idea to accept a part time tech co-

founder?

It depends on whether the tech component is core to the venture or it is a support to the venture. If it is core, then
obviously it is critical to have the tech person as part of the core team.
Investors do not like part-timers. And thats because, if someone who is core to the project is not willing to dive in
fully, why should someone else accept the risks associated with the venture. Also, all businesses have
challenges and require the founders to do the fire-fighting on an on-going basis. In the case of a part time
resource who is also involved in some other venture, if there is a challenge in both ventures simultaneously,
which venture will he/she focus on?
However, there have been instances where a core team member needs some income to take care of lifes
expenses, and therefore needs to continue with another job while in parallel working with the startup. In such
situations, investors would be OK with the CURRENT arrangement provided the person is committed to leaving
the job and focus fully on the venture.
If the tech component is not core to the venture, there may be a bit of tolerance to a part-timer.
Of course, it all depends on what equity you are offering that person as a co-founder. In some cases, people
have given a vendor or an expert very nominal, ESOP level equity but called them a co-founder to allow
them the bragging rights of the same.
You need to also recognize that shareholding and co-founder status or co-ownership as the promoter are entirely
different concepts. A vendor who is offering a service or advice, which is not fully paid by cash but is partly
compensated by equity, need not get co-founder status.

Handling disagreement between founders

These issues and disagreements come up typically at two inflection points
(a) Either when the startup is doing very badly and tough decisions are to be taken e.g. to further reduce the
already low salary or
(b) When the startup is doing really well and tough decisions are to be taken e.g. to sell out and take the cash or
to stay on and grow even more.
How does one address this? Well, one way is to anticipate it and have a philosophical discussion and
agreements with the co-founders on how different situations will be handled. This discussion should happen at
the beginning of the journey and NOT when the situation arises.
What will be the decision in case of difficulties? What will be the decision in case there is an option to sell out? It
is possible to build some of these agreements into the shareholder agreements or articles.
E.g. If there are 4 founders in a company with 25% shares each, they may decide that this 25% will vest over a
5 year period. This means that if one of them leaves ad the end of the 3rd year, he/she will get only 15% equity
and the rest will be shared between the remaining founders. This can be documented and formalized.

What happens to the shareholding of a founding team member in

case he decides to quit the company?

Ideally, the founders shares should vest over a 3-4 year period. This is not just in the interest of the investors, but
also protects the entrepreneurs in case one of them decides to leave.
In simple terms, if there is a 3-year vesting period, then every month the promoters get 1/36 part of their equity.
For example, if there are 4-founders, and one of them who has 18% equity decides to leave the startup after 15
months because the venture faces significant challenges, then in a 3-year vesting period clause, the
leaving founder will get to keep only 7.5% of his 18% equity, with the rest of the equity now available for the
company and the board to offer to another person who may be brought in as a co-founder or at a management
level to fill in the gap left by the leaving founder.
In case the equity that has not vested to the leaving promoter is not given to a new person, then in the case of an
event like a M&A that equity is distributed to all the remaining shareholders, including the promoters in the
proportion of their holding in the company.

What skill sets are most important when starting and running a
company?

Heres my list

Passion about a concept

A willingness and ability to commit to building a business around that passion, including willingness to ride out
the rough patches
Ability to plan well and take decisions strategy is about making a chose to focus on one thing from among
the many choices available
Ability to articulate your vision and plans, and convince others to join you in the journey others could be
investors, co-founders, early employees, early customers, vendors, etc.
 Ability to learn quickly being street-smart, being nimble about adjusting the strategy and plan based on what
the in-market experiences tell you
Being flexible and willing to change from original plans plans dont work out as planned they do give you a
direction but you have to make changes and adjustments as you implement
Being structured with your thoughts and plans being process oriented, though processes may not exist or
will be flexible at the early stages
Being aware, if not an expert, about the economics of business & finances
Being a smart and enthusiastic sales person
Being brave and with the ability to take failures in your stride failure is a part of many an entrepreneurial
journey failure just means that the rewards and success is delayed and somewhat further away than
originally planned

