This article is part of a series about going from “I’d like to start a business” to having a small start-up running, and beyond. If you haven’t read the previous articles, I recommend you do so by going to the first one, which includes a small table of contents.
If you ask members of five different startups which ones they believe are the keys to their business success, you will probably get various answers. But I can assure you, one of those keys will pop out in all cases: to manage to put together an exceptional team..
Perhaps when you start with your idea it’s just you but, if the project begins to take off, sooner or later you will start growing a team in order to make your vision a reality. This is an absolutely critical process, and in this post I will share with you some tips in order to do it as smoothly as possible.
The co-founder is that one person with whom you work since the inception of the startup and with whom you also share the day to day intimacy: fears, celebrations, frustrations. There might be just one founder or four, I don’t believe in golden rules for this matter. I do believe, however, that the building of such a team cannot –and must not– be left to chance. Perhaps you got to know your future partner by pure chance, but the decision to finally become partners deserves some deep meditation.
What should we take into account when evaluating a co-founder? I would focus on two aspects of it:
Complementary Skills. It should be clear that you, by yourself, do not possess all the required skills for your ventures’ success. For example, may be you know how to build the product, but have no idea how to market and distribute it. (and vice versa). If there’s something I would look in a co-founder is to have him to make it up for my weaknesses and lack of certain key skills. This does not necessarily implies, sticking with our e-commerce example, that one has to be a great developer and the other one a great marketer. Two developers, one more prone to taking care of the business side and the other more of a fan of spending the whole day writing code would definitely not be a problem. Neither would it be a problem two business guys, one of them deeply passionate about the product side of the business and some minimum technical knowledge
In any case, it is not a must for the founding team to have all the skills they need for the long term success of the venture. Just the basic ones to successfully travel the first kilometeres of the journy, untill the moment comes to hire the first employee.
Fit. Complementary skills are not enough. Getting on well with each other and working smoothly as a team is essential. You will spend lots of hours per day with tour co-founder(s) and, more than once, things will get tough and you will have to reach an agreement on difficult topics. I would never found a startup with someone I don’t feel at least some admiration and respect for. Admiration does not mean the other guy is Mark Zuckerberg, but that you admire something in him, e.g. his or her perseverance, analytical/soft skills, whatever.
You wouldn’t marry a girl without first dating her
If you married someone you would want to date her first, right? Get to know each other? The same happens here: in a lot of ways, the founding team is like a marriage. Some times we are lucky enough to have already worked with the ones we are looking at as potential co-founders; may be at school, or in a previous job, or as part of some volunteering. If you never did, it’s really important to test the relationship first before giving him 50% of our baby (aka 50% equity).
How can we do it? If it is a technical guy we are talking about, we can start by giving him some freelance work (for example helping us build our beta version). If it’s about a business guy, we can ask him some help in creating our first marketing campaigns. You get the point… Doing this test is not only useful to finding out how our potential co-founder works and how we might –or might not– work as a team: we will also be able to see how much energy and drive he will bring to the project.
No matter what kind of relationship you have with your future partner, my advice is to sign an agreement before going all in. Even if you will not create a legal entity from day one (and I don’t recommend that), you should sign at least an intention letter in which you lay the terms of the partnership. In that agreement/contract I would include:
- Responsibilities. Approximately how much time per week each of you will dedicate to the project. If you agree to invest money, how much. Of what tasks will each of you be responsible (optional).
- Equity. How will equity be divided. The only reason I can think of for spliting it unevenly among founders is for one of them to be investing more capital than another (be it money, machines, whatever). If one of the partners will work part time even in the long term, think if you want him as a co-founder. And for god sake, “I was the one who came out with the idea” does not entitle you to a single 1% more equity than your partner.
- Vesting. Try to picture this situation: both of you work in the project for a year. After that, one leaves. At that point, the business is worth $1.000. The ona that stays keeps working on it and after 6 years sells the venture for $1.000.000. It would be pretty unfair for the one that left after year one to get 50% of those earnings. “Vesting” is a clause usually included in the incorporation paperwork that establishes the following mechanism: should one of the founders leave the company before a specific period of time, the he will get just a percentage of all the stock he was originally entitled to. The standard scheme used in Silicon Valley works like this: you “earn ownership” of 25% of your stock package after the 12 first months of the startup, and then 2% each following month (reaching 100% in four years) If you leave after 6 months, you leave empty-handed. If you leave after 2 years, you leave with 50% of your stock.
Even if what you sign has no legal validity, writing it all down lays the ground for a much healthier and more transparent relationship. And it usually makes us think if we are taking the right decision.
Keep tuned, in the next post we will talk about funding for startups!