 Namaskar, I'm Professor Devdeep Purkayastha from IIT Bombay and I welcome you to my course, Business Fundamental for Entrepreneurs Part 2, External Operations. This is a module by Professor Sankal Pratap who will talk to you about the magic of great teams, winning teams. As background, Professor Sankal received his PhD and MBA from IIM Kolkata and he did his BTEC for Marine Engineering and Research Institute Kolkata as well. He worked across several organizations including the Merchant Navy and the Tata Group for almost a decade. After his corporate and naval career, he moved to academia and was a faculty member at IIM Tiruchira Palli and IIT Jodhpur for over seven years. Currently, he's a full-time professor at IIT Bombay DS School of Entrepreneurship. So, over to Professor Sankal. Welcome aspiring and existing entrepreneurs. I am Professor Sankal Pratap from IIT Bombay and the topic for today is the magic of winning teams. But which team are we talking about? For an entrepreneur, the idea of a team is not static. It keeps changing across the entrepreneurial journey. To begin with, an entrepreneur finds a few other aspiring entrepreneurs and finds what is called the co-founding team. And that team continues to work very hard day and night over a long period of time. Typically six months to one and a half year before it gets any traction from the market in terms of an angel investor or certain other friends who are ready to support them or certain family members who are ready to support them. And that is when they expand and hire their first 10 to 30 team members. And that is the initial team that works towards certain experiments with the market to create products or services which can be adopted by the market. Once they reach what is called the product market fit, that is when they get further funds from organized institutional investors and are able to hire much larger number of skilled workforce to expand and scale up. In today's session, we are going to cover the first two concepts of team for an entrepreneur. That is the founding team and the initial team. This is so because it is in the initial two to three years that the game, that the entrepreneurial game for a set of entrepreneurs is either won or lost. Once they start getting funding from large institutional investors, they change from being an entrepreneur to a business leader and the entire context and the game changes from being an entrepreneurial journey to a journey of large corporations. We are not covering the large corporation journey here. The content for the session is, as I said, the founding team formation and the initial team formation. And for both of them, we will cover various aspects. For example, why is it formed? What are the contents of the founding team? Where is it formed and when is it formed and so on. Every entrepreneurial journey begins with a problem. A problem to be solved for a certain customer segment, for a certain section of the society and hopefully a problem which is important enough for the society to get it solved and adopt the solution which the entrepreneurs are creating. Now this is going to be a tough and long journey because no entrepreneur, no matter how intelligent, how sharp and how committed they are know the entire nuance of the problem. They have to keep experimenting and keep releasing their versions of solution before they are sure that the market will adopt the final version. It's going to be a tough and long journey. A journey which will require them to spend a lot of their mental and physical energies. And this ability to keep spending mental and physical energy with very little gains and rewards for a long period of time, as you can imagine, is not easy. It can only be made possible if the co-founders have a certain pride in the problem that they are trying to solve. For example, let's say that I pick up a problem simply because it is what is called a hot problem. For example, something related to crypto or something related to AI, because just about everybody is talking about it, whether it be on LinkedIn, whether it be in certain parties that I go to, everybody is talking about crypto and AI and blockchain. And I pick up something there because it is hot, because everybody wants to talk about it. But if I am not committed to this problem, if I do not have a certain identity, a certain pride in solving this problem, then as my mental and physical energy starts getting spent, the tough and the long journey will ensure that in some time I will abandon this and go back to doing something else. Hence, the choice of problem itself is an important one because it is a resource. It is a resource of the mental and physical energy of the founders themselves. Hence, to begin with, choice of the problem is paramount for an entrepreneur. Once you are clear about the problem and you know that you have chosen a problem that you are passionate about solving, that if it gets solved, you will feel pride in its solution, then you need to create what is called the founding team. Here, I have taken a hypothetical example of a founding team with two members. Typically, a founding team is of anything between two to four members who come together to try and attack a problem they are equally passionate about. Now, as different people come together, the initial team has access to different skill sets. And those skill sets are skill sets of the members who have come together. So, in our hypothetical example, there is a person A and a person B, the two co-founders of the hypothetical organization that is getting formed. Now, there are two possibilities and they have been depicted on the slide by two Venn diagrams. The first one where the team of A and B has different skill sets and those skill sets have very little overlap. What it means is that the skill sets of A and skill sets of B are quite different from each other and have very little overlap between each of them. For example, one of the team members is very good at analytics, is very good with numbers and the other team member is possibly assuming that they are making an organization which will sell high quality cakes for birthday parties and certain functions of this kind. Let us assume that the skill set of B is about calculating the exact ingredient that should go into