The founder/co-founder situation
Looking for a co-founder? Hold up. Let's look at the facts, things to avoid and helpful information when it comes to your startups founder situation.
65% of startups fail due to founder conflict.
– Prof. Noam Wasserman, Harvard
The accuracy of that is difficult to validate because ‘conflict’ is multi-faceted and the actual ‘failure’ can have many attributing factors, but the general message is that it’s common for founding relationships to ruin your startup’s chances of success.
Let’s talk about it.
Business relationships are hard. Now add the uncertainty, doubt, and highs and lows of the startup environment, and it gets harder. Much harder.
Startups are stressful, lonely, and incredibly humbling. Having a co-founder can make that journey more bearable, or more productive… sometimes. Other times, it can create turmoil.
Do you really need a co-founder?
I wanted to look at this objectively first, so I fetched a list of successful companies from Crunchbase over the last 5 years (2018 to 2023). Now success is hard to measure, but the criteria was an active company that has received funding over $10,000,000 or acheived an exit (IPO or acquired). Then I cross referenced that data with the number of founders listed. The results were surprising.
In the last 5 years alone, there has been 7,594 companies that have either raised over $10m or acheived an exit of some sort. Statistically speaking, you have the best chance at securing solid funding with a co-founder (2 founders total). But, in regards to an exit, the solo founder (1 founder total) wins. Outside of that, the chances get slimmer for both activities as the founder count goes up.
So, mo’ co-founders, mo’ problems.
While the data may tell you one thing, it’s a different story when you’re in the thick of it. Being a solo founder is hard. The ‘solopreneur’ is glamorized on social media but is often just a glorified content creator selling courses, coaching, or consulting of some sort. That being said, there is definitely a recent trend of solopreneurs (often devs) building in public and getting micro-acquired for smaller amounts.
Still, every founder I meet is trying to go BIG. Like billion big.
There are 1,190 unicorns right now. Of those, 305 are operated by solo-founders, and the remaining 885 have one or more co-founders.
So should you go solo, or bring on a co-founder?
Bringing on one or more co-founders is extremely popular and attractive for several reasons. Mainly because having a great team is at the top of the ‘reasons for startup success’ list, and co-foundership is simply an extension of that. Doing it alone is daunting, and lonely.
Now, let’s take a more subjective approach to the solo-foundership and co-foundership situation. Because making decisions is more nuanced and complex than some stats on paper.
The pros & cons of solo-foundership
Whilst the primary benefit of solo decision-making is strong, there are a number of other pros and cons you should consider. In the case of solo-foundership, you have the benefit to start solo, and bring someone on later, whereas that isn’t the case with co-foundership.
Pros:
Less drama – you only have yourself to argue with at the highest level.
More independece & control – quick decision making.
Bigger slice of the pie – often retaining more equity.
Cons:
Lack of expertise – you can’t be good at everything.
Lack of accountability – easier to give yourself excuses.
Workload & responsibility – no shared efforts at the highest level.
Lack of strategic collaboration – isolating decision making may not get the best results.
The pros & cons of co-foundership
Typically founders will bring on technical/non-technical founders to complement skill sets, but given the rate of progression with tools and technology these days, that gap is closing fast. In my personal experience, your ability to bring on a co-founder gives investors some peace of mind that you can bring others into your vision, but let’s look at the other considerations.
Pros:
Sharing responsibility – A helping hand on the important stuff.
More accountability – someone (or many) to keep you on track.
Better collaboration – more complete opinions and perspectives.
Multiple skill sets – filling otherwised unfilled skill gaps.
Emotional support – startups are emotionally taxing, so someone to relate to (with context) helps.
Networking – more ground covered.
Cons:
Conflicts & drama – people have different opinions, which often lead to conflict in power positions.
Less equity – equity split among founders.
Dependencies – co-founders leaving or working less can disrupt the business and its operations.
Decision making & alignment – leading multiple people to the same decision is difficult.
