The document discusses factors that contribute to successful startup teams. It finds that the right team is critical for success and the greatest source of failure is problems within the founding team. Key factors for an effective team include properly defining roles and responsibilities, aligning on the vision for the business, and fairly distributing equity and rewards. While friends or co-workers often make good co-founders, the most important attributes are complementary skills, clear expectations, and formal agreements between partners.

1. NYU Stern Office of Development
& Alumni Relations
CO-FOUNDERS & START-UPS:
WHAT MAKES A SUCCESSFUL
TEAM?
Jason Greenberg, MA, MPP, PhD
New York University
© 2013 Jason Greenberg, PhD

2. Entrepreneurship at NYU: Statistics and
superlatives
• 100+ entrepreneurship-related courses
• 845 patents issued to faculty/students
– 82 startups launched based on NYU IP
• 3 NYU Incubators (partnership with NYC EDCo.)
– 106 companies since ‘09
•
•
•
•
$65 million raised
5 companies acquired
900 jobs created
$250 million in local economic impact
• NYU Innovation Venture Fund
– Seed-stage fund
• MadeByNYU.org
2
*As of June 2013

3. Wharton alumni entrepreneurship rate
25%
20%
15%
10%
5%
0%
1
2
3
4
5
6
Jobs post graduation
7
8
9
10
3

4. Founding team problems = greatest
source of VC-funded startup failure
35
65
Founding team
Source: Gorman and Sahlman (1989)
Product, marketing, function
4

5. Fred Wilson of USV on the importance of
the right team
“No business is so good that the wrong
people can't mess it up. And no business is
so bad that the right people can't fix it.
[…] So if you don't get the people part of
the equation right, everything else is really
immaterial.”
5
Source: http://www.usv.com/2007/01/founders-and-ma.php

6. I can calculate the motions of
the heavenly bodies, but not the
madness of people.
--SIR ISAAC NEWTON
6

7. Objective: Consider the “madness
of people” in founding teams
• Systematic assessment of “madness”
from
–A social science perspective
–Extensive first hand-experience
• Mike Chan, Founder & Principal, MWC
Consulting
–B.S. (Lehigh); M.S. (Georgia Tech); MBA (NYU)
• Philip Rosenthal, Pres. & CEO, Fastcase
–B.S. (Yale); M.A., PhD (Cal. Tech); J.D. (Harvard)7

8. Three Rs and team issues
Relationships
 Found with friends?
 With strangers? Co-workers? Family?
Team
Tensions
Roles
 Division of labor, positions, skills
 Decision making
 Model for how business should be
organized
Source: Noam Wasserman
Rewards
 Splitting the pie
 Compensation
8

9. Who should you start a business with?
• Two key types of questions
– Functional considerations (specific skills,
experience, education, time)
– Social relationships
• An important mechanism of team formation
• Lots of received wisdom on the matter
9

10. “Going into business
with friends or family?
Prepare for disaster.”
10
Source: Boston Globe (12/14/03)

11. 11
Source: Entrepreneur.com (10/05)

12. Lots of examples of family members or
friends on founding teams
Robert
James
Edward
Sergey Brin
Larry Page
12
Sources: The Guardian; designhistory.com; http://www.kilmerhouse.com/2009/04/how-much-do-you-really-know-about-our-annual-meeting/

13. Generally speaking, is it a good idea to start
a business with…
1.
2.
3.
4.
Family members
Friends
Co-workers
Strangers
13

14. Technological startups often include coworkers and friends
% of founding teams including …
50
45
40
35
30
25
20
15
10
5
0
Co-workers
Friends
Family
14

15. Predicted probability venture achieved
viability
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Strangers
Friends who never
worked together
Co-workers
Family
Note: Transparent bars are not statistically significant; dashed line denotes overall avg.
Significant coefficients differ from each other and all other coefficients. Model includes extensive controls.
Source: Greenberg (2013)
15

16. EVIDENCE FROM THE FIELD:
1. How do you identify, evaluate and
“date” potential co-founders?
2. How do you deal with “lost in
translation” issues—tech/business or
business/tech?
16

17. Three Rs and team issues
Relationships
 Found with friends?
 With strangers? Co-workers? Family?
Team
Tensions
Roles
 Division of labor, positions, skills
 Decision making
 Model for how business should be
organized
Source: Noam Wasserman
Rewards
 Splitting the pie
 Compensation
17

