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Copyright © 2021 by Thomas E. Parkinson

All rights reserved.

Published by the Gies College of Business at the University of Illinois

at Urbana-Champaign, and the Board of Trustees of the University of
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Module 3: Building the Team

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 Lesson 3-1: Team Building

Lesson 3-1.1 Team Building

Media Player for Video

Team Building Word Cloud - Slide 1

This slide contains a word cloud with terms relating to team building.
Prominent words are: team, teams, great, advisors, co-founders,
startup, need, able, job, and people.

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Transcript

Welcome to module three of entrepreneurship laying the foundation.

In our first lesson for this module, I'm going to share with you my
thoughts about building a great team for your new venture startup.
How are you going to recruit and motivate the kind of team that it will
really take for your startup to be really successful. Here's the word
cloud for this lesson on team building. I'll be talking about co-
founders, advisors, and key employees, and the need to create a
culture in which team members have a shared vision and a passion
for success.

Team Building - Slide 2

"I'd rather invest in a great team with an average idea than an

average team with a great idea."

—Every venture capitalist

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Transcript

I've been teaching, advising and investing in entrepreneurs for more

than 30 years. And I can't tell you how many times I've listened to or
participated in a panel discussion or a presentation in which a
venture capitalist who's on the panel says I'd rather invest in a great
team with an average idea than an average team with a great idea.
You could almost say that this is the golden rule of venture capital
investing, but actually it's not. The golden rule of venture capital
investing is whoever has the gold makes the rules. We'll talk some
more about this when we get into negotiating investment deal terms.
Still, it's a really important rule.

Team Building - Slide 3

An average team will screwup what could have been a great idea.

A great team will find a way to succeed with an average idea.

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Transcript

The reason should be obvious, entrepreneurship is hard, most

startups fail. If most startups fail, then it makes sense that a team
that is just average is more likely to fail than succeed. Why is that?
With very few exceptions, startup ventures have limited resources.
They usually only raise enough money to get them to the next
milestone, then they'll have to raise more money to get to the next
one. They don't have a lot of extra cash lying around. This means
that they usually don't have a very large margin for error. A team that
makes a big mistake about its target market, its technology, its value
proposition, its revenue model or some other part of its strategy will
have a hard time recovering from that mistake. A team that makes
more than one big mistake will almost certainly fail. Average teams,
teams that lack experience, teams that don't work together well,
teams that have a hard time setting and achieving milestones, they
make mistakes, lots of them. On the job training can be very
expensive. On the other hand, great teams can sometimes find a
way to make something out of nothing by focusing on the customer
they can pivot to a different revenue model or an improved pricing
strategy. By carefully monitoring their key performance indicators,
they correct problems before they get out of control. By
understanding their costs and their market dynamics, they can plan
ahead so that they'll have the resources they need to accomplish
their objectives.

But what makes a great team? One of the key concepts of the lean
startup approach is that a startup is not a business, rather, it's a
group of people who are searching for a viable business model.
When you're just getting started, all you have is your idea and your
own skills. Maybe you've got a co-founder. Ask yourself if this is a
foundation you can build from, if not, you're probably not ready to
launch the business. You need to spend more time talking to
customers understanding their needs and designing your product or
service to meet those needs. At the same time, you should be
thinking about the type of team that it will take to manage the

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business successfully and looking for co-founders, who can be a part
of that team. It's usually pretty hard to raise money from investors for
a startup that has only one founder involved. Most investors want to
see that there are at least two or three people who are truly
committed to the project.

Co-Founders - Slide 4

A two to three-person team:

Domain Expert: Understands the customer and the need

Product Expert: Able to build the product to meet the need
Business Expert: Able to assemble and manage resources

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Transcript

One of these three co-founders is the person I'll describe as the

Domain Expert. This might be the CEO or chief executive officer or it
might not. This person has to have a deep understanding of the
industry, the customer and the customer's needs or pains and gains.
This person will probably interact with customers more than anyone
else at the start. He or she is likely to be the company's only
salesperson at the start. The Domain Expert should understand the
customer well enough to know what channels are best for reaching
those customers and how they'll ultimately make their purchase
decisions. More than anyone else, the Domain Expert understands
the value proposition, what the customer needs and why they'll buy
the company's solution. The second person is the product expert. In
a technology company, this person is probably an engineer. He or
she might have the title of Chief Technology Officer or CTO. The
product expert is the person who can figure out how to design and
build or make arrangements to build the product so that it meets the
customer's needs and expectations. And he or she must be able to
make it so that it can be sold at a price that makes sense for both the
customer and the company. The 3rd person is the business expert.
He or she could be the CEO but the title might be chief operating
officer if the domain expert is the CEO. The business expert is the
person who has management experience or talent. Essentially the
business expert is responsible for building and managing the
company so that the domain expert and the product expert have the
resources they need to be successful. By resources I mean money,
space, team members, strategic partnerships and so on. Those of
you who are taking this course is part of an MBA program need to
pay special attention here because this person just might be you. As
I mentioned before, startup companies have a hard time recovering
from big mistakes. More than anyone else on the team the business
expert is the person who can be trusted to keep the ship moving in
the right direction using its resources wisely and avoiding the kind of
mistakes that could cause the ship to sink.

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I don't want you to think that there must always be exactly three co-
founders on the startup team. The experts that I just described are
really rolls and not people. It's not uncommon for a person to be able
to play two of these roles if they have the right skills experience and
mindset. However, it's pretty rare for one person to be good at all
three of these roles at the same time. And there are also some
diminishing returns that can be expected when a team has too many
co-founders. Most startups don't need to have five or six co-
founders. There's not enough founder level work for them to do and
they're too expensive. I'm not only talking about salaries here. If you
have five or six co-founders, the result is that nobody owns more
than 20% of the company that can have a negative impact on the
team's motivation. If everyone's a boss, then there really is no boss.

Team Dynamics - Slide 5

Shared Vision
Passion
Complementary skills
Trust
Chemistry

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Transcript

The founding team also needs to be a group that can work together
at a very high level of performance. The team has to get along. The
members need to have a shared vision, a shared sense of purpose
and a shared passion for success. Every company has a culture, no
matter how small the team members need to buy into and represent
that culture. That's why it's rare to see a successful startup where
the founders were strangers before they got together to launch the
business. One of the most successful companies that I've ever
invested in was started by two brothers. They were more than
brothers, they were great friends and they had a deep level of trust in
each other. They had different backgrounds, one in technology and
the other in marketing and sales. They understood each other's roles
and they didn't second guess each other. They knew that they could
count on each other. That's the level of trust you want to have in your
co-founder and he or she should have that same level of trust in you.
However, this does not mean that the team should not be diverse.
I've seen entrepreneurs who are engineers, try to build founding
teams that are made up entirely of engineers. Why would they do
that? It's because they communicate well with each other and they
get along. They may be able to work well together, but they have
trouble solving problems because they all have the same
perspective. You could almost describe a situation like this as one
plus one equals 1.5 instead of one plus one equals three.

I'm not trying to single out engineers here. Michael for Dick wrote an
excellent article in the Harvard Business Review in 2013 titled Don't
Start a Company With Your Business School Pals. With the nucleus
of the team in place, you can start to build the broader team, that's
what those two brothers did. They went out to recruit the strongest
people they could find for the roles that needed to be filled. People
who would be strong in areas where they were weak. Steve Jobs
used to say that A players hire A players, while B players hire C
players. Guy Kawasaki says that good people hire people who are
better than themselves. Your goal as a company founder is to hire

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the best people you can. And that sometimes means you have to get
creative with how you pay them.

