Running a startup is not easy. Especially when you are the only founder, overseeing business processes like sales & marketing, quality & product/service delivery, product development, accounting & technology, and administrative (management, HR & Finance) becomes very hard.
However, having a co-founder with high compatibility, knowledge, personality, behaviour, and vision, solo founders can accelerate the growth of the business.
While the journey from an idea to a startup is a long one and needs various elements, finding the right co-founder is undoubtedly the most important part of starting a company.
Don’t forget, choosing the right co-founder is as hard as choosing the right person to marry. In this article, we will shed light on why having a co-founder is important and share checkpoints that you can take care of while choosing the right co-founder.
Why Is Choosing The Right Co-Founder So Important?
There are three main reasons why a co-founder is crucial while starting a company.
1. The first is productivity. You can get more work done if you have someone to share the work responsibilities with. Additionally, your business can excel at a much faster rate if your business co-founder has skills complementary to you. Furthermore, having a co-founder with a different skill set helps get more aspects of your business covered.
With the right co-founder, there will always be someone you can brainstorm with and come up with better ideas than you could have alone. This way, you have someone to talk you out of potentially destructive ideas and choose the right things for the business.
Note: Having the right co-founder gives you a push not only in the quantity of work done but also in the quality of work done.
2. The second reason is moral support. Startups are an incredibly intense and taxing journey, and it’s great to have someone you can lean on for support during the tough times. The best co-founder relationships have the dynamics to balance each other out and can even help out each other in some of the highs and lows that can come up in the journey of the startup.
While you can get productivity increased by hiring skilled people, you cannot get that same emotional support that you would get from a co-founder. Because, unlike the employees, you’re not his boss, and being the co-founder, he is as invested in the success of the startup as you are. So, you cannot be as open or honest with them about the company as you can be with a peer!
3. The final reason to have a co-founder is pattern matching to success. Almost all the successful startups in history, such as Apple, Facebook, Google, Microsoft, had a co-founding team when they started.
While we associate Apple with just Steve Jobs and or Meta (Formerly Facebook) with just Mark Zuckerberg, all of these founders had co-founders that they relied on.
Finding Your Entrepreneurial Other Half!
Now, as we established that why a co-founder is so important, let’s take a look at some of the checkpoints that you can take care of while choosing the right one:
1. A complementary temperament: Find someone who will fill in the gaps around your personality strengths so that employees, partners, and investors will see and benefit from the balance. Diversity on your founding team will give you strength.
2. Different operational skills: If you’re a product guru, maybe you need a business development or sales-oriented leader to get your vision to market. But if you are great at finances, an early-stage Excel ninja partner probably shouldn’t be your top priority.
Even within a discipline, there are differences in core operational strengths, and often highly technical businesses have more than one highly technical co-founder. So, your job is to assess your business situation and choose the co-founder accordingly.
Note that a common tactical error most product- or technology-focused entrepreneurs make is they look for someone with top-shelf management consulting experience.
Though it’s not a bad instinct, since management consultants are polished and smart, however, they rarely possess core executive chops apart from project management or some general “operations” background.
3. Similar work habits: Find someone who shares your expectations on work-life balance. Mismatches on hours or effort quickly and reliably lead to resentments.
4. Self-sufficiency: A co-founder isn’t like any other colleague or employee. So, while choosing a co-founder, prefer the one that is reliable, self-sufficient, and someone who functions on auto-pilot with virtually no input from you.
5. A history of working together: If possible, work with someone you’ve known for a while or with whom you’ve collaborated before. Easy familiarity helps conversations move quickly and allows trustworthy cooperation. A long-term relationship can help you leapfrog the learning curve of close collaboration, which can sometimes take years to develop.
6. Emotional buoyancy: Running a startup is like having an emotional rollercoaster ride. Things surely will get tough at one stage or another. There will be bad days, bad moments, bad deals, bad quarters, etc. Even if you’re a passionate and relentless person, there will be hard days waiting for you. So, it’s important to have a co-founder who can support you in stressful times.
As a founder, you can’t always show your colleagues that things are getting to your nerves or you’re having a tough day. But if you have chosen the right co-founder, you should be able to express your feelings and vice-versa.
7. Total honesty: You and your partner must be committed to telling each other the truth all the time, even if it’s tough to say or hear. This requires practice and emotional investment. You can’t pick a partner who is afraid to tell you what you need to hear.
