Choosing a Co-Founder is One of the Most Critical Decisions You’ll Make
As you prepare to launch your startup there are many factors to consider, choosing a co founder could make or break your business, as co-founder conflicts are a common contributing element to startup failures. You want to do everything in your power to be sure that your co-founder is the best person to achieve not only a successful liftoff, but also maintain your business on an upward growth trajectory.
Four Things to Look for in a Co-Founder:
When you search for a co-founder, you need to have candid and sometimes challenging conversations to get to the root of your potential partner’s values and to cultivate a true understanding of his or her skill set. Don’t be shy and make sure that you have these conversations sooner rather than later. In particular, your ideal co-founder should have the following four characteristics, among others, which you only will be able to determine as you dig into the startup and business relationship issues:
1. Complementary Skills and Temperament
You need to select a co-founder who balances you. In other words, you need a professional and personal “yin” to your “yang.” For example, if you are a visionary tech master, then you might need a business savvy financial genius to bring your big idea to life. Similarly, if you prefer to gather as much research and information as possible before making a decision, then you might benefit from a partner who has active decision-making skills. It is better to be challenged by your partner’s wise counsel, than to be surrounded by “yes” men or women, which could leave you vulnerable in your areas of weakness. This type of balanced relationship leads to better decision-making based on the collective use of each partner’s strengths.
2. Similar Work Ethic
You also need to ensure that your co-founder has a similar drive to make your business a success. Your co-founder should be just as willing as you to put in the hours necessary to create and launch a successful company. You wouldn’t want to feel like you’re doing all of the work or that you have to follow up constantly with your partner to make sure that he or she is on task.
3. Shared Vision and Values
You and your co-founder need to work toward the same end goals. As the pieces come together for your business, a shared vision and passion for your project will smooth your route to success.
4. Integrity and Trustworthiness
While some might feel that the necessity of integrity and trust should be a given, it is worth keeping these characteristics in mind. When you are working toward turning your big idea into a viable business, there are elements of confidentiality and trust that must be protected. Watch out for ego-based vs. mission driven people who are focused on titles, ownership, and money. Titles and compensation do not matter if your startup is not successful. You need to make sure your co-founders are committed to the long-term success of your company. Ask yourself, will your co-founder have your back, or are they capable of sticking a knife there? If you have seen any questionable behavior, trust your gut – you are likely to see more, especially when challenges present themselves.
What You Need to Do Once You’ve Found Your Co-Founder:
Once you’ve found your co-founder, you need to agree on some parameters to protect your business as it grows. This is when the conversations might get even more challenging. When you have a co-founder and you both are diligently working on the business, you still need to create clear roles, including who makes the final decisions. Basically, you need to determine who’s the boss.
Focus On Ownership Structure
As you develop the foundation of your company, you obviously will need to make decisions about its ownership structure. An equal ownership split might not be the best answer (even though it might be the quickest path to an agreement). While ownership does need to be determined early, you don’t need to make that decision at your first meeting. You can’t delay too long, however, because you will need to figure out these ownership issues by the time you incorporate the new company. You and your founders might bring different levels of value to the company, which should be reflected in the relative ownership positions. You need to identify the corporate structure that will allow your business to thrive and grow. And remember, handshake agreements and informal documents will not work if you are building a serious company that is planning to raise capital in the future.
Make Decisions About Issuing Stock and Vesting
Stock vesting helps to align equity ownership with the long-term goals of your company. Vesting generally means that full stock ownership is not provided immediately, but is released over time in smaller chunks of the shares vesting on a schedule. One of the most common vesting schedules (known as “standard cliff vesting”) involves vesting over four years with 25% in the first year and the remaining shares vesting monthly over the next three years. This stock vesting allows you to take back shares in the event that the stockholder fails to do his or her share or prematurely exits the business. This fixed-interval schedule of stock vesting serves as a long-term carrot for focused commitment from the co-founders.
You have many decisions to make when forming and launching your startup. Finding the right co-founder and determining the most appropriate structure will help you set a strong foundation for the future of your business. It is critical to join forces with the right co-founder and structure your company correctly at startup in order to smooth some of the inevitable turbulence of your entrepreneurial journey.