Welcome back to the second part of the Startup Teams
In this sub-session, we are going to talk about remaining Rs
from three Rs which they are Roles and Rewards
Are you ready to talk about the Roles and Rewards?
Let's begin with Roles first
What is a Role?
The Role
Role refers to a set of your rights or rules
and generalized behavioral expectations
linked to your position in your company
in your company, social group
In this case, your social group is your startup
Anyways, the Role
Role is your right and responsibility
your right and responsibility
associated with your position in the company
This is the Role
The Founders, think about it
The Founders have many roles at first in the company
For example
founders should become the Sales Managers
Finance Executives, Operation Chief and Investor Relations
Raison and Opportunity Spotter
Investor, Spokesperson, Boss, Negotiator
et cetera, et cetera
And other people say that
you wear many hats at the same time
I asked Chat-GPT to draw this picture
Look at this you are Founder
and you wear many hats
Basically, you wear three hats
You're a Financer, a Marketer and Engineers
And on the top, I don't know what it is
Anyway, like a singer
you wear many hats
If you have co-Founders
distributing the roles in your Founding team
is very important
In order to make it work very effectively and efficiently
But early on, the Founders often wear many hats
as I already mentioned that
But as the teams grow
teams grow, your role should be changed
Your role should become more specialized
Do you understand that?
It's pretty easy
Our question is
How to split the roles across the Founders?
How to split it?
The first stage
scholars suggest you
to discuss this issue, early on
How early?
When you start your businesses
You discuss the role before you start a business
have open a conversation about your responsibility
from the starting point
The sooner, the better
I want to give you examples
Look at these three guys
Three guys, again
Steve Jobs, Steve Wozniak and Mike McCullough
They started Apple Computer in 1977, officially
And Steve Jobs
Steve Jobs was responsible for kind of entire company
Responsible for kind of storytelling
responsible for some kind of entire design of
the product
On the other hand, Steve Wozniak
Steve Wozniak is kind of a tech guy
and he focused much more on kind of technology
or product itself
What about Mike McCullough?
Mike McCullough was originally investors
He was the angel investors
He came from Intel
And he knew the businesses
He knew the strategy
His responsibility was about kind of strategies
or management or businesses
or external relationship with investors
something like that
Steve Jobs, Steve Wozniak and Mike McCullough
Let's look at it
Second one
although you have a clear role split early on
You need to regularly check out your role
And try to update your role
between you and your co-founders
You revisit your roles
and your co-founders' roles regularly
As your startup grow
then probably your priority of the company changes
For example, at the very early stage of the company
and top priority would be kind of preparation
of the new service and product
and attracting the new consumers
or generating external
the investment or something like that
But as startup grow
then probably top priority will be changing
That's why you need to reassess and redefine your role together
I want to give you example
Look at this picture
Look at these, characters
The left guy
left guy is Enric Dubrass
and right guy is the Pedro Franceschi
These two guys met
when they were high school student in Brazil
And then later, they study abroad in America at Stanford University
Then at the Stanford University as they are freshmen
and they entered the Y Combinator which is accelerating program
because they had startup experience before in Brazil
Their expertise is fintech businesses, fintech
They had already the great experience about the fintech
Then they started the fintech business again in America
That's why they applied the Y Combinator programs
And at that time, they were just 19, 20 years old
And Enric Dubrass, the left guy he's a kind of extrovert guy
He's tall and handsome and he talk very well
And the right guy is the Pedro Franceschi
He's kind of a little bit introvert
He's a genius about the technology
He was very famous
for hacking Apple phone in Brazil
That's why he was very famous in his country
Anyway, in early days of Brax
Enric Dubrass and Pedro Franceschi
started as co-CEOs
We are co-CEOs
our duties and our rights are same
because we are all co-CEOs
but informally
Pedro focused more on engineering part
and informally, Enric Dubrass
handled external responsibilities
This is kind of an informal role split, informal
But later what happened
as Brax grew, they need to reassess
and redefine their roles
They decided to divide their labor more formally
The Pedro Franceschi
which is in this case, the left guy
Pedro Franceschi lead the internal organization
On the other hand, Enric Dubrass lead to external duties
Formally, in this case
Then later, the Brax grew
and they get old, then what happened?
