There are two questions I am asked by new startup founders far more frequently than anything else. The first is ‘How can I raise funds to finance my product build?’ and the second, ‘Where can I find a CTO to help build my product?’
Here are 7 reasons why you’ve been unable to secure that CTO.
1. I don’t know what value you bring
This is by far my biggest bugbear. Very early stage startups usually have nothing of any significance beyond an idea for a business, yet the founder(s) will typically spend far longer selling me on the virtues of the idea, believing that to be the deciding factor on whether I’ll be tempted to come on board. I’d never join a startup on the strength of an idea alone.
Sure, there are ideas that are just not going to work, but if we assume it’s an idea that could have potential, then the key to that success is going to be down to the skills and experience of the founding team. If you have any hope of securing my interest, once we have actually qualified whether you think I’m suitable, you will need to spend most of the time convincing me why I should go into business with you.
Imagine the scenario where I agree to spend the next 1,000 hours building your product, I’m going to be very keen to find out what you’re going to be doing while I’m busting a gut. A good founder will have insight and contacts in the industry we are entering, and will already be generating a considerable amount of interest from potential customers before a single line of code has been written. Where it’s deemed possible to begin trading without a product having been built, I’d probably expect some evidence of where this has been tried.
Selling me your value is far more important than selling me your idea.
2. Your offer is not generous enough
So you have an idea, and you’ve spent a few quid on having some visuals mocked up along with a logo and a domain name. You’ve done a little bit of market research on Google so you can quote me some ‘size of the market’ figures, and generally do your best to convince me how great this startup will be. We both agree that I can build the product and work with you to try and build a viable business.
We are close to an agreement bar the numbers, then you offer me 5% and a promise of some future salary (because the business has no money). The business currently has a value of close to zero, in fact it can barely be described as a business, yet we hope that between us we can build something worth many millions. All the value of that business is yet to be realised, and its success will depend entirely upon the super-human efforts that you and I will put in over the coming years.
So if, with our blend of skills all the success of this business will be as much down to my efforts as yours, and we are both making the same level of commitment, you’ll need a compelling story as to why you’re offering anything other than an equal share of equity.
If your initial offer is derisory, it won’t be your opening position in a negotiation, because I’ll simply walk away. For a business partnership to work, all partners need to feel they have agreed a fair deal, because if one believes that another has negotiated a better deal for themselves at your expense, resentment will surely follow and it will kill the startup.
3. You want your CTO to be the Lead Developer
A Lead Developer is a not a CTO, and vice versa. A CTO is a board level position and carries legal responsibilities. Amongst other things, in a small, young company the CTO would expect to be involved in most strategic decisions, evolve a vision, define corporate culture, set the Technology Strategy and manage a growing team of developers.
It is true, that your CTO may have fulfilled the role of a Lead Developer in a previous job, but if they are a competent CTO, they will have evolved a set of skills and an aptitude that is very different from that of a software developer. A good CTO will enjoy the challenges that come with a board level strategic position and is unlikely to aspire to ‘taking a step backwards’. They are far more likely to have grown to enjoy the cut and thrust of business than acquire satisfaction from writing bug-free code.
A CTO who happens to be able to write software may well agree to join your startup and build the product, but if they are true CTO material, this will be a stop-gap solution until such time the company can afford a team of developers.
So many startups fail to grasp what a CTO is and why it is an important role for a technology business as you’ll see them advertising time and time again for a CTO who is a ‘full stack developer’ or words to that effect. What they are really looking for is a software developer and they’ll give them a prestigious CTO job title so we can all feel good about ourselves. This sort of inexperience and failure to understand what a CTO is and why they need one will almost certainly lead to the death of their startup if not quickly remedied.
When a non-technical founder starts dictating the technology strategy it is like teaching your grandmother to suck eggs – she’ll have far more experience than you, and while she may humour you by agreeing to do it your way, you are failing to take advantage of the breadth of skill and knowledge she possesses. When a startup with little more than a brochure website or maybe a very simple demo is specifying which technologies a CTO should use to build the product, it demonstrates that they think they know more about my area of expertise than you do. They may also be misunderstanding what a CTO is, as outlined in point 3.
5. You are over-valuing the idea
There is a recent phenomenon called The Ikea Effect. It is a cognitive bias, which in the world of startups causes individuals to over-value their own efforts. We all fall under the spell of the Ikea Effect, and only by having an open mind and listening to the opinion of those that matter can we truly obtain a perspective of the relative strength of our own ideas.
Until such point that customers are paying good money for what you have, the strength of any idea is nothing more than wishful thinking. There’s a great chart from Derek Sivers that shows the value relationship between ideas and execution:
So we can see from this chart, that an idea has little intrinsic value, it is merely a multiplier on the value of the execution. So if you have a brilliant idea but no intention of actually doing any of the work required to turn it into a business, it may be worth $20 – provided it is actually a brilliant idea and not the Ikea Effect in action.
This ties in closely with point 2. When negotiating to bring a co-founder on board, over-valuing your idea may lead you to offer a poor equity stake to your future business partner. So ask them for $10, which is half the value of the brilliant idea, offer them 50% of the equity, and both put in a 100% effort into making it work.
6. Software Developers are not entrepreneurs
If you’ve fallen foul of point 3 and you’re looking to recruit a Software Developer rather than a CTO, then the odds of them being entrepreneurial will be painfully low. We like to use high profile people such as Bill Gates and Mark Zuckerberg as trophy examples of techies making it big in business, but in reality such people are few and far between. We are more likely to find entrepreneurs from either a sales, operations or finance background than IT, because generally speaking, they are more likely to be predisposed to doing business.
We can only generalise, but in my experience, good software developers are detail people, you can’t write software that works without a focus on the detail. However, when it comes to being an entrepreneur and good at business, focusing on the detail can hamper progress. Good entrepreneurs see the bigger picture, and pursue their goals without necessarily knowing how they will get there, a software developer may be more inclined to not make a move until they have it all figured out.
Making the leap from software developer to entrepreneur is a difficult one as many of the skills we nurture as software developers can prohibit the progress of entrepreneurship. Some of us do cross this chasm, but many don’t.
It’s worth reminding yourself that the success of your startup will be defined by the business decisions you take, more so than the quality of the code used to build your product.
7. You won’t treat them as a co-founder
If you are looking for a co-founder, be prepared to treat that person as an equal. You may have had the idea, you may also have done a fair bit of work before your co-founder comes on board, but you have to accept that a true founder will treat the startup as their own baby every bit as much as you will – and you should not expect anything less.
A co-founder works with you, not for you, and even where there are different equity stakes, as Directors of the business you have an equal say in how that business should be run. I’ve seen a recent trend where entrepreneurs advertise for a co-founder with a promise of a specific salary once financing has been secured, yet as a co-founder, shouldn’t I be having a say in what the levels of salary should be and when the company should be paying them? I’m not a greedy man, and I know the sacrifices that need to be made, but if you set an expectation that you will be dictating the salary levels, then what else do I think you plan on dictating?
Trust can get in the way of equal treatment, and that’s why there is a lot more to securing a co-founder than simply seeing if they tick all the right boxes needed to get your product built.
A lifetime Brummie & Startup Mentor with several ventures under his belt. Phil has a infectious enthusiasm for fledgling businesses that easily hides an ability to cut to the chase in identifying what works, what doesn't, and translating ideas into viable businesses.