Key Early Hires (1 of 2) - Slide 6

Sales
Product development and engineering
Customer support and engagement

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Transcript

What's the difference between a co-founder and an early hire? It's

really equity in most cases, when you start the company with your
co-founders, you'll divide up the common shares amongst
yourselves. Your key hires may get some equity too, but they'll get
stock options instead of actual shares and the percentages they'll
get will be much less because they did not take the risk of starting
the company. One of the first hires you're going to want to make as
someone who can be a sales or sales management Rockstar,
especially if your product is ready to go to market. This person is
going to be responsible for generating meaningful revenue as soon
as possible. If your product is still being developed, then you
probably have to focus on product development and engineering
first. And you're going to need customer support and engagement
people almost as soon as you have customers, it's a lot easier to
keep an existing customer than it is to find a new one. And the
customer facing employees you have will be important in this.

Key Early Hires (2 of 2) - Slide 7

Marketing

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 Production
Operations
Finance

Transcript

Marketing, production and operations people are also likely to be

early hires, but the product development and sales people should
come first. A finance person may eventually be important, but most
startups don't have that much cash to manage in the beginning. The
finance person can usually wait until you've raised a decent amount
of money from investors and the company is ramping up its
spending. He or she will be especially important when you're getting
ready to sell the company because a deal like that will fall apart if
your books are not in order.

Advisors (1 of 2) - Slide 8

Complement your strengths and cover for your weaknesses

Industry experience and contacts

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Financial and management contacts

A sounding board for management

Transcript

It's almost never too early to start looking for advisors. If you have
gaps in your management team or if you don't have a lot of
experience having a group of advisers who have been there and
done that can be helpful in more ways than you might think. Good
advisors with industry experience can help open doors for you with
customers and potential partners. Experienced entrepreneurs can
help you connect with investors and with potential management
team members. And of course they can act as a sounding board and
provide valuable advice when you need to make important strategic
decisions. Most startups compensate their key advisers with stock
options so they should not be a drain on cash.

Advisors (2 of 2) - Slide 9

Use them wisely!

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 Be honest.
Keep them engaged.
Let them know what you need.

Transcript

Unfortunately, some entrepreneurs make the mistake of recruiting

advisers and then failing to get much value out of them. Use your
advisors, that's what they signed up for. First of all, be honest with
them about what you're going through. Some people have a
tendency to hide the truth from their advisors or mentors because
they don't want to look bad in front of them. But if you don't let them
help you with your problem, what's the point? Keep your advisers
engaged in the business. You don't have to talk with them every
week, but it should be more than once or twice a year. And don't
conduct a meeting with an advisor or an advisory board as if it's just
an opportunity for you to tell them what you've been up to. You could
do that in an email, set an agenda for each meeting and tell them
what sort of help you'll be asking for ahead of time so that they can
be prepared. That way, they can actually spend their time helping
and not just listening to your update.

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Transitions (1 of 2) - Slide 10

Startup teams may not function well in a post-startup environment:

Jobs may change and skills may not be relevant.

Lost passion
Key stakeholder demands

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Transcript

Some people who have leadership and other skills that are perfect
for getting a startup off the ground are not well suited for that same
leadership role as the company matures and its priorities change. It's
not uncommon for startup teams to be replaced as the company
grows, transitions like this can be smooth or they can be very painful.
How can you tell when it's time for a company to recruit new top
management? It could be when the actual job itself has changed and
the individual is no longer a fit. An example of this is when the CEO
needs to spend less time talking to customers and more time dealing
with organizational and staffing issues. It could be when the
company culture or its working environment has changed and the
founder doesn't have the same passion for the job anymore. That
can happen when a company that used to have 5 or 6 members
working closely together to create something out of nothing turns into
a 50 or 60 person organization with offices in multiple cities around
the world. But the most common trigger is when the company is
failing to perform and its stakeholders, mainly the investors who are
sitting on the company's board of directors, demand to change.

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Transitions (2 of 2) - Slide 11

Plan ahead!

Keep job descriptions current.

Identify candidates in advance.
Plan for ongoing roles for co-founders.

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Transcript

As the founder of your startup, you should be thinking about and

planning for these transitions, even for yourself, planning for a
transition should make it more likely to be a smooth one. Ask
yourself, when it might be appropriate to hire a new CEO, even if
that person might become your boss, be as objective about this as
possible. I've seen too many CEOs start to see the board of directors
as their enemy when they know the company is not doing well. That
almost never ends well. At the same time, think about a role that
would make sense for you after a management change. Should you
transition into a sales or technical role or would it make more sense
for you to leave the management team, but stay on as a member of
the board of directors, as a major shareholder. And here's something
that you can do to help a transition go smoothly. Think about the
CEO job and the qualifications that a strong candidate for that job
should have. Do you know anybody like that? Can you recruit a new
CEO yourself before your investors bring in somebody from their
networks?

What kind of people do you want to hire for your company? To use a
sports analogy? Should you try to hire great position players? Or
should you hire great athletes regardless of the position that they
might play? Others may disagree but I think you should try to hire the
very best position players that you can. That's because team
chemistry is so important in a small company, It's time consuming
and costly to fire people because they weren't a good fit. They didn't
embrace the company culture or they wouldn't focus on the role that
she needed them to play. It's just as costly to hire their replacements.

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Defining Roles - Slide 12

Hiring to meet the needs of the business:

Identify key activities that the team is unable to perform.

Will he/she thrive in a startup environment?
Use performance metrics.
Fire quickly if it's not working.

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Transcript

So before you hire anyone, focus on the key activities that the
current team is unable to perform. Come up with a job description
that's based on that unmet need. When you're interviewing
candidates, look for people with previous startup experience, people
who can work hard and smart, deal with ambiguity and thrive in a
startup environment. Put metrics in place so that you can quickly
determine if they're performing as you need them to. Take action
quickly if they're not. The fact is, that employees almost know that
things are not working out before their bosses do, when they get
dissatisfied, they can have a negative influence on the rest of the
team. It's better to fire someone when you have to and move on. I
don't think I've ever heard an entrepreneurs say that they regret that
they fired a team member who wasn't working out too quickly.

Recruiting Channels - Slide 13

Personal relationships

Referrals from other entrepreneurs

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Referrals from your employees

Referrals from customers

Hiring away from competitors

Transcript

How do you recruit great people to join your team? Great people
have great options. You have to have a plan to find them and recruit
them. Although there are a lot of recruiting tools in websites out
there, your best recruiting channel is almost certain to be your own
personal network. That's where you find people who know you and
hopefully believe in you, who do you know that you can reach out to
personally to discuss your company and the job you think they can
fill? Personal referrals can also be effective, reach out to other
entrepreneurs that you know, they are likely to be able to refer
people who have startup experience. Your own employees can also
refer people and they already work for you. So they should have an
idea about who might be a good fit. Your customers understand what
you're trying to build. So they should be able to help you find people.
You might also be able to hire people away from competitors. You
might already know who some of their top performers are, because
you're competing with them. They know your industry and they may
be willing to jump ship, especially if they can see that they've been
losing business to you.

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Evaluating Candidates (1 of 2) - Slide
14

Look for people who:

Are comfortable with ambiguity

Are creative problem-solvers
Are eager to learn new skills
Can achieve goals with limited resources
Take ownership of what they do
Fit in with company culture

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Transcript

As mentioned before, you want to look for people who will thrive in a
fast paced entrepreneurial environment. Here are some of the
qualities that you want to look for. People who are able to deal with
uncertainty and ambiguity. People who are creative problem solvers,
people who are eager to learn new skills and new ways of doing
things. People who can achieve goals with limited resources and
don't blame others when they fall short. People who understand the
startup culture and see how their job fits into the big picture of what
you're trying to accomplish in your company and in your industry.