a high quality cake, how to bake it. So, the person B also is good at analytics of ingredients, but that is the only overlap with person A. The bulk of skill sets of co-founder B is focused on natural ingredients, on the process of baking and so on. So, they have very little overlap on their skill sets. Compare it with team two where the skill set of A and skill set of B have very high overlap. Now, which ones of these two founding teams is a magical team? Team one is the one which wins hands down. They have very high level of complementarity as it is called between A and B, which means that this initial team which has very little resource in the initial period, the only resource that a new venture has is its own founding team members and their skill sets, their energies and their skill sets. Now, if the skill sets have high overlap, it basically means that the cumulative area of the win diagram which is essentially the resource of the new team that has got formed is much lower for team two as compared to team one. And that is why the chances of team one to win this game is much higher than the chances of team two to win the game because team one has much higher resources at its command than team two. Now, where do you find co-founders with different skill sets, with complementary skill sets? It has been found by research that broadly there are two kinds of places where you can find your co-founders. One is serendipitous and the other is a goal directed arena. Now, what are these two kinds of arena? Serendipitous arenas are those where you find a co-founder by chance, serendipity is nothing but chance. So, there are certain arenas that we go to not to find a co-founder but just to socialize. For example, when we are in college in our dormitory or in our wings as it is called, we are not there to search for co-founder. But our next door roommate or the person who is in the same dormitory two beds away could be a potential co-founder. Similarly, if I am a guitarist and I go to play my guitar in a certain band or certain competitions and I do it regularly, there is a very high chance that I will find my co-founder in that social setting. If I am an adventure sports enthusiast then every weekend I would be going for something or the other which could be kayaking, which could be mountain climbing and so on and so forth. I might find my co-founder there. I did not go there to find the co-founder but I might find the co-founder there. So, this is what is called the serendipitous arena. Compare that with a goal directed arena which is also created increasingly in our society. For example, if I go to a pitching event, I might find a co-founder there over lunchtime. Now, this event itself has been arranged for a conversation between existing and potential founders and investors and other kinds of stakeholders interested in the entrepreneurial journeys. So, this arena is an arena where you would go with an intention to find your co-founder, your supporters. So, this is a goal directed arena. Another arena where you can find co-founders systematically is possibly an incubator, an accelerator, a hackathon conducted by various arms of the government of India or private entities as well. So, these are the two kinds of arenas where you will find your co-founders and depending on where you have found them, research tells that there could be certain differences. We should be aware of these differences. One, if you have found your co-founders in the serendipitous arena, chances are that the team size will be larger. As opposed to finding your co-founder in a goal directed arena, here because everybody has come to that particular arena to search for a co-founder with certain skill sets, the team size is smaller in such settings because they try to find the exact co-founder with exact complementary skill sets. Whereas in serendipitous arena, the idea is that we like to work with each other in certain other setting and now we are getting together to pursue a certain common dream. So, they are typically the team size becomes 3 or 4 whereas in a goal directed arena, typically the team size becomes 2 or at max 3. Again, the durability of the teams formed in such arenas also has been seen to be different. In a goal directed arena, because people are coming together explicitly to search for a co-founder, they have a certain idea in mind about what they want from this person. They have no other affection or relation with this person other than trying to find a co-founder. Hence, in relative terms, the durability of the teams formed in goal directed arena is a little lower than the durability of teams formed in serendipitous arenas. Now, because the durability of the team itself is something which is important to note, take note of, because we never know whether a certain team member will be able to withstand the pressure of a tough and long journey that we talked about initially. Hence, it is advised that every new team should finalize what is called a besting process for itself for the energies to continue to operate, for new energy to come into team in case somebody decides to move on and move away. For all of that, you have what is called a besting process. In a besting process, the shares of the team of the new organization been formed is not distributed immediately to the co-founders. For example, if there are two team members who have come together from a goal directed arena and have founded a new venture, you should not distribute 50% to the two team members and become equal owners of the organization, even if it is agreed that the two co-founders are going to be equal owners of the company. The ownership has to be given in phases over a period of time based on their ability to stick around and do the work that they had promised when they came together. So typically in the first 12 to 18 months, no share is given to the two co-founders. They themselves choose this besting rule for themselves so that they can test each other's commitment to being part of this team, this team which they are trying to create magic with and the besting process helps them reconfirm whether magic will indeed be created or not. So after period of one and a half years, typically over another two to three years, ownership is accorded to each co-founder as they