Whatcanboardmembersdoforyou?
1.MakeintroductionsspreadthewordgetthemtoannounceontheirLinkedInprofiles

2.Bringthedomainexpertise
adviseyouonstrategy,validateyourplansandchallengeyourassumptions

3.Helpyouinterviewhewhires..Especiallyseniorfolksespeciallyifthenewhiresareol
derthanyou

4.Speakonyourbehalfatevents

5. Monitoryourprogressprovideearlywarningsignalswhenthingsarenotgoingright

How to build a founding team and find co-founder?

Founding teams or the early employees of a team are important because the growth of the startup
depends a lot on the ability and the aspirations of the founding team. With a successful team, bad ideas can
become good but if you dont have a good team even good ideas fail
Criticality of building a start-up team

Execution: A start up is fairly evolutionary process. Every entrepreneur starts with an idea, but an idea is
meaningless unless it can be executed well. A team is required to change a concept to revenue earning
stream and growth stage later.
Raising capital: You need a team for raising capital be it VC or Angel Investor. Everybody looks for a team
as investors will back a founder only if he/she has or is capable of building a good solid team.

Why do they need a team and why not an individual?

 No matter how capable an entrepreneur is, success is clearly a function of team. 50% start-ups fail in the first 2
years therefore one needs to build a team.
While investing, the investors are very clear. They donot put all their risks into one person. Needless to say,
anything can happen to an individual. If there is a team, the risk is at least spreadout should anything happen.

What do investors look at in a founding team? What is the difference between what entrepreneurs look
at and what the investors look at?
There is huge gap between what business requires and VCs require in founding teams. The challenge the
entrepreneur faces is how to combine the trade-off between the two.
Any investor is looking for relevant strong background and relevant experience, people who are able to
communicate their concepts well, and with the ability to execute. They also look for people with process
orientation.
On the other hand, entrepreneurs primarily look for people with passion, commitment, people who are result
oriented, versatile and decisive. You could have somebody with excellent relevant background, but may not be
ready for the fluid & flexible environment of a startup.
People with passion, past background and fire in the belly are the kind of people who are good for a startup,
though often they may not be the ones who inspire investors confidence in being capable of scaling up the
company.
The trade-off is a big challenge and needs to be handled with tremendous maturity and intensity.

How does one build a team keeping a balance between the two the VC and the business requirement?

1. Identify your own sills and weaknesses and find a co-founder accordingly: The founder needs to be
realistic about his/her capabilities and should be able to make self-assessment of his own shortfalls. He/she
should hire a co-founder with complementary skills, and not just someone who is exactly like him/her in all
respects including capabilities, competencies and experiences.
2. Level of skill and seniority: Hiring best of people does not mean you will necessarily succeed. Entrepreneurs
have to take a call between what level of seniority is approprite for the team. You may not need to hire an
experienced COO with a high remuneration package. Instead, it may be possible for a startups to tempt a fairly
experienced person a level or two below the COO position and give him/her the opportunity to grow into that role.
If you hire younger people and have an experienced senior Board of Directors, the younger team can get their
advice and support.
3. Timing of Induction is critical:Entrepreneurs need to have clarity on whether to have a co-founder or have a
Board of Directors, hire an employee or outsource the activities without diluting the equity.
4. Points to remember

Keep burn rates low

Need knowledge about the domain to start business
No one person can do everything. Learn to trust others

How much equity you want to give?