What to look for in a co-founder
Ok, you’ve made a decision to bring on a co-founder. Don’t rush into this. Here are some things to look out for.
Complimentary skills 🧩
Your co-founder(s) should have skills you don’t have, or don’t like. Think of gaps in your skills and find a partner that compensates your shortcomings.
Shared vision & values 💭
Save yourself the hassle and get absolute clarity that you’re on the same page about the important stuff – long-term vision, mission, goals and things you value. Sometimes this takes time to develop. Don’t commit until there is certainty here.
Personality green flags 😁
In the same way you should seek out red flags, seek out green flags which will foster a great partnership. These are things like:
Solution-orientated
Growth mindset
Can admit when they’re wrong
Diligent and thorough
Longevity ⏰
Often overlooked, but startups aren’t a get rich quick scheme. Make sure you’re choosing a co-founder that has longevity in him/her. This is a multi-year endevour. Look at their professional history tenure, and make sure they don’t jump around a lot.
Self-awareness 🧘🏼
You’re going to go through sh*t together. Make sure they (and yourself) have a grip on their identity – who they are, what makes them tick, traumas and traits. A person that doesn’t take the time to know themselves will be a tough teammate.
Experience 🛠
This is not always the case, but look at their entrepenuerial experience. You don’t want to bring on an ‘enterprise consultant’ that hasn’t experienced the road ahead. This environment is unique, taxing and unlike anything you can prepare for.
Communication skills 🗣
Lastly, look for someone that can and wants to communicate. There is nothing worse than partnering with someone that shys away from conflict and doesn’t maintain constant communication. Otherwise, you’ll be managing them as well as your company.
Addressing the elephant in the room
Remember how I referred to the fact that 65% of startups fail because of founder conflict? Let’s dive deeper and look at the common causes of founder conflict, and then how to avoid them.
Firstly, when you’re starting a startup, you rarely think about what could go wrong. You get all starry-eyed on what could go right. That’s due to survivor bias and well… dopamine.
The first steps are exciting. The world is your oyster. You’re excited, motivated, and without any wounds from the startup battlefield. So, naturally, you don’t think too much about the conflict, possible snags, and doomsday scenarios. But if you have a co-founder, you should. Otherwise the following things may happen.
Common causes of conflict
Unfair equity split
Founders often split down the middle, or based on who had the idea first, but don’t consider that there are still multiple years of hard, grueling work ahead of them. Both of these choices can cause problems, and it only gets worse as time goes on, and when you raise capital and get diluted during the process. You want to avoid the “is it worth it” thought.
Effort imbalance
The most common cause, and often closely coupled with equity split. If you’re putting in 80 hours a week, but your co-founder is doing substantially less and the split doesn’t reflect that… then you’ll eventually run into an issue. Heck, even if the equity split reflected it, you’ll probably still run into one.
Wrong roles
Companies grow, positions evolve and roles change. This is inevitable. The pick axe that broke the surface, will need to become a jackhammer to get to the other side. If your co-founder isn’t growing with the company, then they may no longer be the right person for the job. You can imagine what happens next.
Misalignment on decisions
In a traditional business structure, the CEO has the final call and veto rights. Unless you’re co-CEO’ing, then you’ll experience this at some stage. Too many unaligned decisions or veto calls will undoubtedly rip the founding relationship to shreds.
Conflicting personalities
There is a reason why lions and hyenas don’t get along. They’re both predators, hunters, strong, hostile, and matriarchal. While there are differences, their similarities cause conflict. It’s much the same with your co-founding relationship. You might think it’s great to have someone like you, but it’s often not. Conflicting or similar personality traits often lead to conflicting relationships.
Tough times
When things are going well, there are rarely issues. But the moment things start to go wrong, really wrong, horribly wrong… relationships are tested. People get stressed. Behaviors change. Fingers are pointed. It can get messy, quickly.