18. What is the most important criterion
when determining which co-founder will
be CEO?
1.
2.
3.
4.
5.
6.
7.
Who came up with the idea
Prior social relationships
Research/tech skills
Ability to raise funds
Business acumen
Social network – size and reach
Executing idea
18

19. Positions taken by idea people
VP
12%
Other
9%
COO
3%
CFO
1%
CEO
56%
CTO
12%
Chair
7%
19
Source: Adapted from Noam Wasserman, “Idea People and Their Initial Roles within Founding Teams,” May 1, 2008, post on
research blog, “Founder Frustrations”

20. Role agreement critical for founding
team success
Key predictors of viability (odds-ratios)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Source: Greenberg (2013); Note: Model includes extensive controls.
20

21. What kind of company do you want? The
importance of blueprints
Employment Attachment Selection Coordination/
blueprint
Control
Star
Work
Potential
Professional
-40%
-55%
Engineering
Work
Skills
Peer/ cultural
Baseline
Commitment Love
Fit
Peer/ cultural
Bureaucracy
Work
Skills
Formal
Autocracy
Money
Skills
Direct
200%
-100%
30%
-45%
5%
-200% -100%
0%
Pr(IPO)
150%
100%
200%
Pr(Failure)
21
Source: Baron and Hannan (2002)
300%

22. Three Rs and team issues
Relationships
 Found with friends?
 With strangers? Co-workers? Family?
Team
Tensions
Roles
 Division of labor, positions, skills
 Decision making
 Model for how business should be
organized
Source: Noam Wasserman
Rewards
 Splitting the pie
 Compensation
22

23. Generally speaking, do you believe that
equity should be split equally among all
co-founders?
1. Yes
2. No
23

24. How important are the following criteria
to you when determining how to split
equity?
1.
2.
3.
4.
5.
6.
7.
Who came up with the idea
Prior social relationships
Research/tech skills
Ability to raise funds
Business acumen
Social network – size and reach
Executing idea
24

25. Equity stakes for idea versus non-idea
people by position
70
60
Equity %
50
40
30
20
10
0
CEO
CFO
Chair
COO
CTO
Other
5.5
VP
Premium for being
idea person
20.0 16.7 24.6 21.2 5.6
2.3
Equity % if not the
idea person
42.1 13.3 35.1 28.5 27.6 14.3 22.3
Source: Noam Wasserman, “The Idea Premium: How Much (Equity) is Your Idea Worth?” June 17, 2008, post on blog, “Founder Frustrations”
25

26. Equity more likely to be split equally
when…
• Initial financial capital investments are the
same
• Founders have similar levels of industry
experience
• All founders are first timers
• Equity is split early in the process
• Founders are friends
• Team is smaller
26

27. Generally speaking, do you believe that
“roles” and “rewards” need to be
specified in a formal contract?
1. Yes
2. No
27

28. Formal contractual agreements predict
founding team success
Key predictors of viability (odds-ratios)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
28
Source: Greenberg (2011). Model includes extensive controls.

29. Known-knowns, know-unknows, and
unknown-unknowns and contracts
“Because we know, there are known knowns; there are things we
know we know. We also know there are known unknowns; that is
to say we know there are some things we do not know. But there
are also unknown unknowns--the ones we don’t know we don’t
know.”
Know-knowns
Known-unknowns Unknown-unknowns
Each founder’s
What the final
?
financial contribution business model will
to date
be
Who came up with What part of the idea
?
the original idea
can be monitized
Static contractual
provisions
Dynamic contractual
provisions
Trust!
29

30. Takeaways
• Finding the right partner(s) may be the most
important step
– Understand that it is a dynamic process
• Aligning the “three Rs” critical
• Also ensure that you are “in sync” with respect to
role expectations
• Don’t wait too long to discuss
– Contracts
• Always incomplete—consider as a process-defining tool for
discussing rights/responsibilities
– Equity splits
• Equal split not always the best
– Especially true if contributions not equal
30

31. THANK YOU!
JGREENBE@STERN.NYU.EDU

32. 5
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33. 5
4.5
Satisfaction
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Tech

34. $500,000
$450,000
$400,000
$350,000
Earnings
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$-
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Finance
Tech