Avoid co-founders in your startup
Many entrepreneurs struggle with whether to avoid co-founders in their startup or if the extra help would be worthwhile. They worry about the type of person, the split of equity, long term plans, separating responsibilities, etc.
Pros of a co-founder
- Help to validate your business ideas
You will automatically have a built-in sounding board – someone to convince before you get to do anything. If you can’t convince them, then perhaps it isn’t a good idea.
- Someone to lean on when the going gets tough (and it probably will)
There will be hard times, things will go wrong. This person will be there to support you.
- Share the responsibility.
It can be lonely at the top. You can’t talk about certain things with your employees but your co-founder is there for you.
But the title of this article is to avoid co-founders, so the cons must be really bad, right? Yes, I think so.
Cons of a co-founder
- More risk. Your business is going to have many challenges all by itself. Adding the success of a relationship to that mix is only increasing the risk. It is likely that your co-founder will have different expectations over time, they may decide to leave the business or not want to go the path that you decide on. This will cause tension, waste energy and may even kill the business depending on the circumstances.
- A very common equity split is 50/50. This is likely to result in problems down the line. One co-founder may bring more to the business in term of time, skills, money, connections or experience. Even if things start out evenly, problems can still come up over time – for example: one co-founder doesn’t quit their day job but the other does, one co-founder decides to start a different business, one co-founder gets married or has kids, one co-founder gets sick or has an unexpected life change. None of these problems affect a single founder in the same way.
- Needing agreement can stall the business. Every significant decision (and maybe some insignificant ones) will require agreement of both co-founders. This can range from co-founder stuff to product design to business model to exit strategies. It can be a lot faster and easier with a single founder.
You can avoid co-founders but still get the pros of a co-founder by finding a good mentor instead. This could be a family member who has some relevant experience or a friend in the industry or a fellow founder at another unrelated company. They may be a good sounding board for you during difficult times and won’t come with the added headaches of a co-founder.
My story – why I decided to avoid co-founders
I started my company as a consulting business with myself as the sole consultant in 1996. I got used to balancing the budget and got comfortable with risk when looking for consulting work. When I decided to grow the business beyond myself in 2004, I could have looked for a co-founder but I decided to avoid co-founders. Maybe it was the years of being a solo consultant that made me believe in myself. Maybe it was because my business model was consulting which I understood quite well. Instead I started hiring employees (W2 employees in the USA) and paid them market rates – my business plan was consulting so I could easily plan (costs versus revenue) as long as I could keep them busy with billable work. I relied on my dad for advice – he had run his own business for a number of years and was a good sounding board. I also met another business owner through networking events – and we had lunches together every few months to talk about our challenges. This helped tremendously over the years but there were times when it still felt lonely. I continued my journey from consulting business to changing to security software company and built the business to almost 50 employees as a single founder.
If you still insist on having a co-founder then at least follow these tips to improve your chances of success.
Tips for a co-founder (if you still insist on getting one)
- Make sure the commitments for each co-founder are clear and are tied to equity. For example: both quit day job, bring in xyz customer, manage developer team, get funding, etc. If they don’t meet commitments then equity split changes.
- Ensure commitments are reviewed at least annually together and the equity split is reviewed based on achieving commitments. If things have changed, then agree to change the equity/salary/etc.
- Have an agreement ahead of time for a buyout if things don’t work out. Could be something like remaining co-founder has option to buy out exiting co-founder with equity split based on an agreed upon company valuation formula (5 x EBITDA or 3 x revenue or whatever). This gives you an agreed upon basis for ending the partnership.
- Make sure you co-founder is compatible with you and has grit and other startup success factors.
Zipcar had some unfortunate times due to its co-founders not getting along – it is an interesting read here.