At The Resolution Co, our goal is to help ensure that every aspiring entrepreneur is both well-informed and prepared for their next business venture. To help you along your journey, we’ve created a brief checklist series that covers the nuts-&-bolts of what every entrepreneur should know before moving forward.
#1: Co-Founders — Where should I be searching for co-founders?
Noam Wasserman, a former HBS professor and author of The Founders’ Dilemmas (a book I HIGHLY recommend), discovered a key insight in his dataset when it comes to choosing co-founders:
In a nutshell,
Former Co-workers > Strangers/Acquaintances > Close Friends or Family
Here are a few of the main reasons why you would want to partner with former co-workers over friends/family or acquaintances.
- You’ve already established a professional working relationship;
- higher comfort-level when exchanging critical or constructive feedback;
- minimal collateral damage if the relationship were to dissolve;
- and direct experience of either managing or being managed.
Here are a few reasons why partnering with strangers or acquaintances may be more favorable for your business than with close friends or family.
With close friends or family, there is a pre-existing relationship that runs counter to a healthy working relationship.
[How do you tell a close friend or family member that they are under-performing, or even worse, that they are no longer needed for the business?]
By selecting from your pool of family and friends, you run a serious risk of irrevocably harming your pre-existing relationships. In my opinion, that is almost always too steep a price to pay for the marginal added benefits of familiarity and camaraderie.
On the other hand, there is no pre-existing relationship with acquaintances, so you can work together on building a healthy professional relationship from the ground-up. Also, there is practically no risk of collateral damage to your social life or close family ties in the event things go sour in the future.
#2: Co-Founders — Do I even need any? What about flying solo?
While running a business by yourself (as a “solopreneur”) and having full decision-making authority may be an attractive option for some, a few major drawbacks to consider are:
- Difficulty raising funds: investors typically see “solopreneur” businesses as extremely risky investments.
- You may rely too heavily on your own strengths & abilities while discounting the value or necessity of your functional areas of weakness.
- There is nobody else to bounce ideas off of or to give you a reality check, especially when needed.
- The weight of the world will be on your shoulders — Trust me, startup life can be really tough, especially if you’re doing it right!
#3: Co-founders: How to choose ones that are a ‘great fit’ for your business — (Values & Company Vision)
While functional expertise may be critical, an often overlooked consideration when choosing co-founders is how well they align with your own values & vision for the company.
Sam Altman, of Y-Combinator, once said, “the team you build is the company you build.”
When your company starts to scale, its core values will likely spread from ‘top-down,’ starting with upper management. Therefore, if you want to create a clear and unified company-wide culture, you should start early by selectively choosing co-founders and early hires that align with your set of values and vision for your company culture.
Vision for the Company
This may come as a surprise to many, but the period of time when most high-growth startups fail is right after they close their first round of financing.
Think about it.
[Long story short: money changes people.]
How would you feel if you:
- built your company from the ground-up;
- [against all odds] managed to raise outside capital from VCs, Angels & the like;
- and, right when it’s time to bring the champagne out, you discover that your co-founders fundamentally disagree on the direction that the company is headed in.
Can you imagine this scenario being the iceberg that sinks your company? Neither could they.
@ The Resolution Co, we believe it is mission critical for your team to be on the same page when it comes to your company’s mission, values & vision. By aligning your team early on in the process, you will significantly reduce the risk of future co-founder conflict that may lead to a messy founder divorce, or worse, the dissolution of your business.
#4: Co-Founders — How to Assign Roles, Responsibilities & Decision Making
According to Wasserman’s study, autonomy and power & influence were top motivators for entrepreneurial men in their 20’s, 30’s & 40’s. For entrepreneurial women in their 20’s and 30’s, autonomy, power & influence and altruism were top motivators.
Of course, it would make sense that most entrepreneurs desire independenceand a sense of control from their role within a startup. However, a difficult dilemma still remains:
How do you carve up roles and responsibilities within your startup that:
1. not only satisfies your co-founders’ own desires for autonomy, power & influence;
2. but also fosters a balanced and high-performing dynamic within your team?
This question can be difficult to answer. This is especially true when your fellow co-founders have their own ideas on how their skills and expertise would be best put to use for the benefit of the company.
Another common bottleneck that can slow the growth of early-stage startups is decision-making management.
How do you decide the following?
A: Who has decision-making authority and ‘final say’ over ___________?
B: Which type of decisions must be reached by consensus or majority vote?
C: What about decisions that fall outside of the scope of A or B?
Our Advice: When delegating decision-making duties within your startup, you always want to be as specific as possible in assigning authority to avoid future conflict & confusion.
#5: Co-Founders: Splitting Equity
The decision of how to split equity can be one of the most difficult tasks for any founding team. So difficult, in fact, that one-third of founding teams choose to split equally and avoid negotiating further based on their skills, experience or relative contributions to the company.
Our advice: Don’t split up equity right away. We recommend that you wait at least until you have a better idea of how each core member will contribute to the business and what their overall commitment level will be. The last thing you want is to be careless in this process and award more equity to someone than they truly deserve in the long-run. If you don’t believe us, check out what Robin Chase, co-founder of Zipcar, had to say about her own experiences in making this early mistake!
I hope you thoroughly enjoyed this first installment of the Entrepreneurs’ Checklist and stay tuned for the next chapter in this series!