Gates + Allen. Jobs + Wozniak. Page + Brin. Clark + Andreessen. Filo + Yang. Co-founders of legendary tech companies that have shaped our world. So, what makes a good co-founding team? When does it come together? Should you even have a co-founder?
I’ve been a founder, co-founder, founding partner, and held other positions while succeeding and failing at a few ideas, watching friends do the same, and having the good fortune of meeting and mentoring a lot of aspiring entrepreneurs. So, is some humble advice with the battle scars attached.
Go it Alone or Team Up?
The “two guys in a garage” mentality prevails in the start-up world; the idea that there’s usually two co-founders that give life to a company. I happen to agree that at some point early in a company’s life this happens but not necessarily always at the beginning. In some cases, although I would argue rarely, being the only founder might work. The glaring example is Jeff Bezos being the sole founder of Amazon. There are a few factors that determine what makes sense:
- Where did the idea come from? If you truly came up with the business idea on your own (and be honest) then you could run with it. If, as in many cases, it was something you thought of together with someone else and both decide to take the entrepreneurial plunge together then you’ve got a partner in crime.
- Are you both jumping in? Just because you batted around an idea doesn’t mean you’re stuck with the other person. You both have to decide to start the company. If only one person decides to run with it then the other person isn’t a co-founder, they helped with the idea but its going for it and executing that matters. There is no maybe, either you’re in or out from the start. No fence-sitting then claiming to have a stake later.
Co-Founders Are Not Always Equal
It’s not the case that the term “co-founder” needs to apply to people who conceived the idea or started the company together. Sometimes, someone can earn the co-founder tag. I’ve done this at my previous company where someone worked so hard and was so integral to success that they de-facto were included in almost all decisions and contributed as much as I did. They deserved to be a co-founder and so I made it happen. Earlier in life I started a company where I had a co-founder and were equal partners right from the start. It taught me what can happen when the hype fades and the struggle continues but not everyone is in for the fight. So, I see two options:
- Be the Founder: start your company and add people who add value where you can’t. As you move forward be fair and award equity and maybe even the “co-founder” or “partner” tag to the person that is just as integral as you are.
- Co-Founder from the start: find your compliment and start the company together but make sure to spell out how equity is earned over time.
The Power is Not in the Crowd
Personally I feel that three co-founders is a maximum and two is ideal. More than three and you usually get group-think, less leadership, and have to deal with multiple egos and personalities at the top. Not good.
Being a co-founder is different from being an early, valuable, decision maker. Sean Parker was Facebook’s founding president but he’s not a co-founder of Facebook. Add people to your company as needed and give them the value and respect needed…and ALWAYS make sure their equity is on a vesting schedule!
Make Sure Everyone is Vesting
I’m often meeting first time entrepreneurs that haven’t been given the advice or read about the importance of vesting. Engineer founders are more interested in coding something great and later end up getting advice on structuring the actual company and running the business. In the simplest terms vesting can be explained as follows:
- Vesting of shares means that a person earns shares or the option to buy shares by providing services to the company.
- You get shares, or the right to exercise the options and purchase shares, based on a set “vesting schedule” provided that you are working for the company.
- Your shares and/or options) “vest” over time as you stay with the company. This means you are either allocated shares outright or you exercise your options and can buy the vested shares.
- When you stop working for the company you lose the shares that haven’t vested and the company can buy back unvested options (usually at the price they were offered which means no money or very little money to you).
Example of a standard vesting schedule:
- Co-Founder gets 100 shares that vest over a 4 year period with a 1 year cliff
- At the one year date if the co-founder is still with the company than 25% of the shares vest, so the co-founder gets 25 shares
- The remaining 75 shares vest equally every month for the next 3 years provided the Co-Founder is still with the company. This means the Co-Founder gets 2.08 shares per month
- At 4 years the Co-Founder has fully vested their shares.
This is WAY better and makes A LOT more sense than saying “let’s start a company we each get 100 shares right now,” only to have your co-founder leave when you’re six months in taking half the value of your company on paper. It’s thankfully something aspiring entrepreneurs increasingly understand but still happens more often than I’d like to know of. Vesting means that if you’re with the team then you get rewarded and if you’re not you don’t.
Above everything else, even if you skipped everything else in this post remember it is 100% true that starting a company with someone is like getting married. Make sure they are a perfect fit for the success of the business, bring complimentary skills to the table and that you get along. If not, it’ll end in a messy, ugly divorce. Whether you go it alone or get in bed with someone else. Choose wisely my friends!