Five Strategies of Building Productive Co-Founder Relationships

Most startups begin with an idea. It may be a true innovation or a more optimal way to do something or a service nobody has thought of before. You turn it over in your head and little by little you become convinced that it just might work, that there is a potential for a business in there.

However, as you think a bit further and such words as “investments”, “contracts”, “prototyping”, “development flow”, “marketing campaign” start popping up, you realize that you may be a genius technologist but you know nothing of finances. Or, you are a great manager and can put together a good team, but when it comes to marketing, you may really fall on your face. Or, you may just need someone to criticize your ideas, to share the entrepreneurial load and to provide a second opinion. In short, you need a co-founder.

On the other hand, if you are planning to attract investors, remember, that, in general, investors favor co-founded startups better than solo entrepreneurs. The reason is more psychological than economic – if an investor sees a single entrepreneur, they may think that you could not even convince your friends and family that your innovation is worth it. Another reservation is that everybody knows that starting and running a business is hard work. When a person plunges into business alone, the chances of failure are higher. Of course, there are exceptions, but angel investors tend to follow their intuition and gut feeling, so you have better prospects of getting investment in a co-founded business than in a solo entrepreneurship.

According to the research by First Round Capital, a company providing investment to startups, solo entrepreneurs are much less likely to succeed than co-founded startups:

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[Image source: First Round 10 Year Project]

The research is based on the data gathered from more than 300 investments over the period of 10 years.

Who is a co-founder? – A co-founder is a person participating in company establishment together with one or more other people. This may sound simple, however, if you are planning a co-founded startup, you should consider some basic strategies to ensure successful and effective co-founder relationship.

Perfect Co-Founders and Where to Find Them

When you are looking for somebody to start a business with, you will first search among people you already know. Let’s see who can become your co-founder and what could be the pros and cons in each case.

  • Family. Starting a business with a close relative has a lot of obvious advantages – you know each other for ages, you may be closer than friends, you can rely on each other’s support. Financial matters are easier, too, as all money remains “in the family”. However, your little sister with whom you shared secrets in your bedroom may be not that skilled marketing expert which your business requires. Your love and affection could make you blind to professional inefficiency. And, of course, starting a business means making an agreement which can sometimes seem awkward and inappropriate between family members.
  • Friends. Creating a startup with a friend is one of the reliable options, as true friendship means trust and honesty which are priceless both for business and private relations. With friends, you feel natural bonding, you share interests and views, you are comfortable being together. At the same time, as with family, you may overestimate your friends’ skills and abilities. A great person is not always a good professional. Another important concern is money which can ruin long-term friendships. John D. Rockefeller said: “A friendship built on business can be glorious, while a business built on friendship can be murder.” So, even if you are creating your startup with friends, begin with a co-founder agreement, no matter how cynical it may sound.

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[Image source: DA-14 Software Development]

  • Ex-coworkers. This is a perfect startup co-founding option. Inviting an ex-colleague to participate in your startup, you are partnering up with a person whom you know from the professional point of view. You know what they are worthy of as workers, their attitude to work, their working patterns. At the same time, you are not bound by emotional or kinship concerns, thus being able to build healthy relationship with your co-founder. And, of course, with ex-colleagues all matters related to money, distribution of co-founder responsibilities and duties are resolved much easier.
  • Employees promoted to co-founders. This is another good co-founding solution. Hire a person to a managing position and let them grow into a co-founder. You will be able to see your co-founder-to-be in real working conditions under various load and make a grounded decision on their promotion. In this case, you will be gradually building trust and both of you will have a chance to evaluate each other as a working partner. At the same time, you will not be under any co-founding agreement and, if your employee is not fit for the task, neither of you will lose much.

In any case, look for someone with skills that you lack. Two or three great developers will probably not succeed without a marketing pro. And if you are a sales expert, find a co-founder who can back you up technologically. And, of course, complementing personal traits will be an added bonus – for someone who can easily light up and get carried away there should be someone else to cool things down and make realistic plans.

How Many Co-Founders Does a Company Need?

Two is a company, three is a crowd, as the saying goes. It can also relate to startup companies, as statistics show that the perfect arrangement is two co-founders. We have already seen that flying solo has its drawbacks, but why is two better than three?

With two partners, it is easy to divide both responsibilities and profit, to make decisions and to work out strategies. The downside here is that in the case of a clash, there will be no one with the casting vote. At the same time, with three partners there may be situations of two joining against one which can cause conflicts and harm the entire business.

With larger co-founder teams, the profit is still more diluted and decision-making can become even more complicated due to too many opinions. Also, there is the problem of CEO, as there may be only one.

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How to Build Effective Co-Founder Relationship in a Startup?

Even if you are the best of friends or loving spouses, you still should follow some basic rules to ensure that your startup does not turn into a disaster and, which is more important, does not ruin your personal relations.

  • Divide responsibilities clearly. This is what should be done before you start. It is very important to clear up who does what. If necessary, note it down. This will prevent both from interfering into each other’s areas and some business aspects being neglected.
  • Agree on profit split. Decide whether you settle for equal shares for each partner or, if someone’s material or effort contribution is higher, whether you will reflect it in the profit distribution.
  • Define your success and failure. You should have an idea about when you can claim success which can also be the definition of failure. Set a deadline – for example, if in two years the business does not bring profit – you close down. It is essential for all co-founders to agree on this.
  • Draw up an exit strategy. You need to plan for failure, too. Think of how you will wind up the business, who will be responsible for what and how you will make the final settlement.
  • Make an agreement. Yes, even if it is your best friend or twin brother, lay it all down on paper and sign. For such situations, business owners can use free co-founder agreement templates found online or reach out to a lawyer to draw up a custom agreement. Make sure that all points which may cause conflicts are clearly described and that all methods of resolution are defined. Having an agreement will help you avoid problems in the future.

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Final thoughts

Of course, having a co-founder is not imperative. There are dozens of solo entrepreneur success stories out there – think of Elon Musk with SpaceX and Tesla or Jeff Bezos with Amazon. If you believe that you have enough time, strength and endurance to run the own business alone – do it.

However, the list of co-founded global companies is no less impressive. The list goes as follows: Sergey Brin and Larry Page, founders of Google; Bill Gates and Paul Allen, founders of Microsoft; William Hewlett and David Packard, founders of Hewlett Packard.

With a partner, you will always have someone to lean on, someone to test your ideas on, someone to criticize you and support you. After all, it’s just more fun.

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