Remember Howard Stevenson's definition of entrepreneurship from

Mulele one. The pursuit of opportunity without regard to resources
currently controlled. You want to hire people who can achieve goals
with limited resources and take pride in finding new ways to
succeed.

Evaluating Candidates (2 of 2) - Slide

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Avoid people who:

Need structure and supervision

Resist change
Focus on current vs. future rewards
Say "that's not my job"
Don't buy into company culture

Transcript

Here are some things you should look out for, people who need a lot
of structure and supervision, that you may not have time for. People
who resist change and want to continue doing things the way they
have in the past, people who are focused on current rewards and
can't focus on creating value for the future. Employees who don't buy
into the startup culture can be a drag on the company's progress and
they can have a negative influence on their team members.

Selling the Vision (1 of 2) - Slide 16

Three reasons to join a startup:

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 Make money
Make the world a better place
Have fun

Try to provide all three!

Transcript

I'm probably starting to sound like a broken record, but remember

that there are only three reasons why somebody would want to join a
startup company. To make money, to make the world a better place
in some way or to have fun. This is true for employees, co-founders
and advisers as well as investors. So why should someone want to
work for you? First, they think it will be a way for them to make more
than they could by working elsewhere. This is where stock options
become valuable because you may not be able to pay the same
salary that they could make in a larger business. Second, they think
that what your company is doing is important in some way, that's why
you should share your vision with them and show them that it's not
just a job that they'll be doing. And third, they think that they'll have
fun working with you. They want a chance to truly enjoy their work in
a fast paced startup environment. This is where your company
culture comes in, do your best to create a culture where your
employees enjoy coming to work every day. If you can offer people a
way to do all three of these things at once, you're probably going to
be a pretty successful recruiter. But as I've said before, if you can
only offer one of these things, you'll have to offer a lot of it.

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Selling the Vision (2 of 2) - Slide 17

If you're offered a seat on a rocket ship, don't ask what seat.

Just get on!

—Eric Schmidt, Google CEO

Sandberg, S., Lean In: Women, Work and the Will to Lead, Deckle
Edge, 2013.

Transcript

Let me put it slightly differently, in her book Lean In, Sheryl Sandberg
says that the best advice she ever got was from Eric Schmidt of
Google. If you're offered a seat on a rocket ship, don't ask what seat,
just get on. If you really want to recruit top people, show them that
your company has the potential to be that rocket ship. Show them
that their job will be important and that they'll be rewarded for it when
the company succeeds and show them that they'll enjoy working with
you and your team.

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 Lesson 3-2: Leadership

Lesson 3-2.1 Entrepreneurial

Leadership
Media Player for Video

Leadership Word Cloud - Slide 18

This slide contains a word cloud of terms relating to leadership.

Prominent words are: leadership, desirable, communicate, asshole,
remove, participative, decision-making, assertive, sense, vision,
create, and obstacles.

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Transcript

Welcome to the second lesson in Module three of entrepreneurship

laying the foundation. In our first module, I made the point that
leadership is a necessary skill for creative persons to become
innovators and for innovators to become entrepreneurs. I'm going to
expand on that in this lesson. Our topic for this lesson is
entrepreneurial leadership. I've been a mentor for an entrepreneurial
fellowship organization in Kansas city called pipeline for About 10
years now. It's interesting to hear the fellows who have gone through
that program talk with their peers about the issues they face in their
organizations. People's leadership styles come through in very
different ways. I was encouraged by this to put together a quick
workshop on entrepreneurial leadership, which has become the
basis for much of this lesson. As you can see in the word cloud for
this lesson, entrepreneurial leadership involves vision,
communication, decision making, motivation and change
management.

Entrepreneurial Leadership - Slide 19

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"…organizing a group of people to achieve a common goal…by
optimizing risk, innovating to take advantage of opportunities,
taking personal responsibilities and managing change within a
dynamic environment…"

Roebuck, C. (2011). "Critical Need for Entrepreneurial Leaders

During Turbulent Times." www.chrisroebuck.co/critical-need-for-
entrepreneurial-leadership-dyring-turbulent-times/

Transcript

Let's start with the definition of entrepreneurial leadership. Here's the

definition from Chris Roebuck, a British economist who focuses on
leadership and organizational performance. He says that
entrepreneurial leadership involves organizing a group of people to
achieve a common goal by optimizing risk, innovating to take
advantage of opportunities. Taking personal responsibility and
managing change within a dynamic environment. I've highlighted
several of what I consider to be the key concepts in this description.
They include leading a group of people, dealing with risk, innovating,
managing change and taking personal responsibility for the results.
Now he's talking about entrepreneurial leadership in any type of
organization which includes large established businesses. I'm going
to focus on startup companies.

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Leadership Styles - Slide 20

Participative

Democratic
Empowering

Assertive

Autocratic
Pursues leader's vision

Transcript

When you think about entrepreneurs that you consider to be your

role models, what type of leadership style do they have? If you were
to ask the people who work with you about your own leadership
style, what would they say? There are really two distinct types.
Participative leadership and assertive leadership.

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Participative Leadership - Slide 21

Consensus-driven

Decentralized

Motivates through a sense of ownership

Slower decision making

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Transcript

Participative leadership is mostly about teamwork and consensus

building. A participative leader is someone who shares information
with and solicits input and recommendations from the team. Its
democratic in that everyone has at least some say. Decision making
is decentralized and team members are empowered to participate in
the decision making process. A big part of the leader's role is to help
the team arrive at a consensus and then move forward based on that
consensus. Most of us would probably prefer to have a leader like
this as our boss. That's because with the participative leader the
members of the team have a sense of ownership in both the process
and the business itself. As a result, they may care more about the
outcome and be more motivated to perform. But there are
disadvantages as well. One disadvantage is that it can sometimes
take a long time for a group to reach a consensus on an important
issue. Decision making can be slower and the organization may be
less nimble as a result.

Assertive Leadership - Slide 22

Leader's vision is key

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Faster decision making

Can be demotivating

Stressful

Transcript

Assertive leadership is different. It's more autocratic. The team

members are working to implement the leader's vision, not their own.
The leader's role is to communicate that vision, give the team
members their assignments and monitor their performance. The
leader may need to convince team members that his or her vision is
best, but ultimately it's my way or the highway. If some team
members can't buy into the leader's vision, they should probably
leave. Assertive leaders can get things done more quickly, which is
an advantage for a startup company. On the other hand, team
members may look at their function as just another job and be less
motivated to give it their full effort as a result. Assertive leadership
can also be stressful for the leader because he or she has to make
most, if not all, of the important decisions. There are no partners to
help in decision making. You may not enjoy working for an autocratic
leader, but they can get things done. When I asked you to think
about entrepreneurs that you consider to be role models, I bet that
many of you thought about assertive leaders who had a vision and
stopped at nothing to achieve it. Ultimately you'll have to decide on
the leadership style that works best for you.

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The Leader's Responsibilities (1 of 5) -
Slide 23

Be the role model:

Demonstrate optimism
Prioritize problem solving
Bias for action
Build the corporate culture

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Transcript

What do entrepreneurial leaders really do? I'm going to highlight

several important responsibilities that all leaders have. I think the first
responsibility for a leader is to serve as a role model for the team.
The leader has to project confidence and optimism. A leader who
seems uncertain about whether the business will make it or not is
someone that people do not want to follow. The leader also has to
prioritize creative problem solving. Because team members in a
startup will be taking on challenges that they haven't dealt with
before. He or she also has to have a bias for action. Even when you
don't have as much information as you'd like to have. This is part of
the tolerance for ambiguity that I mentioned in a previous lesson.
You can't wait for perfect information before you take action because
in a startup environment you'll never have it. And you have to
implement a corporate culture that works for your team and in your
target market, the leader must set the tone for the entire company.