How to prevent conflict
“Date” your co-founder ❤️🔥
Ok, not literally. The cliché that a business partnership is likened to a marriage couldn’t be more true. You wouldn’t marry someone on a night out (unless you’re in Vegas), so don’t do it with your co-founder. Spend as much time as you need to bring more comfort to a long-term decision. Understand things like:
Their history
Their dreams, ambitions, and motivations
Their commitments & expectations
Their strengths & weaknesses
Their risk tolerance & conflict resolution style
If you have an existing relationship with this person (e.g. family, partner, close friend, etc.), then understand that your relationship dynamic will change in some way or another–for the better or worse.
Define & align at the top level 💭
Getting two or more people to align on thousands of things is nearly impossible, but aligning on a few is simple. As one of the first steps, you should look to discuss, define, and align on your startup’s problem space, vision, and mission. Decisions within these are much easier to make.
So many founders make a mistake here, don’t discuss or just assume. What is in your head might be slightly different from what is in theirs. Those slight differences can cause not-so-slight conflict.
Communicate and document. It will also be incredibly beneficial for other activities like fundraising, hiring, and such. Just do it. Early on.
Define roles & responsibilities 🛠
Often a point of contention, because while there are many different personalities, the founder/entrepreneur archetype generally possesses similar qualities, including a higher-than-average appetite for risk, generalist-type skills, ambition, and heavy-handed opinions in one or more areas. This is a recipe for conflict if handled poorly, or a winning combo if handled well.
There are formal and informal types of roles and responsibilities. These can also be dynamic at times. At its core, you want to identify who’s taking care of what, and who has the right to make final decisions in what areas.
Get agreements in place 📄
Among the excitement and hustle, this is often the last thing founders want to do. Because a) it’s costly, b) you’re not sure if it’s going to work, and c) it can be kind of awkward. It may sound like overkill, but it’s not. Things like:
Shareholder’s agreements
Founder’s Agreement
Director's agreement
Transfer/ownership of IP
Vesting schedule (all founders should do this) – set up a 4-year equity vesting agreement, with an initial 1-year cliff and monthly vesting thereafter. This is pretty standard and should help prevent some of the common issues.
Bonus: a mentor of mine, and a successful multiple-time startup founder recently gave me some advice “If it’s your idea, you started and you’re bringing a co-founder in, then get them to sign an employment agreement as well”.
Create a founder’s ‘bible’ of sorts 📖
I can’t take credit for this one, but one of my investors gave us the idea of a non-binding founders ‘bible’, where we document and evolve non-typical founder relationship stuff such as:
What we promise to do when major conflict occurs
How we make big decisions (e.g. sleep on it)
What our boundaries are
What we value
How we hire & fire
Our promises to each other, and the company as ‘vows’ of sorts
These can be anything you want, and the point of it is to get detailed, somewhat soppy, and create a pact with each other based on respect. Kind of like your teenage spit shake with your best friend.
Have frequent ‘tough’ conversations 🤬
Again from the same investor, creating a dedicated time and space to have frequent tough conversations is important. You don’t want to do this all the time, but by creating a dedicated slot for it, it prepares each other for a roasting.
Go over things like:
What hasn’t been going well lately and why
“Brewing” behaviors that are getting worse
Identify and surface brutal facts
Areas for improvement
Poorly handled situations or bad decisions
Check-in on emotional and mental position (particularly for men)
Set up a recurring weekly, fortnightly, or monthly calendar event and get it done. Don’t skip it. Ever.
Conclusion
The results? inconclusive. You can succeed with or without one or more co-founders. Generally speaking, 3 or more gets a lot more difficult. Whatever you choose to do, consider the options, apply your own context, make rational decisions, and put in the effort. It will pay off.
If you want to dive deeper into this subject, get yourself a copy of The Founder’s Dilemma by Noam Wasserman where he famously breaks down the pitfalls that sink startups, including the complexities of co-founder relationships.
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For the love of startups,
Tim