Rule #4 – Solving the problem of Co-Founders

There is no shortage of talent out there willing to join up in your venture. There is no shortage of talent out there willing to work for free, work long hours, follow your lead, and generally behave exactly as you envision in your minds eye. These talented people will gladly listen to what you have to say and at just the right time, they will bring new and constructive ideas to the table that will make you thankful that you have them on your team.

The unfortunate problem in all of this is there is an even greater number of “dead weight” types that will hinder progress more then if you were entombed in concrete on Mars. These people will resist every suggestion, insist they can complete the task at hand in a better/faster/cheaper way, and generally make you want to jump off a bridge. Even worse, they will suck the life out of your project and thus they will suck the life out of you. And when all is said and done (if it ever gets done), you will not be hoping to enjoy your work or build upon your business, you’ll only be hoping to make enough money that you can either buy them out or they’ll buy you out.

So, how do we distinguish between the flotsam and the jetsam? It isn’t easy, but it can be done. While finding trustworthy, hard-working, team players willing to commit to the company’s greater good is not a science, you can increase your chances of success by following a few simply steps.

  1. Someone has to be in charge. Chances are it’s going to be you since this whole thing was your idea. Fine. That doesn’t mean you’re the big cheese or get to take the executive suite while everyone else bunks together at the Motel 6. Quite the contrary, being “in charge” means you will need to work harder and longer then everyone else. You will have to find ways to motivate and organize your team. You will have to know how to take the good ideas and leave the bad. You will have to manage things when someone gets sick or goes on vacation or decides they don’t feel like working all that hard right now.
  2. Do not bring in anyone as a partner if they have a problem with there being someone else in charge. Yes, group-think is likely going to produce better results and a better product, and everyone should feel that their input matters a great deal. But somewhere along the way, SOMETHING will come up where one person has to make a decision and everyone else will simply have to live with it. Make sure this is clear before you get started.
  3. Do not, under any condition, create a partnership with anyone whose role is to do something you can do yourself. This can not be overstated. Even if you think, “I’ll bring Fred along because I know he’s a hard worker and he can help with activity x and activity y”, you are better off not including Fred if you yourself are adept at performing activity x and activity y. Even if you think that the time and energy saved so you can focus on doing something else is worth the trouble of bringing someone else in, then wait until you have some sort of capital and hire someone to do these tasks. Under no condition should you cannibalize your company unnecessarily by redundently filling positions with co-founders or co-owners.
  4. If you are considering someone to bring in as a co-founder or principal, research their work history like you are hiring them for a job. It does not matter how well you know someone or how excited they were about your idea when you talked about it over margaritas. You are doing yourself (and your company) a disservice if you do not ask for a resume and references. And if they resist providing a resume and references, then perhaps you don’t really want them involved anyway. Far too often we hear what we want to hear with potential partners and our lack of due-dilligence puts us in a bad spot. For example, I have been involved in a partnership with a ridiculously talented software engineer, designer, and site-builder. There would appear to be nothing he can’t do on a computer. However, the three projects he was involved in before I began working with him are unfinished web-services sitting on the internet collecting e-dust. If I had researched his work history a little, I would have known that while bringing his talent on board was still well-advised, it should have been done with a few conditions, including completion timelines. Which leads me to my next point…
  5. Do not simply “give” any part or parcel of your company for nothing. Without question, far too many startups take two or three or four people, divide up company ownership, and get started taking over the world. This is a mistake of the highest degree. All people, regardless of their field or industry, work better when there is a reward directly attached to their efforts and input. Unfortunately, “We’ll launch the site, make lots of money, and everyone will be happy!” isn’t a directly attached reward. Even though you trust your co-founders and know they’ll do their part, you are best off building in provisions that guard against someone not holding up their end of the deal. Any benchmark is worth including, from fundraising obligations to completion timelines to revenue generation milestones and everything in between. The person in charge takes ownership of the provisions, and every one else should be given a fair and reasonable way to earn their part. Invariably, someone will end up working harder then someone else, which will lead to trouble in paradise that could have been solved ahead of time. It is important to explain to your co-founders that this isn’t about them doing work and then being shut out, it’s about them fulfilling an obligation that they are willingly agreeing to. Times will get tough, tensions will mount, frustrations will boil over. These are the moments when having provisions about vested interest built in to your paperwork will allow you to sleep easy at night.
  6. Define EXACTLY what each founders role is to be before you start any work. Think of everything and assign it to someone. Accounting, taxes, development, marketing, sales, public relations and buzz, fundraising, networking, travel, interface design, quality assurance, infrastructure, decorating the office, picking the domain name, choosing how to configure your email addresses. EVERYTHING should be accounted for. Now, that isn’t to mean only one person can do each thing. It does mean that one person is responsible for stewarding that aspect of the business and getting it done. Everyone’s input should be welcomed by that person, but ultimately, that part of the business is up to them.
  7. Give everyone an out. The unfortunate thing is that as time passes, the exact direction of your company is likely to change, even if only a little. However, there is a good chance that while some of the folks involved will love the new developments, some of the folks involved might not. And it’s also possible that the enthusiasm and ingenuity that made the latter group so valuable might disappear. It’s better to build in provisions for people to leave of their own accord as amicably as possible. If a person doesn’t want to work on your project anymore and lacks the drive and motivation to do their best work, you’re company is likely going to be better off without them. Having a “friendly” provision that allows them to leave with no hard feelings will likely make the difference between that person walking out angry and that person spending some time transitioning their work to someone new so nothing is lost.
  8. Give your company an out. While you certainly hope that following the rest of these steps and your natural intuition will keep you from getting involved with the wrong partner, sometimes it happens anyway. As such, you are best off building a buyouy/dissolution piece in to any agreement you make. You can have the buyout be a lump payment. You can have it be the cash equivalent of a variable (i.e. monthly revenues) multiplied by a duration of time. And while the temptation will be strong to “get the best deal” possible out of getting rid of the wrong partner, you’re much better off playing it the exact opposite way; your reward is removing that person from your company structure. Make their payout sufficient enough so they are disappointed that you let them go, not angry that you let them go.  Once again, this will help make any transitions of assets and information much smoother and will keep you from dealing with an angry ex-employee as you move forward with your company.

Finding co-founders is tricky business. Sometimes, people come up with an idea together and it just works for them to work together on that idea. Sometimes, people come up with an idea and the only way it will work is if they call all the shots, right or wrong. Frankly, I would advise against partnerships outright unless you absolutely can not go forward alone. More often then not, they end up messy with friendships, money, or both lost forever. That said, if you are like me and your appetite for technology is greater then your ability to create that technology, you may find yourself with very little recourse but to bring in other people. If so, I advise you be thorough in your deliberations and thoughtful in your decision making.

It is very easy for the wrong people to end up bound to you as partners. It is significantly more difficult to remedy such a situation.

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2 Responses

  1. Awesome! As a serial entrepreneur, this point nails most of my lessons I’ve had to learn in past few years.

    -Zaid

  2. These are very good points/steps. And I am forced to realize that there are also cycles that we go through during this process where things are “great” and not so great. Perhaps having some of these provisions in place before hand really does make it that much easier to traverse stormy seas.

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