The Leader's Responsibilities (2 of 5) -

Slide 24

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Build the team:

Hire "A players"

Encourage strong performance
Reward success
Fire when necessary

Transcript

The second responsibility is to recruit the best possible team for the
venture. Good CEO's try to hire people who are better or smarter
than they are. That means that they have to admit to themselves that
other people can do certain things better than they can, which may
be hard to do for some people. Great team players in a startup aren't
just smart, they're also the kind of people who are willing to work
hard and dedicate themselves to the task at hand. The leader must
be responsible for motivating them. That involves both encouraging
them and rewarding them for their success. It can also mean firing
people who aren't able to perform to this standard. That's also the
CEO's job. Under-performing or negative employees can de
motivate others around them and this can be toxic for a startup
company.

40
The Leader's Responsibilities (3 of 5) -
Slide 25

Communicate the vision:

Create a sense of urgency

Establish milestones and delivery dates
Remove obstacles

41
Transcript

The leader is also the person who is responsible for communicating

the vision for the company and promoting a culture of performance.
Employees in a startup need to have a sense of urgency every
month that it takes for a company to launch a new product, makes it
more likely that competition will be able to catch up. And every
month that it takes to reach cash flow break even is another month in
which you have to rely on outside investors for financing. A good
way to create a sense of urgency is to set milestones and delivery
dates for projects short term as well as long term. The team should
get in the habit of achieving milestones as quickly as possible. So
the leader needs to lay out a road map so that they can start making
progress against it right away. The leader also has to do everything
possible to remove obstacles that block the team's progress. This
means making sure that team members have the tools they need to
get their jobs done.

The Leader's Responsibilities (4 of 5) -

Slide 26

42
Assemble resources:

Financing
Board members and advisors
Strategic partnerships

Transcript

What are those tools? In an earlier lesson, I said that the CEO's
primary job is to assemble the resources that the company needs to
be successful. The most obvious of these is money. The CEO has to
put the financing plan for the company in place and deal with
investors if necessary, to ensure that the business is properly
capitalized. But this also includes human resources. In addition to
building a strong team, the leader is responsible for putting a board
of directors in place so that the company has proper governance.
And these board members, as well as mentors and advisors, can be
important in opening doors and making important strategic decisions
for the business. The leader is also responsible for negotiating
strategic alliances or partnerships with other companies. That may
be necessary for the company to have access to technology and our
customers that it may not be able to reach on its own.

43
The Leader's Responsibilities (5 of 5) -
Slide 27

Manage your team and yourself.

Embrace change.
Avoid ethical shortcuts.
Be willing to say "I don't know."
Focus on the big picture.
Stay healthy.

44
Transcript

Finally, as a leader, you're responsible for managing yourself as well

as your team. This means embracing change when necessary even
if that change might affect your own role at the company. It also
means having integrity and avoiding ethical shortcuts, even when
you're back maybe up against the wall. And it's important for you to
stay healthy and positive, not managing stress and pushing yourself
to the point of exhaustion can be as bad for your company as they
are for you. The team will notice when you're not at your best and
they may start to worry about how much longer you can keep things
together.

Guy Kawasaki's Leadership Matrix -

Slide 28

45
 What kind of leader are you?
Competent Incompetent

Asshole 2nd most desirable Least desirable

Not Asshole Most Desirable 3rd most desirable

46
Do your team members agree?

Kawasaki, G. (2015). The Art of the Start 2.0: The Time-Tested,

Battle-Hardened Guide for Anyone Starting Anything. Portfolio. 78.

Transcript

I can't finish this lesson without borrowing Guy Kawasaki's

leadership matrix. Here's how he ranks the desirability of a leader on
both the competent versus incompetent and asshole versus not
asshole scale. Where do you think you would land on this matrix? I
hope that most of you think you'd be in the lower left corner and I
hope that most of your team members would agree with you about
this.

47
 Lesson 3-3: Building Credibility

Lesson 3-3.1 Building Credibility

Media Player for Video

Building Credibility - Slide 29

Startup rule #1: Most startups fail.

Investors and customers know this rule.

How can you show that you are different?

48
Transcript

Welcome back to entrepreneurship, laying the foundation. This is the

third lesson in Module 3, and our topic for this lesson is building
credibility. We talked about leadership in our last lesson. But the
most important part of being a leader is being able to persuade
others to follow you. That's hard to do if you can't provide some
evidence that you know what you're talking about. This lesson is
about the importance of building credibility for you and your team as
early as possible. As you can see in the word Cloud, a lot of this
lesson is about demonstrating to others that you can really build a
product, that your strategy is well-thought out, that you understand
your customers and your target market, and that you can set
milestones for the business and achieve them. As you should all
know by now, most startups fail. That's something that investors
understand, but customers get it too. That's why they generally don't
like to make important purchases from a startup when they can get a
similar solution from an established business. They don't have to
worry that their vendor is going to go out of business, leaving them
without the support they need. In order to get people to work with
you, you need to convince them that you're not like most startups
and that they can believe in you. Here's one way that you can do
that.

49
Donald Trump - Slide 30

This slide contains an image of Donald Trump.

Transcript

We are just getting started. Believe me. Believe me. Believe me.
Believe me. As it turns out, that technique actually works for some
people. However, I'm guessing that most of you will need to take a
different approach. There's a famous quote from Alice in
Wonderland. The Cheshire Cat tells Alice that, ''If you don't care
where you're going, it doesn't matter which way you go. However, if
you have a real destination in mind, your fellow travelers need to
know that you can get them there.''

50
Leadership - Slide 31

Credibility starts with leadership:

Communication
Competence
Vision
A roadmap

Transcript

That's what leaders do and it's part of what makes people want to
follow them. Leaders are able to describe the destination they have
in mind, their vision for the company. Then they have to show that
they're competent, that they can be trusted to reach the destination
because they have a road map that'll get them from here to there.

51
Track Record - Slide 32

Highlight your team's track record:

In previous startups
In the industry
With your target customers

52
Transcript

One of the first things that you can do to show that you and your
team members are competent is to describe your relevant
experience. By relevant, I mean experience that has something to do
with your startup. The best kind of experience is from a previous
startup, especially if it has a similar business model or a similar
target market. Successful serial entrepreneurs can sometimes raise
money based on their track records alone. Entrepreneurs who are
not successful in their previous ventures can sometimes have a
fundraising advantage too. If they handle themselves well, investors
may think that they'll be more successful the second time around,
because at least they'll know what mistakes they need to avoid
making. What can you point to if this is your very first attempt to start
a company? Do you have prior experience in the industry you're
going after? Have you worked with or sold products or services to
the same kinds of customers? The answer for most of you is
probably yes, because most entrepreneurs get their ideas for their
new ventures from experience they had in the same industry.

Do Your Homework - Slide 33

53
Show that you fully understand the opportunity.

Market size and attractiveness

Target customers
Channels
Value proposition

Transcript

The next thing you can do to build credibility is to show people that
you've done your homework. You want them to see that you are
thoughtful, diligent, and that you've taken the time to fully research
your market. You really understand your target customers and their
needs. This includes showing that you understand how customers
will buy, not just why they'll buy. You want to show that you
understand the sales and distribution channels that are available to
you and you've made good decisions in developing your go to
market strategy. It's important to build a good and hopefully realistic
financial model and projections. Revenue, profit and cash flow
projections are not really about predicting the future. They're about
modeling out the decisions you're going to make and the levers you'll
have to drive growth and create value. Your financial projections can
show that you understand how the strategy you follow can result in
an attractive return for investors.

