Published on March 5, 2013
When creating your startup, understand this significant detail: your choice of co-founders is crucial and critical in determining any possibility of success.
/ by Peter Cauton /
In my opinion, founder selection is the single, most critical determinant of success in early stage startup formation. In my experience, no other factor even comes close.
Who you choose to work with determines everything else.
Wait, but do you even need a co-founder?
True, you can go at it alone. I know a number of entrepreneurs who have chosen to go at it alone. There aren’t a lot though. An overwhelming amount of startup founders choose to share ownership with partners.
Why? The obvious answer is that there is simply too much to manage when starting a firm: from creating the product, to crafting the marketing strategy, to setting up accounting systems, to recruiting the right employees—there are literally hundreds of things to worry about. Of course, you want to do all these things in a great manner.
This is too much to expect just one person to do. Most people will be great in some areas and poor in others. So to be able to do all things great, you very likely need more people.
Can’t you just hire for your gaps then? Of course you can.
The disadvantage would just be that an employee will never think like an owner. An employee’s motivations will always differ from an owner’s motivations. This can lead to frustration for a solo entrepreneur who is expecting her employee to act and lead like a partner. It just won’t happen. I’ve been there.
Moreover, without the lure of equity, an employee’s chances of staying for a long period are near null. An employee will likely leave you when the going gets tough. A great partner though, will be with you through thick and thin.
Also, it’s not just as fun going at it alone, right?
So let’s get this one straight: unless you are an entrepreneur with no discernable weaknesses, you will need to find partners.
Let’s go through what I think are the five most important items to consider:
The very first thing to do is to map out what the core activities of your company are—the essential things your company needs to do right to succeed (or Key Result Areas/KRA’s, in corporate parlance).
As much as possible, distill these down to 2 to 4 items. (In fact, 4 may be a stretch).
For example, a mobile game development firm would have software development and apps monetization as its primary strategic areas. A restaurant would need a great cook, someone who knows restaurant processes very well, and perhaps a visual marketing expert. A human resources consulting firm would need not only an HR expert, but also someone who does accounts-based sales.
Mapping out these activities will give you a great guide as far as who to look for, and what the right mix of strategic talent would be.
A lot of people miss this absolutely essential step when looking for co-founders: Before you look externally, you have to look internally.
It starts with giving yourself a hard look in the mirror and asking: Who am I? What am I good at? What do I suck in? What do I love to do? What do I hate doing?
It isn’t only self-awareness that’s required here, but also a sense of humility—to recognize what you are weak at and to look for people who can cover for your weaknesses.
I find two partners to be ideal. There’s a certain zen-quality to it. Think Wozniak and Jobs. Allen and Gates. Builder and seller. Vision and execution.
If you absolutely must, you can take in a third partner.
Beyond that, there are numerous disadvantages to having a lot of partners: less accountability, slower decision making, more politics, sheer chaos, and perhaps the most obvious one—a smaller slice of the pie.
As far as partners go, never ever rely on the usual “recruitment process” as the sole determinant as to whether you shall award equity or not. This is extremely dangerous.
Rely on actual work.
For this to happen, perhaps you can suggest a project first where you can work together with the potential partner for a significant amount of time.
Or, you can vest the equity. Instead of awarding, say, 40% of your company’s equity in one fell swoop, you can instead award it in three increments: 10% at the end of the first year, another 10% at the end of the second, and then the remaining 20% at the end of the third.
Before you get married to your partner through a permanent SEC registration document, its extremely important to play the field.
Don’t go selecting the first person you like. This is the most crucial decision you will make in your startup—so take your time and cast a wide net.
Instead of selecting the first person you like, wait until you encounter five people you like and then make a hard choice.
Peter Paul Cauton is behind Juan Great Leap, a blog and movement that pushes Filipinos to follow their passions and pursue startups. He is a career HR practitioner turned serial entrepreneur, co-founding HR tech firm STORM Consulting, executive search firm Searchlight International, and Streamengine Studios, which makes explainer videos.
Illustration by Pia Ana Ugarte