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Why do I need a "team"?

I know investors look for "team", but if the expertise and skills I need outside of my experience and time constraints can be outsourced, freelanced, and paid for, why wouldn't I keep more equity for myself and potential investors?

47 Replies

Roger Wu
6
3
Roger Wu Entrepreneur
co-founder at cooperatize, native advertising platform
You should ... until you can't.
Crystal Grave
4
0
Crystal Grave Entrepreneur
Founder, President & CEO at Snappening
Eventually, you will find that you cannot get the same sort of passion-based investment from outsourced resources as you can from your own team. It won't happen immediately, but it will over the course of the first few years. (After all, when you've hired someone to do a "project", even if it's long term, you eventually go away and you mail in a check for that project. It can be rather transactional.)

You also have to keep in mind that you're normally paying a premium (generally 2x) for outsourced services in some instances - especially if they are critical for your success/operation, or you start to need a volume of the service that you could get with your own full-time hire.

Depending on your own background, examples might be:
  • Technical hires for specific feature requirements and new functionality
  • Marketing and Sales (including earned media, social media, content creation and channel specialization and expertise, SEM expertise)
  • Networks (some hires just open you up to new contacts or companies you couldn't reach on your own)
George Lambert
3
0
George Lambert Advisor
Interim CTO - CTO's for Hire
simple. Because 20% of a bigger company is ultimately worth more. If you can afford the best talent
and they will work without equity great. But people with skin in the game work harder.
Michael Feder
5
0
Michael Feder Advisor
Founder and CEO at PrayerSpark; Finalist: Global Business & Interfaith Peace Award
Historically, the reason you gave ownership to early employees is that new businesses typically have a lot more stock than cash. Therefore, anyone joining early is at risk- losing a job because a start up runs out of cash, not because ones work wasn't great- is pretty hard duty, and founders tend to see that and compensate for it. And, with funds at the beginning limited, and needs great, it is a way of attracting top folks you cannot afford. It also helps to have a business model that people love and feel passionate about. As for motivating people with ownership- it helps to manage people in such a way as to show you value their contribution- you give them ownership of their jobs, control over how to get things done, even if they have no actual ownership- and people will respond. In your unique situation, you seem to have plenty of cash to hire quality people to do the work you need done. While you won't build a corporate culture that way, you can certainly launch a business. It's done all the time in small businesses everywhere.
Dimitry Rotstein
11
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
The short answer is that the statistics is clear - outsourcing significantly decreases the chances for success as compared to a dedicated team.

Why this is so is not entirely understood, but the most oft cited reason is simply that freelancers and even full-time employees with high salaries can never be motivated enough to see the project succeed, because they are being paid by the hour, or for meeting predefined milestones, or for some other meaningless (for a startup) metric.
Why is motivation so important? Because creating a new product for an unknown market requires creative thinking, deep understanding of the task and the goals, working unusual hours, and many other difficult tasks that no salary can induce or compensate for. A freelancer will only do the minimum of what you ask of him, which won't be enough because you probably don't know yourself what you need. On top of that, a freelancer will quit as soon as he finds a better deal elsewhere, leaving you out to dry. Don't expect the next freelancer continue from the same point as if nothing happened - no, you'll probably have to start all over again.
Company performance bonuses and stock option plans were designed specifically to solve the motivation problems, but they still pale in comparison to the hefty equity share.

In any case, outsourcing is expensive. I've seen people paying tens of thousands of dollars just to get a prototype (that no one wanted to use), whereas a technical co-founder would do the work "for free". Same is true for a bizdev co-founder. Sure, if the product becomes a success then a co-founder becomes more expensive, but given that most products fail, if you count expectancy (especially accounting for the decreased success chances with outsourcing) then a co-founder is much cheaper on average. And investors have done the math.

And finally, working on a project alone can be unbelievably lonely, and no one can alleviate the loneliness as well as a co-founder can. Neither employees, not investors, nor clients, no one. One reason that one-person teams fail more often (outsourcing or not) is because the founder has no strength left to continue, and no moral support to get that strength from.
Lonnie Sciambi
4
0
Lonnie Sciambi Advisor
"The Entrepreneur's Yoda"- inspiring, guiding entrepreneurs to achieve their dreams - CEO Mentor/Advisor, Author/Speaker
The objective is not simply to create things but to create value. As an individual, even with outsourced services you limit how much value you can create to your bandwidth and your expertise. With a "team," you have not only get other perspectives and talents, when they are coupled with an opportunity to create value for both themselves and the company, through equity, the whole becomes greater than just the sum of the parts. Remember 100% of zero is still zero!
Chris Copple
2
0
Chris Copple Advisor
Chief Operating Officer & Executive Vice President at ETX Pharma, Inc.
Dear Garrett, I do not know what your business idea is but some things apply broadly. It is about depth, reproducibility, 24/7 presence, and brand reliability to underpin aggressive customer rollout and support which lead to company growth and a rapid and robust return on equity.. Investors need to have a comfort level on all fronts. If you think you can do it all with a little help from free lancers you are not planning a BIG adventure. A big business will quickly deplete the time and resources of one key executive. It takes investors just as much time to consider a $0.5M investment and do the appropriate due diligence as it does to do a $1 - 5 M investment. So, your scale will be critical to whether you look attractive to investors. Hope that helps. C2
Sajjad Chowdhry
4
0
Sajjad Chowdhry Entrepreneur • Advisor
Real Economy Entrepreneur
IMHO to incentivize and drive others to their best. A salary, contract payment, or wage doesn't do it. If you want the best from people then slice up the pie. This of course assumes that you have people you can trust. Skills notwithstanding, you don't want to give up equity to someone you don't have a strong trust-based relationship with. Regards, Sajjad Chowdhry LinkedIn | Twitter "My life is spent in one long effort to escape from the commonplaces of existence..." - Sherlock Holmes in The Red Headed League
Chris Copple
1
0
Chris Copple Advisor
Chief Operating Officer & Executive Vice President at ETX Pharma, Inc.
When you do add headcount in the executive suite only the first, highly trusted, high value additions are likely to see founders shares. After that nobody should want direct share grants due to unfunded tax liabilities. Most employee equity incentives come in the form of ESOPs (stock options) and even consultants can participate in these incentives through Non-Qual Stock Option Plans. This also solves the problem of employees/colleagues who do not turn out as hoped since their stock options usually have an initial 12 month vesting "cliff" followed by either quarterly or monthly fractional vesting over a period of 3 to 5 years. They take their vested options with them when you wish them well but the rest go back into the treasury.
Michael Barnathan
5
0
Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
I see this thread generating a lot of controversy - see the "bigger piece of smaller pie" thread too. IMO, there's nothing wrong with going solo. Most investors won't fund a solo team until it gets traction (traction forgives everything), so you need to be prepared to bootstrap. Also figure out what the scope of the startup should be, honestly assess your strengths and weaknesses, and find people to do the things you can't or shouldn't be doing. But some people feel that you should never do it alone. They probably have a point, but not everyone met Woz in a garage as a college student.
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