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Customer Discovery - Slide 34

How many customers have you spoken to to understand…

…their pains and gains

…the solution they need
…how they buy
…who influences them

Transcript

Customer discovery is a big part of the homework I'm talking about.

As Steve Blank says, ''There are no answers inside your company.
So get out of the building.'' If you're not out there talking to
customers to test your assumptions about their problems and the
solutions they need. You're making a mistake. You can show
investors and other stakeholders the results of your efforts. How
many customers have you talked to? Have you been able to confirm
most of your key business model assumptions? Are you getting
close to the point where you can confirm you have a product market
fit. Customer discovery will be one of the main topics in our next
module.

55
Comparable Companies - Slide 35

Have other companies provided a roadmap?

To help others understand your strategy—"Netflix for camera

lenses"
Have others been successful with a similar strategy?

Transcript

Sometimes it can be helpful to point to other companies that have

gone before you. This can do two things. First, it can help you
communicate your value proposition in a way that your audience will
understand. Here's an example. One of my former students was an
amateur photographer. His startup idea was to rent expensive
camera lenses to amateur photographers who couldn't justify the
expense of purchasing lots of different lenses for different types of
photography. His idea was that customers would pay a fixed monthly
fee, which would entitle them to use one fancy lens for as long as
they wanted. When they wanted to switch lenses, all they had to do
is return the first lens and exchange it for another one.

56
Does that business model sound familiar? When he was presenting
the idea to customers and investors, he described the business as
Netflix for camera lenses. People understood that concept right away
and that made it easier for him to convince them that it was a
feasible idea. Referencing comparable companies can also help you
convince people that some of your other business model
assumptions are reasonable. Let's say your business model is based
on an assumption that your target customers are ready and willing to
embrace new technologies. Can you point to other companies,
maybe even your competitors, who've already shown this to be true.
I'll say right now that competition can be a good thing. I've seen
people get discouraged when they learn that they have a close
competitor that they didn't know about. They think that they have to
fundamentally change their idea or abandon it entirely. In fact, that's
rarely the case. If nothing else, competition shows that there are real
customers out there for a solution like yours. The markets real and
not just something you imagined. You don't have to convince people
that they need a product like yours, you just have to convince them
that your solution is better than what they can get from your
competitor.

A Trusted Authority - Slide 36

57
Become an expert by establishing:

An early web presence

Social media
Blogs
White papers and PR
Search Engine Optimization

58
Transcript

When you're doing your market and industry research, you'll

probably find a few individuals who are generally considered to be
experts in your space. They may be customers or they may be
people who are writing articles or blogging about the industry. Some
of them may have lots of followers. That's because they have
credibility. Followers think they know what they're talking about. Is
there any reason why you can't become a trusted authority like that?
It might not be as difficult as you think, especially if you know your
industry and your customers and you've done your homework. The
first thing you should do to become a trusted authority is to look like
one. You should set up your website and establish your online
presence early. Build a professional website that conveys the right
message about you, both in content and in design. People are going
to start checking you out, and the first thing that most of them will do
is look at your website. Admit it, you do that yourself. A landing page
that just says, coming soon, is better than nothing. But you don't
want to leave that up too long. The only thing that really says, is that
you've purchased a domain name. I'm sure you all understand the
importance of social media. You should make that work for you. If
you know more about a customer need than anyone else, write
about it on Facebook, LinkedIn, or whatever platform makes the
most sense for your audience. You can publish a blog or post white
papers on the subject, but I'd encourage you to keep them current.
I'm never impressed when I look at a blog on a company's website
and the most recent posting is two years old. Remember what I've
been saying about early adopters. They've tried to solve their
problem before. This means that your potential early adopter
customers are out there right now looking for a solution and they're
probably doing it online. Wouldn't it be great if their searches lead
them to you? Do what you can through search engine optimization
and by buying relevant AdWords so that customers can find your
website, and when they get there, provide them with valuable
information, even if you don't have a solution that you can sell right

59
away. If you've already given them something of value, it'll be easier
to get them to listen to you when you are ready to make a pitch.

Minimum Viable Product - Slide 37

A basic version of the product, enough for customers to:

Understand the value proposition

Provide real feedback
Be willing to pay for

60
Transcript

Let's talk for a minute about your MVP, your minimum viable
product. If you're familiar with the Lean Startup model, you know that
an MVP is a basic stripped-down version of your product. It's
intended to be something that you can use during customer
discovery to help people understand your value proposition and give
you feedback. It's not a finished product. It might not even be a
product at all yet. The MVP for Dropbox was just a 4 1/2 minute
video. It explained what Dropbox was going to be before it had been
built. Importantly, there was a button that customers could click on to
indicate that they wanted to learn more. An MVP can make it easier
for you to convince stakeholders that what you're proposing can
actually be built. If your MVP is an actual product and not just a
demo, then customers should be able to interact with it enough to
see if it'll really deliver on your value proposition. If it's not an actual
product, it should be compelling enough to demonstrate that you
really do know how to build it and make it work. Here's some more
good advice. If possible, your MVP should be something that at least
some customers would be willing to pay for. Maybe not full price, but
at least something. Why is this important? Because one of the
biggest questions that investors will have, is will the dogs eat the dog
food? This means, will customers really pay for this? The absolute
best way for you to show them that customers will pay for your
product, is to tell them about the ones that have already paid for your
MVP.

Sometimes it's even possible to get customers to pay in advance

when you don't even have an MVP. That's what crowdfunding
platforms like Kickstarter and Indiegogo are good for. They're pretty
competitive now, but if you have a consumer product and you can
clearly and cleverly explain the value proposition, you get customers
to pre-order your product well in advance of when you're expect to
be able to deliver it. When I was teaching at the Kellogg School of
Management several years ago, there was a student who launched
a Kickstarter campaign for a travel jacket and raised more than $9

61
million during the summer break. As you might have guessed, he
didn't come back to school in the fall. If you're building a high-tech
B2B product, that's an important solution for a key customer. You
may be able to sign a development agreement in which the customer
funds part of your product development expenses in exchange for
favorable access to the product when it's complete. That's not quite
the same thing as an advanced purchase, but it's close. It's also
valuable evidence that there will be buyers for your technology if you
can make it work. Over the past year, there have been several
companies that have raised tens or hundreds of millions of dollars
from investors based on partnership agreements with automakers for
self-driving vehicle technologies.

Partnerships - Slide 38

Can add credibility by providing:

Access to markets and channels

Access to technology
Funding
A "Seal of Approval"

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Transcript

Partnership agreements can also lend credibility if you have the right
partners. You've probably heard the saying, you're known by the
company you keep. Let's say you need a partner to help you
manufacture your product or distributed. What should you look for in
a partner? Can you find a partner that's known in the industry as an
innovator or a market leader? Can you find a partner who is willing to
commit financial resources to the project? Will they let you tell others
about your relationship? Those are all ways that a partnership can
make your story more believable, and that makes sense. Those of
you who have tried to raise money before, know that it's much easier
to find your second investor than your first. That's because people
want to see that there's smart money in the deal. Others have taken
a look at your offering and agreed that it makes sense. If you can
point to credible partners who are committed to your project, it'll help
you convince others that they would not be going too far out on a
limb by working with you.