There is no one right answer for this question. However, whatever arrangement you have for critical positions
should ideally be a combination of equity and cash. If you have the money to give, a lower equity portion may be
possible. In situatons where there is no money available, you may need to pay higher equity.
What are the business challenges while looking for a founding team?
What typifies a startup ? What is special about startups?
The execution holds good and true for any business. What typifies a startup is the uncertainty uncertainty about
the concept, the business model, the price-points, the delivery capabilities and indeed about every component of
the business.
Uncertainty is something absolutely critical to startups. In this environment, being soft, methodical, or logical
does not work. The kind of people who can survive in such situations are people who are not worried about risks,
are flexible and versatile and are willing to take on as it comes .
One of the other bigger challenges in a startup is lack of finances. If you dont have finances, building your
resources becomes difficult. You need money for marketing to move to the next level. Paucity of funds leads to a
lot of stress. People who opt to work in a startup have to be aware of the challenges that they would be working
with, and should be capable of handling the stress that comes along with the delight of creating something new.
Short roller coaster rides typifies startups. The only thing you have in such situations is

Ability to use the stock. Keep burn rates real low.

Need for having aligned motives . Interests of founders and investors need to be aligned, else it can get very
frustrating.

What is it that makes business successful? Who are the kinds of people who make it extremely
successful?
The kind of people you will look for will not bother of processes and hierarchies and are willing to take risks.
The characteristics of a winning team are

Passion
Commitment
Flexibility
Team player
Lack of egos

The key things that drive such people are that, they

Are not behind money; one would be the last on list if they are driven by money alone.
are fiercely independent
strong sense of achievement
love challenges

Some myths about building the team

Smartest People are the best those with high emotional quotient have done much better than the
smartest.
Great ideas will succeed it is more about execution
Conflict is bad : constructive conflict is always good and leads to newer ideas and opens up more
possibilities
Tough uphill task: it is a roller coaster ride, self-sustainability is often questioned, take it in the stride
 Q & A SESSION

Question 1: There some some startups that are in steady phase and go on to show growth later. Some
other startups achieve growth in first year and lose their way in between. They have shown results in
short term. What is the leeway or freedom an entrepreneur can take to make decisions?
Prof. Rao:
Logical answers always do not work in startup. Without any external investor, the entrepreneur can face multiple
challenges. Two factors are

1. Trust in the founding team

2. Tenacity of the founding team or investors

That is why 50% of the businesses fail. Entrepreneurs make a mistake and realise it when it is too late.

Question 2 : Presently, we are looking for a senior person from medical insurance with lot of experience,
should we look for somebody in the medical insurance sector?
Prof. Rao:

1. Identify if you need a senior person as an employee or as an advisor or a consultant or as a co-founder

2. Senior person in regulatory bodies could be a good option
3. Recruiting firms Most of them just find people as they have to reach a target, avoid such firms but there are
some recruiting firms who do a good job.

Question 3: Where do you look for such co-founders? How to identify them?
Prof. Rao:

1. Personal network referrals from friends, people you have worked with, friends of friends
2. Social networking sites: LinkedIn, Facebook, Twitter. Similar to what you do when you look for a job, tell
everyone.
3. Retired Senior People: Seek advice from where such people can be found. Nobody wants their advice, but they
will put you through various people and it is effective and works very well.

Question 4: Should we invite the senior person whom we invite as an advisory to also be on our board ?
Prof. Rao:
Option is to take them on the board of director or board of advisors. They will add value as they have the
experience and background. Take them. They will be logical. 5-6 out of 10 things they suggest will work well. I
think it is the advice part leads is what you need, finding people is what you need and it work well for all.
It is perfectly ok, if you dont find people. Keep trying and meeting people and build a personal relationship. At
some time, the person may be interested to join you as things change, as time passes. Cold calling is good way
to build a relationship. You should keep trying.