stick around and make this new venture part of their life, part of their identity. So the besting process checks and re-checks the commitment of the co-founders and through this process it increases the chances of survival of the new venture which as we began with saying is a very tough journey to undertake. In between if one co-founder walks away for whatever reason, personal or professional reason, what the besting process ensures is that the venture still has enough shareholding to give to a new incoming co-founder. Imagine if the two co-founders had agreed that they would distribute 50% to each of them and the beginning the person moving away would have had 50% and that would have been practically the end of this new venture. Hence the besting process is a well accepted formula to ensure that teams continue creating magic either with the founders who came together in the beginning or with new co-founders who come in and the shareholding acts as the fuel to keep giving them the energy to move forward and solve the tough problem. We now move to the next phase of the entrepreneurial journey which is the initial team formation. Now how do you form an initial team that can continue to take forward the journey that the co-founders began with? After a certain period of time, the co-founders 2, 2, 3 or 4 of them do not have the bandwidth to do it on their own. They need more working hands. They need more partners who can collaborate with them, who can work with them hand in hand and take the company forward. For that they need to hire people. But why would somebody come and join a new venture which has possibly not sold a single unit, which has possibly not made any money, which has a very questionable future, a very uncertain future? Why would somebody come and start working in an organization like this? The answer to that is a long-term vision of the new venture. A vision which acts as a resource in attracting people to this fledgling organization. It is also called the North Star of the company. What is it that this company is trying to achieve? Do not talk about what is it that the new employees have to do? How hard they have to work? How many sacrifices they have to make? That is not going to attract a large number of people. What is going to attract a large number of people to come and become part of your initial team is whether the vision that you have articulated, the North Star that you have painted, whether that is attractive enough for people to come and join hands with you. If your vision is articulated sharply, if your vision is articulated clearly, it will attract a certain kind of workforce. Not only will it attract a certain kind of workforce, once they come in, it will also act as a binding force because everybody has come in the organization looking at the North Star that you had painted, the vision that you had articulated. So, that is how you begin attracting high quality people into an organization which at the point in time when people come in has nothing much to offer to them. But when you have articulated a strong vision and you start getting a large number of applications for people to come in, you also need to be careful. You need to be careful that you hire the right kind of people. Now, who are these right kind of people? Well, the right kind of people are those people who have values and behaviors which match with what your understanding, your and your co-founders understanding of how this organization will behave. What will be the culture of the setup that is being created? How will we deal with customers? How will we deal with each other? How will we deal with ethical dilemmas and money and so on? So, it is suggested that once you have articulated your vision, sit down and list down 4 to 5 items which explain the values and behaviors that you are expecting from incoming employees. The co-founders should discuss this at great length because this is going to act as the filter, as the funnel through which employees will come into your initial team. Research has found that values and behaviors which are articulated with external stakeholders in mind, for example, the customers in mind, for example, your distributor, your retailer in mind, those kind of values and behaviors have been found to work better for new ventures rather than only those values and behaviors which talk about what will happen inside the organization. So, a good combination of externally focused values and behaviors and internally focused values and behaviors, but with greater emphasis on externally focused values and behaviors is suggested as you list down these 4 to 5 items through which every potential employee will have to pass through and act as a filter for hiring. Finally, what is suggested is that in this initial team that you are forming, you should cultivate diversity. Why should you cultivate diversity? When you already have a clear vision and you are solving a known problem, well it has been found that as initial teams start working and start experimenting in the market with their product or service that they are creating, they often undergo change in terms of what they think is useful for the market. Now, when this change comes to the forefront, it is only when you have a team with diverse opinions that you can find solution to your failing experiments. If you have created a highly homogenous team, the homogenous team might be very strong for a certain version of problem, but if that problem that you are solving itself changes, if your understanding of the customer segment that you are targeting was not as correct as you had initially thought to be, it is then when a diverse team with diverse opinions comes and starts solving the problem without breaking away. It is known to be more creative, it is known to be better at problem solving. So, in your hiring process you should have an explicit filter for ensuring that the team that gets formed comes from different parts of the country, from different backgrounds and so on and so forth. This will ensure that the team that you have formed is not only aligned in terms of values and behaviors, but has enough diversity to deal with various surprises that are going to come in the way of an entrepreneurial team as it progresses towards the product market fit. Thank you.