Things you need to know about having a co-founder.
Co-founders are a great thing - if you do it right.
This also means that by doing something right, it can take time and experience - or the support of a mentor to guide you during the process.
When most people think of a startup, they often think of two people: one co-founder and one person with management responsibilities. The two most common names associated with all startups are Mark Zuckerberg and Eric Schmidt. Each serves as a CEO and Chairman of the Board for their respective company. Each went through the same process - create an idea, team, raise money and create products. The only thing differentiating them right now is their age.
Whether a single founder or two equal partners, startups are chaotic enough to require a co-founder, this is because each person brings different skills and resources that will contribute to the overall success of the startup. A person with a good idea and a business plan can do well on their own. However, if they want to be successful long-term, it might be worth considering a co-founder. That way, you will have another person to turn to when there’s a problem.
If we were to describe what a startup is, we would say it’s a temporary organization of individuals hired as a solution to a specific problem. Most people would agree it is much better for tech companies to partner with each other. One reason being there are so many startups and money is very limited, therefore it is much easier to pitch your startup if you have a partner.
With an additional level of investment and accountability, the startup can become more stable and have a better opportunity to thrive, so if you're looking to take on a co-founder let's answer a couple of questions to support your decision making.
How much should you give a co-founder?
This is a great question, and a question that is asked often.
There really is no set percentage when it comes to how much you should give, as really it comes down to responsibility and control. Helpful? Not so much. However, a good starting point is looking at differentiation between a co-founder and an early hire.
An early hire should receive equity that will come in from the Employee Stock Option Pool (ESOP), with this it makes sense to allocate around 10% of the company shares, so if you think about sharing this between multiple early hires, each would be getting between <1% and 2%. However, they will also be compensated for their work in other ways i.e. a salary and will most likely be treating this as a job - because essentially it is a job, which means they can easily walk away both physically and emotionally and find opportunities elsewhere.
Although the vision of the company should be compelling for them, the culture will be the most important aspect for retaining their services (along with the salary package). Their responsibility will be to effectively execute specific aspects of the company strategy or (at the higher level) manage/direct those who will be doing so. Although you will want to retain these team members, they are not necessarily integral to the existence of the company and could be replaced without too much discomfort. (sorry for those that are employees).
To bring it back to the topic at hand; a co-founder should be so much more than this. And although you may be gripped on your seats to find out how much you should offer your co-founder, the decision comes down to the following:
How much responsibility should your co-founder have?
Let's dive in.
What responsibility should your co-founder have?
A co-founder should be a vital part of the business strategy and crucially should add to your credibility as to why you are able to pull this off. As much you are vital for certain aspects of getting this off the ground, the co-founder should be there to have close-to equal vitality for different aspects of the business. For example, it is typical to have a commercial co-founder and a technical co-founder. This partnership works well because one is an expert in the technical aspects of building the solution and the other is an expert in "business" side of the company.
The level of responsibility should be extremely high and the risk taken should be equivalent (or at least very close) to yours. A "leaders-eat-last" approach should be taken by them as well and the vision of the company should be their main buy-in.
Your co-founder should be part of creating the culture at the company rather than buying into an existing one, and ideally you want their involvement from the ground floor. However, the buck stops with you. As the CEO, you finalise decisions. It will only work if you run a "benevolent dictatorship"- so although the co-founder should have complete responsibility over their domain, they are not COMPLETELY equal on final decision making.
With all that being said, the equity should reflect the level of responsibility and criticality they will have within the business and if they are vital to the success (and credibility) of the business it should be reflected as such. Anything between 25% and 50% is acceptable and the decision is made based on your personal perception of their place in all of the above.
As far as the detailed part of what they should do/control etc, that comes down to a skills audit and understanding your specific strengths vs the required overall skill set and finding someone to plug that gap.
For example, if the financial side is the only area where you need help, bringing in someone who can help with revenue models, costing and fund raising may be the best decision but may not warrant a 50% share in the business. It is important to be honest with yourself about your weaknesses and finding someone appropriate who believes in your vision and can bridge that skills gap.
To Summarise
When it comes to finding the right co-founder think of the following:
- Are they aligned with your vision and values?
- Are they ready to commit to a 'leaders-eat-last' approach?
- Do they bring in an alternative skill set that will allow growth within the business?
- Does the equity you're providing reflect the level of responsibility they have?
- Do you want to be the final decision maker? If yes - you know that the percentage has to be lower than 50-50.
If you'd like more information on this topic or you're in the process of starting your start-up venture, feel free to contact me directly for support options.