In 2024, Brax moved to the single CEO structure
They want to move to the traditional organization structure
which is a single CEO structure
Previously, we adopt co-CEO structure
but it is not effective right now
not efficient right now
Because we become kind of a unicorn company
We become a unicorn company
So, later we should adopt
kind of a formal, traditional organization structure
which is a single CEO structure
In this case, Pedro Franceschi becomes a single CEO
On the other hand, Enric Dubrass
Enric Dubrass became a chairman of the board members
And then he stepped down
stepped back from day-to-day operations
This is a clear example about the revisiting
your role regularly, inside the co-founding team
Enric Dubrass became the chairman of the board
and Pedro Franceschi became the solo CEO
Third step
Third step is when you build up your team
you consider complementary skill set
When you build up your team
and you'd better build a team with a diverse and complementary skills
to cover all core functions inside the company
Think about inside the company
There are many different types of functions
For example, marketing, operations
and technology, of course, finance, accounting
And human resource
And the role or government relationship
or media relationship
Wow, there are a lot of functions in it
You cannot cover all the functions
If we have two members as co-founders
then you divide the labor to cover each sessions
It is a complementary skills
That's why diverse team is important
Look at these guys
This company is LetinAR
LetinAR is a startup that provide a solution for the augmented reality
It's a kind of futuristic company
And luckily, one of the co-founders
graduate from Hanyang University
and he is one of the members
one of the co-founders is my student
And I took the interview and I write the scholarly paper
and published the paper to the Korean journals, many years ago
And the Hanyang University student was a left guy
His name was Kim Jae-hyuk
He majored in industry engineering, Hanyang University
He actually lived
in Hanyang University dormitory for two years
And the right guy is Ha Jung-hoon
Ha Jung-hoon and Kim Jae-hyuk were school friends
when they are high school student
And Ha Jung-hoon entered the Hongik University
and he majored in material engineering
And he's very interested in kind of new materials, engineering part
He's an extrovert
but he's really like to make something new
On the other hand, Kim Jae-hyuk
although he's a little bit shy and a little bit introvert
but he's really good at managing the conflict
Managing the conflict and he's really good
at listening to other people's complaint
other people's feedback
He's really good at kind of making relationship
with others out there, although he's shy
although he's introvert
It's, wow, it's surprise
It's not expected
Anyway, that's why
that's why they divided their role two part
the Kim Jae-hyuk, he took CEO position
Because he wanna control for entire company
On the other hand, Ha Jung-hoon
he took CTO part which is technology part
They thought they have two different skillset
Two different personality, two different skillset
two different capabilities
They work together very well
They make LetinAR, it's much bigger company
LetinAR received a lot of money from the Google
from the Naver, from somewhere else
I believe that LetinAR will be next unicorn company in Korea
I wanna introduce one of the relevant and new research to you
Look at this research together
And three researchers conducted field experiment
And surprisingly
one of the researchers is my the PhD supervisor
He is a renowned professor in Canada
They basically assigned 573 students
to 49 teams, kind of a random team, 49 team
And then they wanna investigate the effect
of the diversity, effect of the diversity among the team
on the performance of the team
But the interesting thing is, in this study
the diversity is not just diversity
in terms of your major or your knowledge
They try to assess the diversity
in kind of cognitive abilities
Think about it
Different people have different cognitive abilities
Some guys, very smart
Some guy, just middle smart
Some guys, not smart
Something like that
different people have a different level of
the cognitive abilities
We say cognitive abilities
high IQ, low IQ, something like that
Anyway, if we have 49 random team
then some team have the members
whose cognitive abilities are high
In this team, average cognitive abilities is very high
Or all the team was made of the people
whose cognitive abilities are pretty low
In this team, average cognitive ability is kind of low
We just naturally expect that if we have a team
with a high level of cognitive abilities
This team can produce better performance
compared to the other teams
But these guys, these researchers
want to assess the kind of a different concept
which is cognitive ability diversity
It means that some team has kind of a diverse level
of cognitive abilities
Other team has kind of a similar level of cognitive abilities
Everybody high, everybody low
Diversity cognitive ability means
some people has a high level of cognitive abilities
Some people have a low level of cognitive abilities
They are mixed up
You know what I mean?
Smart guy, not smart guy, mixed up
But in this team, all smart or all not smart
They look at this kind of effect, then what happen?
Startup team performance is maximized
maximized at the kind of moderate level of cognitive ability diversity
Kind of a little bit
Kind of a little bit blend of cognitive abilities
It's better for the startup
You know what I mean?