Of course, the best way to get people to believe in your business

opportunity is to show them that it's already working. Let me tell you
a secret about pitching to early stage investors. If you don't tell me
about your customers, I'm going to assume that you don't have any.
It makes me crazy when entrepreneurs don't say that they already
have customers until the end of an investor presentation and it's
even worse when they don't mention them at all.

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Market Traction - Slide 39

Nothing is more convincing than real sales—except profits!

Revenue
Gross Profit
Lifetime Value of a Customer (CLTV)
Customer Acquisition Cost (CAC)

64
Transcript

If you currently have paying customers, even if it's only a few, say-
so, you should be proud of that. If you have gross profit, meaning
that your customers are paying more for your product than it
currently cost you to make it, that's even more important. It confirms
that at least for some customers, your value proposition is real and
your revenue and pricing model is acceptable. That's a big deal. This
may be asking for too much, but if you have enough history with
customers to make a reasonable estimate of the lifetime value of a
customer and it's more than your customer acquisition cost, that will
really set you apart. We'll talk more about these metrics in future
lessons, but they're really important indicators of whether your
business model is viable and potentially scalable.

Early Adopters - Slide 40

Know they have a problem

Have the budget for a solution

Have tried to solve the problem before

65
Can influence others

Transcript

Your first customers are going to be early adopters. As I've said

before, they know they have the problem, they have a budget to pay
for a solution, they've already tried other solutions and they can
influence others. What can you do to encourage them on this last
point, to turn them into evangelists for your company and your
solution?

Evangelists - Slide 41

To turn your early adopters into evangelists:

Listen to their feedback and act on it

Support them!
Give them tools
Give them rewards

66
Transcript

First, make sure they know that you're listening to them and that you
value their opinions and their feedback. Regular contact is important.
It can be as simple as making sure that they're getting your company
newsletter. Or it could be as complex as forming a user group and
making sure that they're involved in it. Stay as close as possible to
your most important early adopters and ask them for their opinions. If
they've given you valuable advice, let them know about it. If you've
decided not to take their advice, let them know what you're doing
instead. Even if they're not evangelists for you, you want them to be
repeat customers if possible. It's also important to let people know
how they can help. Let them know that you want them to make
introductions or provide references for you and be as specific as
possible about the introductions that you need. I think it's always
better to ask for an introduction by saying, I'm looking for an
introduction to the right person at ABC Company instead of saying,
do you know anybody that might be interested. You're much more
likely to get a response this way because your contact knows exactly
what you're looking for. Rewards can help too. You can provide a
financial reward like a refer a friend discount. Or you can provide a
token like a gift card or a coffee mug. You could even think about
providing something less tangible but more prestigious, like an
invitation to be on your advisory committee or speak at your user
group meeting.

Now I want to address the question of execution risk. One of the real
questions that investors and other potential stakeholders will have
about you is, can you get stuff done? It's one thing to tell people
what you plan to do, and it's another to show them that you can
actually do it.

67
Milestones - Slide 42

Specific accomplishments that add value to the business by

reducing risk and validating your business model assumptions.

Technical
Financial
Operational

Transcript

I'm talking about setting milestones for your business and showing
that you can achieve them. A milestone is a specific accomplishment
that if achieved, will add value to your business, both by reducing
risk and by validating your business model assumptions. A good
milestone is something specific, like the completion of a working
prototype or signing an important customer contract. It should be
something that really matters to the business.

One great way to demonstrate that your team is able to achieve

milestones is to list the milestones that you've already achieved
preferably on time and under budget. What are the major

68
accomplishments that your team can point to over the last year? A
couple of lessons ago, I spoke about a company that I invested in in
the fleet management space. The first time we met, I thought that the
company was too new and the risks were too great, so I did not
invest. I met them again about a year later, and they showed me that
they had achieved essentially all of the objectives that they had set
for themselves during that year. This gave me and my partners a lot
more confidence in the team and in its strategy. We made the
investment and it turned out to be a great deal.

Milestones Achieved - Slide 43

Market Awareness/Visibility

Product/MVP

Customer Discovery/Product-Market Fit

Revenue/Market Traction

Operations/Scalability

69
Transcript

Remember to focus on milestones that are really meaningful. This

means that achieving them really demonstrates that you're adding
value or reducing risk. Here are some examples. Have you
established a market presence such that your name is known in the
industry? Are you recognized as an innovator in the space? Do you
have a completed product or an MVP that you can demonstrate?
Does it perform as intended? What do customers think of it, and
have any of them paid for it? Have you done enough customer
discovery to confirm that you're likely to have a product market fit?
Have you made any sales? If so, can you point to cost savings and
operational efficiencies that suggests that your business will be
scalable.

Milestones to be Achieved - Slide 44

What are some key ways to add value in the future?

Reduce Risk
Validate the business model
Short-term and long-term

70
Transcript

You can also build credibility by showing that you have an action
plan for achieving milestones in the future. What are the key
milestones that you expect to hit in the next 12-24 months. What's
your strategy for achieving them? Again, focus on the milestones
that matter, ones that reduce risk in the company and validate your
business model. This can go a long way to convince your audience
that you know what's going to be important and you have a road-
map that will lead to success.

The Right Team - Slide 45

Can you show stakeholders that your team has "the right stuff" to:

Build the product

Reach the market
Manage the business
Earn attractive returns
…without screwing up!

71
Transcript

If you're trying to get almost any kind of support for your startup,
whether it's a financial investment, a purchase order or something
else, remember that you have lots of competition. Convincing other
people that they can believe in you and your team is critical
especially if your startup as new and doesn't have much of a track
record. They want to see that you know what you're doing, you can
be trusted to make good decisions, you have the ability to execute
and you can create value without screwing up.

72
 Lesson 3-4: Interview with
Entrepreneur

Lesson 3-4.1 Interview with Steven

Farag, Campus Sportswear
Media Player for Video

Introduction to Steven Farag Interview

(1 of 2) - Slide 46

This slide contains an image of the Campus Sportswear Inc. logo.

73
Transcript

Parkinson: I recently had a chance to interview Steven Farag, who's

a partner at Campus Sportswear Inc. While he was a student at
UIUC, Steven started a small business that used a variety of social
media platforms to help other students who needed to have T-shirts
printed: fraternities, and sororities, and other types of campus
organizations. Convinced that he could capitalize on the opportunity,
he decided to invest and become a partner in Campus Sportswear: a
45-year-old small business based here in Champaign.

Introduction to Steven Farag Interview

(2 of 2) - Slide 47

This slide contains an image of a Campus Sportswear Inc. T-shirt.

74
Transcript

Since joining Campus Sportswear, he's implemented a new sales

and marketing strategy, and the company has already tripled in size.
Now, he's looking to extend the model to other campuses around the
Midwest competing with both national companies and local mom-
and-pop vendors.

I've asked Steven to share his experience in turning a stable, slow-

growth business into a scalable rapid-growth company.

Interview with Steven Farag - Slide 48

This slide contains an image of Steven Farag.

Transcript

Parkinson: So, Steven, tell me a little bit about yourself and why you
decided you wanted to be an entrepreneur.

75
Farag: So, I was a college student here at the University of Illinois. I
was actively involved in different clubs, organizations, fraternities.
And I saw that there was a huge potential for decorated apparel here
on campus. I used some of my tech skills to create some online
stores and I was able to make a couple of T-shirts orders go viral on
the U of I campus. After I got that taste of kind of owning your own
little business, making enough money to pay for your summer trips, I
realized that there was just this kind of inner urge to be able to grow
to something bigger than working for someone else. And that's why I
decided, instead of going kind of into the corporate world after
graduation, to buy into Campus Sportswear which has been an
established screen printer on this campus for over 50 years.