8. The same overall vision: Your co-founder should buy into the central vision for the business you are starting. Even after all the many other pieces of the puzzle come together, your partner’s main motivations for joining your venture must include a passion for the project you are pursuing. You’re starting a business for a reason, and uniting over a common interest is a typical way for two founders to come together!
Well, now all of this is figured out, how do you make things “official?”
Things To Check In A Co-Founder’s Agreement
One of the most crucial things that co-founders of a startup should do is have a Founders’ Agreement formalizing their professional relationship.
This is extremely important even for businesses that just have started to operate but have not been incorporated yet. Disagreements between co-founders have led to the end of many startups, but a well-thought-out founders’ agreement can be extremely useful in amicable dispute resolution. The parties can often arrive at a decision because the agreement provides recourse for the situation they find themselves in.
A founder’s agreement makes the understanding between the co-founders regarding the business obligations and functioning legally binding through a formal written document.
An open discussion regarding outlooks, aspirations, concerns and the arrangements of the startup is required while forming such an agreement.
Additionally, while stating factors such as roles and responsibilities, non-disclosure, the exit of the co-founders, termination, etc., in the agreement, you must know that none of these provisions is standard to any business. It is important to have an agreement tailored for you and your business that covers, in specific and not generic terms, most aspects that might lead to disputes between the founders. It should be comprehensive yet not complex. This minimizes the possibility of debilitating surprises in the future when the company is functional in terms of inter co-founder relationships.
Thus, one must pay careful attention while drafting a founders’ agreement, as it is crucial to the business’ growth and prospects. Although every aspect of the founder’s agreement can have a big impact on the enterprise, there are a few vital elements that have been discussed below:
Role & Responsibilities:
Founders can perform a variety of roles at the beginning of a startup’s functioning, however, the core duties of each individual’s future role must be decided initially in a founders’ agreement. Determining the roles becomes easy when the co-founders have complementary skill sets, but due diligence must be given to this task.
The objective behind this is not to reduce one’s role to a certain aspect and rather have a specified role if one is torn between two tasks. Furthermore, as the company grows, these individuals will come to occupy varying roles, hence the decision-making procedures should allow for redefining the roles as and when is it felt necessary by the founders. It can be stipulated that roles shall be re-evaluated periodically, such as every six months, and, if necessary, redefine titles and roles to reflect changing needs.
Lastly, with more than one founder, each person may aspire to be the CEO. In such a case, discussing your expectations for titles and general responsibilities with your co-founder early on can mitigate future conflict.
As the startup grows, more complex decisions have to be made. In such a situation, the founders’ agreement must mention the way decisions are to be made.
The agreement should specify which person shall have the final authority regarding decisions within which aspect of the business. A consensus from all founders is required for critical decisions- like equity, executive hiring, long-term commitments, etc. The founders’ agreement should specify the mechanism for resolving such disagreements and deadlocks. Additionally, it is required to state the procedure which is to be adopted if there is an equal division for and against a decision. For example, which person should have the extra vote and how such a person is to be chosen.
Rights & Rewards:
It is better to address the compensation to be given to the founders in the initial phase of the enterprise. This should depend on both the capital brought in by the partners and the time put in by each of them. Usually, time is the most important asset of a young company, so the founders’ agreement can be restructured in a way to give more weightage to time. It is also important to decide the time to be put in by each founder for performing his/her duties.
Founders should divide the equity stake based on the past and the expected future contributions and the role of each person in the team. Other factors that can be considered are the credibility brought in by a partner, industry connections, intellectual property rights, and technical know-how. At the same time, some room must also be left within the agreement if their initial division does turn out perfect. Founders can also set aside an undistributed portion of the equity under the ESOP pool for the employees.
The contributions made and expected from each founder should be properly determined and put into writing. Some of the co-founders may have strong industry networks that might increase the chances of the company succeeding if it is shared with the company. Others may have access to an IP crucial to the operations of the business.
The agreement should set out the commitments required from each founder so that the startup doesn’t have to face issues due to any disputes within the founding team.
Conclusion | The Right Co-founder
This agreement establishes the roles, responsibilities, and rights of founders. It allows co-founders to negotiate a shared vision, but most importantly, it provides a way to resolve future contentious issues. Hence, its formation shouldn’t be rushed, and ongoing discussions at length are required to pen down the clauses. It is beneficial to have the team’s expectations aligned before the company grows too big.
Even after considering all the above points, conflicts might arise due to the unpredictable business environment. The founders’ agreement has provisions that help establish a process for dealing with unexpected scenarios, protecting your startup and your relationship!