Request for Feedback: scaling up to a larger founder team

I'd like to request comments on the following concrete proposal for how a Silicon Valley founder team might be productively scaled up to four, five, or even six founders.

Management. The founders periodically elect a manager from amongst themselves. The manager is expected to act in an authoritarian manner and pursue aggressive schedules. Where possible, the manager delegates responsibilities to other founders, who are also expected to act in an authoritarian fashion within their area of responsibility. This allows the startup to make decisions quickly despite its larger size, and also fights over-engineering: software can still ship even if there's no consensus that all issues have been solved to everyone's satisfaction.

Communication. Rather than write down brief status reports, random screenshots are automatically taken during the day. At periodic intervals, each founder then walks the rest of the founder team through his screenshots, using them as visual aids to explain what he's been working on. This allows the other team-members to understand his activities and make suggestions. This also provides more opportunities for team-members' work to be recognized. Watching and listening to occasional visual status reports is probably not a mentally taxing activity, and so should enhance communication and coordination without greatly increasing mental fatigue.

Equity. Founder equity vests gradually over the course of three years, vesting at a reduced rate throughout the first six months. Any founder can be dismissed at any time by a majority of the other founders, if they are not a good fit for the organization. Founders are required to verifiably work for at least seventy hours per week, not including breaks and meals. Founders are expected to get proper sleep, nutrition, and exercise. Founders are required to abstain from recreational drugs; if enforceable, I would even favor a clause that founders forfeit equity if they fail to abstain. The goal of this equity strategy is to encourage good work habits and to reduce tensions and conflicts over perceptions of unfair workload distribution.

Many aspects of the proposal are expected to be tweaked or replaced as one gathers evidence of what works and what doesn't. Any comments are welcome on specifics or the overall approach, either by posting comments below or by sending me email, but I'm especially interesting in hearing:

1. Have similar approaches been tried before, and what lessons were learned?
2. If you're a software developer, would you tilt towards being interested in participating as a co-founder in such a startup?
3. If you're in a position to hire consultants, would you tilt towards hiring such an organization to provide consulting services to you if it provided appropriate consulting services?
4. If you're a VC, would you tilt towards funding such a startup?

70 hours times 6 founders

Currently a typical high-tech startup has up to three founders and, I would estimate, up to 50 hours of actual productive work per founder per week. (I would claim that most founders tend to overestimate their productive hours per week.)

One can have one of four strategies for scaling up the number of founders or increasing the work schedule to increase the number of productive man-hours:

1. Increase the number of founders, or the number of hours worked, without paying attention to the many difficulties that can ensue. Not too bright.

2. Don't bother increasing the number of founders or the number of hours worked, because it seems doomed to failure.

3. Increase the number of founders, and the number of hours worked, but understand the difficulties involved and take action to mitigate the risks and disadvantages.

The goal of option (3) is to go from the smaller to the larger rectangle, without suffering too great a loss in per-hour productivity:

Social Loafing, meet Peer Pressure

Founder team size has two contradictory effects on effort:

• The larger a team is, the more social loafing occurs: each founder has a greater incentive to "free ride" on a larger team and withhold effort. This causes each founder to put in less effort in a larger team.
  
• The larger a team is, the more peer pressure there is to contribute effort. As the extreme low end, in the case of a sole founder, there is no co-founder peer pressure at all.

By crunching data from the Cologne Founder Study and correcting for confounding variables, Backes-Gellner et al claim that, in terms of causation, social loafing and peer pressure combine in their population to make three-founder companies the size that makes founders work the longest hours. In other words, if you're at three founders, removing a founder makes the founders work fewer hours because of the removed peer pressure, and adding a founder makes the founders work fewer hours because of social loafing.

Having the hours worked peak at three founders can be unfortunate in that larger teams require spending more time on communication and coordination activities. In my opinion, larger teams should consider making an explicit effort to work more, rather than fewer, hours than three-founder teams, for example by agreeing from the outset on aggressive work-schedule expectations. This would compensate for the additional coordination overhead. This assumes that the coordination activities can be managed in a way that doesn't greatly increase mental fatigue, which I believe is a reasonable assumption.

See Also:

• Transparency, Inequity Aversion, and the Dynamics of Peer Pressure in Teams: Theory and Evidence

Four Reasons to Keep Your Founding Team Small (and Two Reasons Not To)

The conventional wisdom is to limit Internet startup to three or fewer founders. However, successful companies do exist that have started with four or more founders. Here are some advantages and disadvantages of capping at the magic number three.

(Aside: most policies have both pros and cons. Even if you believe strongly in one side of an issue, you might benefit from the exercise of writing down the best arguments for both sides of the issue, to avoid the Confirmation Bias.)

Reasons to stay at three founders:

1. Increased Motivation

Even at four people, we start to see visible social loafing; overt reduction of effort begins to manifest itself. This "free-rider problem" can diminish productivity and increase tension. A smaller team means more equity per person, and therefore an increased rational incentive to apply full effort.


2. Better Communication
A greater size increases the likelihood someone on your team is doing something you're not aware of that will conflict with the execution of your strategies. Smaller teams are easier to keep track of.

3. Faster Decisions

If more people are required to sign off on something, or if more people are chiming in with input, decisions will take longer to make and it will be more difficult to alter course in the face of new data. Smaller teams can often move faster.

4. Reduced Conflicts

In a team of size n, the number of dyads (distinct pairs) among team members is equal to n(n-1)/2. A team of three only has three pairs of people who might not get along; a team of five has ten!


In contrast, here are two reasons to add more founders:

1. More Available Man-Hours.

While nine people can't have a baby in nine months, it is true that even a three-person team can be overwhelmed with the number of tasks necessary to make their startup successful. Additional people mean fewer tasks per person.

2. Better Division of Labor.

As the number of founders goes up, the total skill-set increases, reducing the frequency in which a founder is called upon to execute tasks outside his specialties. As a related benefit, the number of contacts available to the founders increases as well.


Tomorrow: My surprising verdict on optimal team size.

Related discussions:

• Feld Thoughts
  
• OnStartups Answers
  

Having co-founders is valuable but not crucial

Many experts, including my personal hero Paul Graham, strongly advise against founding a company on your own:

All investors, without exception, are more likely to fund you with a cofounder than without... If you don't have a cofounder, what should you do? Get one. It's more important than anything else.

Research on the subject appears to be mixed; browsing through abstracts, I would conclude that, all things equal, having a co-founder tends to be a benefit on average, but the effect is not as large as Paul Graham seems to imply. Informal sanity-checks confirm that many successful companies were single-founder:

• Chan Chaiyochlarb's list
• Some guy on Hacker News
  

Why does Paul Graham take such a hardline attitude? Was he mistakenly thinking of plant viruses? Here's my speculation: perhaps we should differentiate the question of "should I get a co-founder" from "should I fund an entrepreneur who has no co-founder." Having a co-founder right away might be a "bozo filter" for an investor: it helps convince an early investor that you're not a bozo who nobody sane will work with. However, if you are such a bozo, somehow getting a co-founder won't change that fact that you're a bozo; and conversely, if you're not bozish (bozonic?), deciding to initially forgo having a co-founder will not turn you into an innate bozo. Therefore, I speculate it may be vitally important for an investor to insist on co-founders, but it may be less important from the founder's point-of-view for a pre-funding founder to immediately acquire co-founders.

Further reading on the topic of founder team size:

• Chandler et al: Antecedents, moderators, and performance consequences of membership change in new venture teams
  
• Pasanen and Laukkanen: Team-managed growing SMEs: a distinct species?