Parkinson: So, that's an interesting decision. Rather than starting

your own business, you decided it made more sense to become a
co-owner of an existing business. One that had been around for
quite a while, but it had been a pretty stable business over the years.
Why did you make that decision?

Farag: Well, I realized that I could go and start my own T-shirt

company from scratch. I could go take a loan, and I could go get all
the equipment to do that. But, the time that it would have taken to
actually learn the industry. Screen printing is a very skilled trade and
it requires several years to master the true craft. And my talent was
in sales using technology to grow sales. And I wanted to kind of find
someone that knew the trade itself and that could partner with me so
that we kind of offset each other perfectly. And, that's kind of what
ended up happening in Campus Sportswear today. I don't deal with
any of the production, my business partners deal with it. I handle all
the sales and the overall growth of the company.

Parkinson: So, as I mentioned before, the business had been around

for quite a while, and it had been pretty stable. Doing a reliable
predictable business every year. But you thought that you could
come in and help the company move to a much higher level of
growth. Is that right?

76
Farag: Right. So, the company had passively done $800,000 or
$900,000 a year of business. They were on campus at a great
location, but they used no technology whatsoever. They really didn't
have any means to be sustainable, kind of, in the 21st century. And
what I saw is just a huge potential for both market here and on other
college campuses.

Parkinson: So, what does this growth mean for the management of
the business? What are you having to do? What systems are you
having to put in place right now to manage this much faster growth?

Farag: So, when I first walked in the Campus Sportswear, they

literally were using carbon copy pencil and paper to take their orders.
They barely answered emails. They didn't have a functioning
website. They weren't listed on Google, or anything like that. And so
the first year was just creating a flat line system within the business.
So, bringing our presence and our brand to kind of a 21st century
standard, that was step number one. But more internally, to create
an invoice and a billing system and just using the very basic tools
that we would think are common practice today into the business.
And so, by invoicing, by billing, by creating good tools for customer
communication, we at least brought our standards up before we
were ready to grow.

Parkinson: Tell me how you went about building and motivating a

sales force to grow the company.

Farag: Right. So, when I was in college, I sold several hundred

thousand dollars of apparel and made some pretty good money. And
one of my goals was that I could recreate that experience that I had
in college for other college students. So, I started with a few college
students. I taught them the basics of selling a T-shirt. I taught them
how much money they would make on every order, how to design,
what the different catalogs were. I kind of put them out there to see
how they would do. Within our first semester, we had some
awesome success. We had three students do, I want to say, I don't
know, 40 or 50 grand, and that was very passive. Nothing was in
stone yet. There wasn't a system whatsoever. And what we did was

77
we started to systemize that. We started to recruit students and
interview them and train them and incentivize them. And what we
saw is over the past three years, they've done over $700,000 in
three years combined so far. And now, we have expanded to other
college campuses to recreate that experience for them.

Parkinson: So, how hard is it to manage a sales force? I'm sure you
have some students out there working for you that are generating a
lot of revenue and others that aren't generating very much at all.
What systems do you have to put in place to really make the sales
force efficient?

Farag: So, I believe in sales, there's, like, three components in there.

There's tracking, there's teaching, and there's inspiring. I can teach
these kids how to sell. I can inspire them. But tracking them is
probably one of the hardest things to do especially with a college
student that has a busy, busy life. This isn't their first priority. We're
currently building a CRM that can manage the, but currently, we are
very much on a Google Docs kind of platform. And people are like,
"Wow. You can manage that much money with just Google Docs."
But there's very free open source tools out there that we use such as
Google Docs and Salesforce. And when we use that in combination
with the software we use in our shop, our students are actually able
to put in their orders remotely. And what I found is, once I was able
to create that science where students could put in their orders
remotely and track their job, I realized that we could really start to
scale it.

Parkinson: How much of your revenue is really coming through the

sales force as opposed to directly off of your website now?

Farag: So currently, the business did about $800,000, passively. On

campus, they've been doing that for the last 10-15 years. So in our
first year, we did just over $1.2 million of revenue, and I want to say
$200,000 or 300,000 of that was based on my students really selling
really, really hard. Now, we look at about 25%-30% of our sales are
brought from our salespeople and the other 75% are just kind of the
outlier that's just coming into our shop, walk in, call, or email.

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Parkinson: So, what are the most important metrics that you try to
track to determine whether your sales initiatives are really doing as
well as you want them to?

Farag: We primarily target the RSOs and the Greeks for our student
population. So, what I'm tracking right now is when my students'
highest potential is as a salesperson. So, when their peak is and
when they start to fade out. And actually, what I've learned is that
their peak is very early in their career with our company. And that as
they get older, their reach actually starts to slow down. So, trying to
create career progression through my students, that's one thing that
I'm tracking. The other thing I'm constantly tracking is just numbers:
gross numbers, gross sales, gross commissions, and how much the
products cost and what profit we're making. We're finding that
through our student model, we are actually more profitable because
we actually turn into a retailer. But more importantly, our students
actually get to make a decent amount of money. More money than
they would in their average college job. So, we kind of track those
numbers. I also tracked them on a seasonal schedule because we
are kind of a school-based company. We have the fall, and then we
have the spring.

Parkinson: So, let's come back to that first metric. I know that you
don't have to spend a whole lot to support your sales force because
they're essentially independent contractors working for you. But you
still have to spend some time training and bringing in new sales
representative up to speed. And it seems to me that it would be a lot
easier to make sure your existing salespeople are continuing to
produce rather than having to continually bring in new salespeople.

Farag: Correct.

Parkinson: So, what can you do to try and manage that activity level
for the sales force, so it won't taper off as much?

Farag: Right. So, here the thing is, by the time they turn into seniors
they have started to look at their own career and that often isn't with
our company. Now, we are on our first bank of seniors this year, so

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we're going to be testing out a lot of different things and putting them
in maybe management positions, putting them in positions to teach.
Right? But what we're trying to do is create a lineage from every
student so that we're never losing a customer. The biggest thing in
the college market is the decision makers that are buying the shirts
are usually sophomores and juniors. So the seniors, they're kind of
effect, kind of wears off a little bit. But, they know pricing, they know
how to sell, they are very artistic. And so it's important to keep them
in and kind of create something for them so they still feel important. I
think the beauty of it is once you give the college student that
experience, whether it's two, three, or four years; they're going to be
a customer for life. So, what we've started to see is that our
students, when they actually leave campus, they go work for other
jobs and companies, they are continuing to bring us orders just
because they're that T-shirt person.

Parkinson: So, I assume that these Greek organizations and some of

your other major customers have plenty of options for where they
can buy apparel and other types of things the Campus Sportswear
would offer. How do you position yourself relative against that
competition and make sure that you get the order?

Farag: Right. So, while price might be one of the biggest factors that
most people would see on a first hand, really price is kind of the last
thing. I think it's the relationship, and it's the quality and speed at
which we're able to deliver. And that's going to be a factor of growth.
When we decide to grow is, how do we retain that kind of brand
integrity? And so one thing that we have over any other printer at the
U of I campus, is we can be faster and cheaper. That's just down pat
simple. But when we go to another campus, are we going to be able
to be faster and cheaper to be able to produce the same quality
product? So, we first focus on relationships then we focus on our
speed and then kind of price falls in the last. There are a couple of
big players in the industry but with a T-shirt, it could be sold for $7,
$8, or $9, and you kind of have to know the right person who's going
to make the right decision at the right time.

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Parkinson: Okay. So, let's talk about moving on to other campuses.
You've learned a lot here on this campus. What are your
expectations for how quickly you can grow on other campuses and
make them contribute as much to the company as this one is?