HR processes and documentation for startups

Processes take away the subjectivity in decision-making. And since HR is about dealing with people, subjectivity
can be a dangerous thing.
Most startup make the mistake of thinking that they will handle the HR activity on a case-to-case basis in the
initial stages, and then when they are ready to scale, they can implement processes. However, when you are
growing, there is never enough time to plan, test, implement, rework and finalize processes.
The ideal time to build any processes, even for HR, is when starting up. Processes need not be complex and
multi-layered. A process is nothing but a well-thought way of dealing with any situation or activity.
Some of the processes, and therefore the documentation related to the processes, which a startup should define
at the beginning of the journey are as follows:

Interviewing and evaluation: Working out a process which allows you to interview people with a well-
defined objective and evaluation criteria is critical. It also helps provide a template for valuating the
candidates, and helps narrow down the choices.
Compensation package: A well-designed compensation package not only reflects a professional approach,
but also helps employees feel good about their offer. In fact, a well-designed compensation package can also
lead to cost savings for the startup. Consult specialists like PlugHR for a startup consulting package.
On-boarding an employee:On-boarding an employee is the process of welcoming a new employee into your
company. Especially for the first few employees, it is important for you to have a one-on-one on-boarding
program. Define a process covering the following
A welcome talk/presentation that outlines the vision and aspirations of the company help the employee
feel great about the decision to join
Explain the processes that may be relevant, including the areas in which processes that are yet to evolve
Present their business cards, and a nicely drafted welcome note
Ask if they have any queries and questions
Give them clear KRAs and directions on what they are expected to do and what they will be evaluated on
Finally, introduce them to the rest of the team highlighting some of their key strengths
Performance measurement: This is directly related to the process of setting clear KRAs or Key
Responsibility Areas. The performance measurement system should be directly linked to the compensation
review mechanism.
Feedback and regular interactions: Set a process for regular all-hands-on-deck meetings where the
founders should share the process, or lack of it, every month. If the progress is not as per plan, this forum
should be used to explain how you are planning to adjust the plan so that the company is back on track. This
should also be the forum for getting peoples feedback.
Exit interviews: One critical aspect that is ignored in most startups is a formal exit interview. When a person
is leaving a startup, asking the reasons for the decision can be very informative and instructive in
understanding the gaps between perceived expectations and perceived reality. This can be useful in either
the founders setting things right if there indeed were gaps, of in communicating the expectations right in case
the gaps were perceived rather than real.

Importance of an advisory board

Most startups are resource-starved and hence not in a position to employ people for the various skill sets
required for building the business. This often means that the entrepreneurs end up doing the thinking on the most
critical aspects about the business EVEN IF THEY ARE NOT THE EXPERTS ON THAT PARTICULAR
SUBJECT OR AREA OF ACTIVITY. E.g. a team of two founders with experience in technology and marketing
respectively would also ATTEMPT to think on their own, perhaps with some amount of research and talking to
experts, about areas like production, procurement, logistics, supply-chain, customer support, etc. Each of these is
a specialized area and would require someone with years of experience to provide a perspective on the
opportunities and challenges.
This is obviously not going to work in most cases. Think of it this way If you were starting a cardiac care
hospital, and because you are a startup and cannot afford a good surgeon, would you go ahead and operate on
a patient if you were not a cardiac surgeon? Well, you wont because that would be a dangerous thing to do!!!
Exactly for the same reason, like cardiac surgery requires a surgeon with specialized expertise, different aspects
of a business like supply chain, marketing, sales, technology, etc. should be ideally thought through by some
folks with some experience in those areas.
Creating a strong advisory board is one practical way of filling in the competencies gap that a startup
may have. This allows the founders to get the brain-power, guidance and insights from senior function/domain
experts, without having to actually employ them. E.g. a startup may require some serious help on the supply-
chain or sourcing side, which the founding team may lack. In such a scenario, getting someone with 15 20
years experience in the domain and skill-set as an advisory board member would work well for the startup.
This is a tool that is not used effectively in India, though you would observe many startups in places like Silicon
Valley and Israel the hotbeds of entrepreneurial activity having strong advisory boards which help them think
through their businesses.
Why would someone accept to be on the advisory board of a startup?
Well, this is where the ability of the founders to sell the vision of the company comes in handy. Of course, you
should have a large, aspirational vision to begin with. No one is going to be excited with someone trying to build a
company which does not even aspire to be a market leader.
If you have a large vision and if you aspire for your company to have a large impact on that industry, and if you
communicate that with passion, the right people would often consider being on the advisory board. If you come
across as THE team which can do it well, many of the people you approach for an advisory board position would
not want to take the risk of turning you down as they may regret later in case you become super successful.
Because if you become super successful, they would like to have the bragging rights to say that they were an
advisor to your company.
Of course, it is good to compensate the advisory board members with some equity as you are not likely to have
the resources to remunerate them monetarily.

