Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Identify and Secure Your First Class Executive Team Using Small Amounts of “Sweat Equity” and a Consulting Contract

Start-up companies are notorious for not having any money to pay for anything. This is especially true regarding paying for the salaries of potential, first class, executive team members. Often, this is seen as a crutch to bringing a first class executive team on board.  On the other hand, indentifying those individuals that are willing to work for “sweat equity” are most likely your best bets.  Why, because it is these same individuals that understand that nothing in life that is worth anything is free and they are willing to prove it to you by contributing their time, effort, skills to create value for your start-up company.  On the other hand, individuals that want to be paid a salary up front to prove that they can perform are probably not worth the money they are asking for. So, as an entrepreneur take your time to indentify a first class executive team.  While doing so, you will find the right individual contributors that have the appropriate skill sets and are willing to commit their time and energy for a small amount of “sweat equity” to get your start-up company off the ground.  These same individuals are the ones that are willing and have the capabilities to create significant value to your start-up company.  To keep the ball rolling in this manner, you must check your rolodex, network and sell your vision, keep potential executive team members informed on company progress, and identify near term responsibilities and tasks for each potential executive team member.

Check Your Rolodex, Network and Sell Your Vision

Finding the right executive team members for your start-up company takes time.  It is not an overnight task. So, take your time to identify the right executive team members, as it is much better to find the right individual the first time, than it is to go through multiple iterations on bringing on the wrong individuals, only to have to let them go within three to six months. 
To find the appropriate executive team members, you need to check your rolodex, spend time networking and sell your vision to everyone you meet.  Selling your start-up company’s vision is the key, as you never know who will be the right individual with the appropriate skill set to help move your start-up company forward. With this in mind, finding the right individuals with the appropriate skills and capabilities is an active process.  Don’t always pick the first person you find, as this is often a big mistake.  Through networking and talking with colleagues you will necessarily find the appropriate executive team members that are willing to put in the time and effort in to move your start-up company forward.  In fact, if these same individuals buy into the vision of the company, they will be willing to “walk through walls” to get things accomplished. It is at that point that you know you have found the right executive team members.  Finally, with each executive team member you bring on, you necessarily exponentially expand your network and the pool of individuals to choose from, as each new executive team member has their own rolodex and network of colleagues to help develop your start-up company. This is absolutely beneficial to your start-up company and moving it forward and building a successful executive team.

Keep Potential Executive Team Members Informed on Company Progress

Often with the “virtual” nature of start-up companies, many of your potential executive members or significant individual contributors will be geographically disperse and can often take some time to convince to come on board.  With the support of the internet, you can keep these same individuals informed of the progress of your start-up company. This is important, as you want these same individuals to be excited about the possibility of coming on board your start-up company.  So, every couple of weeks or so, as the CEO of your start-up company, you should set aside a time to contact potential executive team members to keep them informed on the progress of the company. If these are significant events that are upcoming, or meetings that have the potential to create substantial value for your start-up company, these potential executive team members will want to know.  Keeping potential executive team members informed will raise their energy level and get these same individuals excited about joining your start-up company.  So, take the time to keep potential executive team members informed on the progress of your start-up company as this will keep them excited and get them to commit to joining your start-up company.

Identify Near Term Value-added Tasks for Each Team Executive Member

Once you have identified an executive team member that you want to bring on board, the best thing to do is to bring them on as a consultant for a fixed period of time, usually three to six months.  This can be done with a standard consulting contract, with a small amount of “sweat equity” for compensation.  This arm’s length relationship is invaluable, as you need this time to determine whether you want to bring this person on board full time as a contributing executive team member of your start-up company. So, use a consulting contract to identify the near term value-added tasks this individual needs to accomplish as a team potential executive member. This will allow you to determine if this individual is able to contribute at an executive team member level. If the potential executive team member does not work out, you are out is a small amount of equity based on the terms of the consulting contract.  On the other hand, if this person works out, you have identified a high-level, contributing executive team member.  So take the time to indentify the appropriate value-added tasks and time frame, so that you can get an appropriate assessment of potential executive team members.  This will save you lots of time, money and equity in the long term.                                                                                                           

Start-up companies typically do not have any money to pay for the salaries of potential, first class, executive team members.  This, often seen as a crutch, can be used as a positive to indentify and bring on board executive team members that will add significant value to your start-up company.  Through a process of networking and selling your vision, keeping potential executive team member excited, and offering “sweat equity” through a consulting contract, you can identify and evaluate potential executive team members’ skills, capabilities and commitment. By taking this approach, as an entrepreneur, you can secure a first class executive team to make your start-up company successful in the market and at the same time minimize any associated risk and expense to your start-up company.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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April 12, 2010 - Posted by | Venture Capital | , , , , , , ,

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