Farag: Right now, we're currently in our first phase of expansion. So,
we've expanded to two college campus with a pretty Greek
presence. We found that Greeks are our niche and that's what we
are going to stay with. And so the one thing that I have to do is I
have to personally support them. I don't have a management team
that can support them yet, so it's a lot of one-on-one with me
spending time with them. And the more time I'm putting into them,
the more they're bringing back to me. So, what we've been doing is
we're spending time all summer training them, teaching them the
sales, teaching them pricing. And then this fall, we're really going to
launch them into the school and see how they do. What I have to do
though is I have to create a campus presence. I have to make them
enjoy their job. But more importantly, I have to teach them to build
those relationships very, very quickly. We've had some pretty good
success so far. We're at Vanderbilt in Indiana. And so far, we've
already started to just get some orders before we hit the ground
running.

Parkinson: Okay. All right, well that's interesting. So, let's come back
to the fact that this was an existing company that you joined. What
did it really take to get your co-owners on board with really pursuing
a faster growth strategy?

Farag: So, my business partners are both 55 years old. They've

been in the industry their entire life. And they really didn't have an
exit strategy. They knew that in 10 years from now, if no one came
around, they would sell what they have and close their doors. And
when I came to bat and I was eager, I was excited, I brought the kind
of tech millennial side to the business, we found out that when we
put all our minds together, we have the perfect ingredients. We have
the kind of master of their crafts, that really understand the business
and understand how to make money consistently. And then, you

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have the young gun, that was me, to be able to keep pushing
forward and grow the business. So, it was almost like low-risk for
them because they said, "What's the worst going to happen? In 10
years from now, we are going to retire anyway." So, it's kind of a
boom and bust, and it's okay for them. And once we came to that
census, I needed them as much as they needed me. And once we
agreed upon that, we kind of just took it from there.

Parkinson: So, what's the vision? Where do you want this company
to be three or four or five years from now?

Farag: So, my goal was in five years to be on 10 college campuses.

And right now, I'm just systematizing everything before I really make
that jump. So, when I'm ready to make that jump and turn the light
switch on, that means all my systems are in place. I know that I'm
going to be able to fulfill every order. More importantly, I'm going to
be able to support my sales staff. So my goal, my first goal was in
five years to be on 10 college campuses. That would have about 40
or 50 students working for us on a local level. We obviously want to
monopolize the Champaign-Urbana area and be a big printer in
Central Illinois. But to take that model, make sure it's almost perfect,
and then really ramp up with it. So, the next five years go up to like
30 or 40 campuses. The biggest issue right now is we have to stay
within a logistically-sound shipping radius. And as we grow, we're
either going to need to make partners on different campuses or
make something where speed, quality, and price is still a priority.

Parkinson: I'm glad you spoke a little bit about the systems in place.
We hear the word scalability a lot for startups. If you're at a point
where you wanted to go out and raise money, I'm sure your investors
would be asking, "Is it scalable? Can we really just flip a switch?" Do
you really now know how to grow the company? So, it's just a
question of how much do you devote as resources into growth? And
what's the output that comes out when you invest that cash or
deploy those resources? So, the issue here really is: is it scalable?
And you seem to have made a real focus on both technology and on

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a different structure for a sales force in order to make the business
scalable. Can you elaborate a little bit more on your thinking there?

Farag: So, we talked about turning that light switch on. And when I
say that there has to be one side of the business where I can employ
the right people, train them over time to go and recruit and train on
college campuses. Then there has to be a system that is able to
teach these students and that is able to manage them, whether
that's a CRM, or something. Recognize that you're going to be
managing hundreds of college students. So, there's a game factor to
it that we have to take into account. So once we've done that, we
also have to talk about the fulfillment side of things. Right? These
kids are going to be bringing sales. Are we going to be able to fulfill it
as fast and as accurately as we're doing it today with five or 10
employees? And so, I believe I have the fulfillment side down. It is a
very simple process. I have networks all across the country that can
print for us. Really, right now, it's creating that perfect sealable,
scalable system for the kids that is also sustainable because we
have to think about the lifespan of my sales kid, my sales student, is
going to be two to three years. Right? And so we don't want to see
something where we go into a market, we invest all this money into it
and then it dies. Right? So, that lineage and continuity is also super
important.

Parkinson: So, what is the exit strategy? Are there people that you're
already looking to as potential buyers of this business when you're
out there on 10 campuses?

Farag: Sure. So, I've already been kind of meeting the big wigs in
the industry and manufacturers and the big distributors and kind of
talking about this model. So far, I haven't gotten any kickback from
anyone that doesn't really believe in it. But I truly am passionate
about teaching students and I really really love doing that. So, that's
something I want to hold on to. It's not like something I just want to
flip on and then evaluate and sell. Now, with the right number,
anyone will sell. And so there are some big giants in the game, such
as Custom Ink, that does a half billion dollars of revenue online. And

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I've had some early conversations with them just about what I'm
doing, just for mentorship. We haven't gotten to that point yet. Pretty
far down the road.

Parkinson: So, you're still asking for advice.

Farag: I'm still asking for advice.

Parkinson: And that makes sense. What advice would you give to
another college student today who's thinking of an entrepreneurial
career?

Farag: Yeah. I think if you're thinking about being an entrepreneur,

now is the time to do it rather than later in your career. When I had
different job offers, I was like, "Oh, maybe I could start this on the
side." And I decided to jump in feet first and devote everything to it
because I knew that the older I got, the less opportunity I would have
to really restart as life progresses, if that makes sense. More
importantly, it's find support and advisors and mentors that can help
you along the way. We are the millennials, and we think we know it
all. But in the last three years, I have learned so much from the
people that have been in business for quite some time on how to
keep money in the bank, on how to save, on how to do those things
because it's scary out there. And if you don't have those resources,
you can get swallowed up pretty quickly. And so, those are probably
the biggest piece of advice.

Parkinson: Well, one last question. You have not raised any third-
party money for the business.

Farag: No.

Parkinson: How do you make the decision when it makes sense to

do that? That's obviously a big step. Big decision for any
entrepreneur to make. Do you think that's a bridge that you're going
to want to cross someday? And how will you make the decision?
When is the right time?

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Farag: Absolutely. So, I think the first thing is, when you're looking for
capital, it's why do you need it? What is the purpose for that capital?
Is it to scale one side of the business to the other that you personally
can't afford? Or is it for the resources? Is it that you're going to get
an investment but also be in an accelerator that's going to help you
grow there? And so I think I've heard it in some different podcasts
that going into venture, it's kind of like hitchhiking. You know? And
that you can take it from one place to another but the second you run
out of gas, you're getting kicked to the curb. And so, when I decide,
my business partners are very conservative from a business
standpoint. So, they've always taught me to save money and buy in
cash. Right? And from the startup standpoint, it's kind of the
opposite. And so I think I'm going to get to a point, very shortly here,
where we're at a point where the business is ready to really take a
jump. And that's where we're going to say we're ready to approach
people on the other side of the table and say, "What can you bring to
us so that we can make this kind of balloon pop?"

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Table of Contents
1. Preface
2. Module 3: Building the Team
1. Lesson 3-1: Team Building
1. Lesson 3-1.1 Team Building
2. Lesson 3-2: Leadership
1. Lesson 3-2.1 Entrepreneurial Leadership
3. Lesson 3-3: Building Credibility
1. Lesson 3-3.1 Building Credibility
4. Lesson 3-4: Interview with Entrepreneur
1. Lesson 3-4.1 Interview with Steven Farag, Campus
Sportswear

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