Finding co-founders

The success of failure of a startup is largely dependent on the quality of the founding team. Most investors would
therefore make their decisions on investing depending on how confident they are about the team implementing
the idea well.

Size of the founding team

While there is no ideal size of a founding team, 2 -3 founders is generally considered to be a good number for a
variety of reasons.
Well, starting a venture on your own without a founding team is certainly possible. But it sure does get lonely.
You need someone to give you company, especially during the stressful times which all startups will go through
in some stage of their journey.
On the other hand, having more than 4 founders can often lead to chaos and overlap of competencies. [Though
there are great examples of companies like Infosys which had 7 co-founders.]

Composition of a founding team

The ideal composition of a founding team is when the founders bring complementary skills to the venture. E.g.
someone from marketing/brand management, someone from technology and someone from operations
management/procurement will make an ideal founding team for an B2C e-commerce startup.
In my view, it is critical to find co-founders who have the same passion for the concept, and ideally who come
from the same socio-economic background. This is necessary because when the startup is going through
challenging times, it is most tempting with someone who is less passionate about the subject to step out. Also, if
the founders come from different socio-economic background, the challenging times can be quite stressful too.
Someone from a wealthy background my quit because the challenge is not worth the effort, and the returns. On
the other hand, someone who is financially challenged may not have the ability to continue in a resource-
constrained mode for longer than originally planned.

Founding Team members are different from founders

Remember, not everyone who joins at the beginning of your journey needs to be a founder. They can be called
Founding Team Member, and it does carry some weight in a persons profile.
Founding team members are often the ones who are willing to take a bet with you, and hence expect to be
rewarded with some equity so that they also get to benefit from the upside when the startup succeeds. Often
founding team members are the ones who would are passionate about the domain, or some folks you know and
who join you because of their belief in you as a person and as a professional. Founding team members are
special and need to be treated as such. They are the ones who help you define the culture, and to the external
world, the personality of the organization.
Be very selective about whom you involve as part of the founding team and who are just early employees. My
suggestion is that only when you are confident that someone is as passionate about the opportunity as you are
should you give the person the status of founding team member.

Building the founding team some points to consider

Things that founders should discuss before teaming up

Most startups go through challenging times. Founders should therefore have an open-minded discussion
beforehand about how to ride rough times. Ideally, these discussions at the beginning of the journey help
set the guidelines on handling potentially stressful situations.

Time commitment that each person brings to the venture and what limitations or constraints some of these
commitments could carry e.g. someone may not be able to travel to outstation locations or someone may not
be able to relocate to another city if required or someone may be doing a part-time course, etc.

Often, the remuneration and equity holding is linked to the commitment of the founders.
 What is the equity holding of each founder: While most teams usually split the equity equally between the
founders, there are enough examples of teams dividing equity based on the value that each founder gets.
E.g. someone with the domain experience or someone who has more work experience could own a larger
portion of the equity than others.

What is the role of each individual? Unless you clearly define the roles and responsibilities, there will be
chaos. It is also for this reason that it is important.

Most critical decision for founders

One of the most critical decisions that startups need to make, and most find it difficult, especially when it is a
group of friends coming together is on who will be the CEO of the company.
For most investors, and also for the good of the company, clarity on who is the captain of the team is critical.
[Also, investors worry that even if the friends dont fight about who is the CEO, their spouses could !!!].
Also for employees, it is necessary to have a clear view on where the buck stops and who the leader is.
Ambiguity on that front almost always leads to chaos and unclear plans.