Neither at the highest level
Highest average, abilities
or no greatest diversity
Everybody different
Everybody different is not good
Everyone high, not good
The best team
Best team is the blend
The blend of cognitive ability diversity
The conclusion is the balanced team
with a mix of the cognitive abilities is the best
Your team leader, very smart
Middle manager, a little bit smart
And staff member, not smart
Middle smart, not smart, everything
Everybody different in terms of cognitive abilities
In this case, we can perform much better than the other teams
Please take
Please look at this research very carefully
When you build up your team members
When you build up team
When you recruit your team members
just look at the cognitive abilities too
It will be very helpful
Let's move on to the last R, which is reward
Reward is associated with how to split your equity
There are the common methods
for splitting your equity
The first one, we can split equity equally
It's pretty easy
Each co-founders receive the same percentage of the equity
If you have two, 50-50
if you have three, 30-30, 30-30, 30-30
It's pretty easy
This method has a benefit
which is it's pretty simple, fast and fair
looks fair
And there is a disadvantages
maybe viewed less favorably by investors
Investors do not like it this way
Do you remember
the investor's point of view
Investors really love dominated company
Look at this
This is early day of the Google
and two guys started this company
Larry Page and Sergey Brin
And they split their equity 50-50
You know that?
Wow, it's a kind of equal based equity
It's Airbnb again
Nathan, Brian Chesky, Joe Gavia
And those three people started this company
and they split the equity kind of equally
33-33-33, it's pretty easy
This is the common method for splitting equity
These days, many co-founded company adopted this way
Let's move on
Second method is a value-based split
Value-based split means the equity
Equity is allocated based on each founder's contributions
For example, if you put tons of time, tons of money
tons of expertise
and if you have a prior experience and if you developed some kind of new technologies
and you have a patent, you contribute a lot to this company
That's why you took more equity
This is a benefit, more nuanced and fair
It looks more fair than just equal split
And then, there's disadvantages, a little bit difficult
In order to decide your equity position
you need to discuss a lot
You should reach out the agreement to each other
I want to give you example of the real startup situation
Look at the picture
Left guy is Paul Allen
and right guy is Bill Gates
They are high school friends
but Paul Allen is older than Bill Gates
And Bill Gates, at that time
dropped out of the Harvard University
They decided, they discussed about their equity split
Initially, Bill Gates and Paul Allen had 60 to 40 equity split
Yes, of course, Bill Gates has 60% and Paul Allen had 40%
They discussed about their equity split
and they reached out this different equity
Then later, what happened?
Bill Gates
tried to push for the renegotiation
about the equity split
Bill Gates asked a lot
they decided to 64% to
36% of the equity
Bill Gates got 4% more and Paul Allen lost 4%
Paul Allen was very disappointed with this decision
Then later, he left the company
This is a kind of value-based split
At that time, Bill Gates argued that he contributed a lot to this
Microsoft, because he developed a basic program
and alhe quit his study
and he basically put tons of effort
and energy to develop the software
That's why he deserved more equity
This is the argument
Let's move on
Third method is a role-based split
What it is, a role-based split is
your equity is divided according to the role and the responsibility
What is that?
If you are CEO, then you got more
If you're CTO, then you got more than CMO
CMO meaning chief marketing manager, marketing officer
There's advantages
It aligned very well with your key position
Yes, of course, CEO got more equity
CEO's salary should be better than the other position
It's kind of obvious
There's disadvantages
Your role may evolve, may change it
If your role changes, then what happens?
We should renegotiate your equity again and again
Kind of, this is an endless story
There's disadvantages
Regarding the reward
I want to introduce kind of a new research about that
Look at this
These researchers conducted kind of experiments
Basically, they made
two-person teams with 340, 54 students
It's kind of a random teams and then they asked the teams to decide
how to split their equity
then, the researchers tried to analyze the impact of the contract form
regarding equity split
For example, it's an equal split form
or a contribution-based split form
There are two different types of form
And, of course
the teams can choose their own contract form
Right now, we are a team
How to split our equity?
What about equal-based?
What about contribution-based?
They can decide
They can decide their form, contract form
What happened?
What is the result?
Which teams perform better?
This is kind of a question
What about the conclusion?
Non-equal contracts
Non-equal contracts outperform equal contracts, equal split
In other words, contribution-based contract
contribution-based split of the equity
perform better than equal split
Equal split of the equity
The Google adopted equal split
Airbnb adopted equal split
What are they?
Yes, they are exceptional case
They are outlier
But on average
non-equal contracts better than equal contracts
Please remember that
The Bill Gates is smart
Bill Gates is smart
The equal split, why is this happening?
Because if you have equal split
then equal split itself attract lower contributors
Lower contributors prefer equal split
It's obvious
Because although he or she does not
contribute a lot to the company
They receive the same equity
That's why there's a kind of a disadvantages of the equal split
The person who selected each contracts determine the performance
The person determine the performance, not just incentive structure itself
Why is this happening?
Person who need equal split
They are ready not to contribute to the company
That's why the company's performance is decreased
What do you think?
Is it interesting?
Please remember this story
It will be very helpful for you to determine
your equity split between your co-founders