Hiring technical resource for Startups

Many developers love working for startups and some who will only work for startups. Good startups.
Hiring for a startup is like any hiring: your network is easiest, resumes hardest. You can do a few things to limit
the field and attract the right folks if youre gathering resumes:

Find places to post your requirments frequented by startup types

Remember being a startup is major selling point, say it loudly and often, and ask for startup experience.
Ask for technology experience popular in startup circles, i.e., not .NET, not JEE.

Elance can work for assembling a programming team, but its not a great solution as their contract requires you
keep Elance as a middleman for future work between the same two parties
If youre looking for alternatives for finding outsourcing, try also asking on Quora who are all the great developers
that build early product versions for early stage startups.

Does having a good office help in the early stages?

In my view, having a decent office does play a very important role in the early stages of a company.
Here are some of my observations on this subject: Working out of home in the initial phases does not help No
matter how serious and committed you are to your venture, working out of a non-office environment [i.e. home
or Cafe Coffee Day type outlet] just cuts down on your productivity. It is not just about inadequate infrastructure
and support system, an office environment and the people around you just add to the feeling of being a real
company.
It is very difficult to recruit talent without a good office Perhaps rightly so, people create perceptions and first
opinions about a company by looking at the office. In our case, we have been particularly lucky to have received
the generous support of our ex-bosses who kindly accommodated us in their offices and thus allowed us to
attract high-quality talent which perhaps otherwise would have been difficult to do.
Without an office, business plans tend to get restricted by space available Inadequate or no office space and
working out of coffee shops does leave you vulnerable to taking decisions based on restrictions of space.

Working from home

Start-ups in India, even now, continue to find it difficult to attract good talent. Primarily because of risks
associated with a start-up. More importantly, the initial team in any start-up has to be very differently motivated
and driven in order to ensure that the start-up gains stability and gets into position to scale-up. For that
entrepreneurs have to be extremely choosy in the quality of talent they engage as first team mates.
After observing a number of start-ups, we realised that past professional successes of a person was no
guarantee that the person would be able to deliver similary in a start-up. Self-motivation, proactiveness, ability to
embrace shifting strategies, ability and willingness to multi-task, the desire to participate in more than the
immediate task, getting kicks out of participating in shaping the foundation of a company, etc. are critical qualities
that early team mates in a company should have.
In many ways, even if by default and not by design, we realised the benefits of not making an early stage
company top-heavy. It allowed us to leverage the wisdom of our investors and mentors, take quick decisions and
implement it through the enthusiasm of the young team with limited experience and therefore limited inhibitions
towards deviation from previously discusssed approaches or tasks outlined.
However, it was also important for us have high-quality talent with deep experience in specific areas where those
qualities mattered. It would have been quite difficult to employ people who met the criteria to leave a well-
established company and work for a start-up. (And even if we convinced someone to consider working for us, we
certainly did not want to play the we will pay more than what you currently get game.). It is for this reason that
we decided to try an alternate approach.
In a place like Gurgaon (or indeed Delhi NCR), there are several women who after a number of years as a
successful professional have taken a break for various reasons child and husband moved to Gurgaon so I
gave up my job and moved too situations being the top reasons. Many of these professionals are keen to
engage in an assignment that allows them to contribute with their skills and experiences but in an environment
which leaves them time for family or other priorities that they may have set for themselves.
We decided to focus on such high-quality talent to participate in our early-stage team on felxible terms and work
out of home options. We realised that this approach opens us the talent pool beyond what is traditionally
possible. More importantly, it get you talent who is driven not by monetary compensation but by the excitement of
what you are doing and the interst in participating in what they believe to be a potentially exciting business. Also,
because of the advantages and flexibility it offers to professionals, their commitment to the task is self motivated.
In fact, so successful has this model been for us that we are now actively seeking professionals who prefer to
work out of home. So, should you know someone who can participate in our story, do let them know that we
always have room for people who can contribute and add value.