STEP 2: The MOST Important Thing: Picking Co-founders

(This post is part of the 6-Steps to Startup Launch Series. Introductory post is here. Step 1 is here.) 

Very first question: do you really need co-founders?

Short answer is: no you don’t. You can own 100% of the equity. If you need people, you can instead hire them. One of the entrepreneur/VC’s I follow, Mark Suster, recommends starting this way. I’ve also encountered entrepreneurs here in the Philippines who absolutely will not relinquish any equity under any circumstance. One of the startups I founded, Searchlight, was a deliberate attempt go through startup process by myself, in a grand experiment of sorts.

So do I recommend going at it alone?



One key reason is that startups often become quite multi-faceted – almost immediately, it will require skills from you which are simply not strengths.

You then will need other people who complement you. (complEment, not compliment, just making sure ) The reason STORM works is because Pao and I complement each other very well.

I provide the HR domain expertise, Pao makes IT systems. STORM creates HR-IT systems.

I talk about going for ideas all the time, Pao is the voice of reason.

I sell. Pao makes.

I am all over the place. Pao focuses.

And so whole we ended up creating gets to be much greater than the sum of our parts. By myself, I can never do the things we do in STORM. This is why you should never get clones of yourself. A strong, complementary founding team can move mountains.

Note: You do have to be the same with regards to values though. As different as we are on skill sets, Pao and I are so aligned when it comes to principles. We both agree in treating employees as partners, we are both God-driven people, we are both very family-oriented.  Because of this, it becomes easier to create a more aligned, powerful workforce culture.

Yet another reason for not going at alone is simply that it just isn’t as much fun.

I don’t know about you, but I love working with great people – solving problems, arguing, discussing, creating. I love that I am a part of great teams. This is where going at it alone can be bummer. When I started Searchlight, I immediately felt this. Yes, it was a thrill of sorts to be completely accountable for everything – but it was weird to just think things by myself when  I had to solve a problem or strategize. This is why I’m rethinking the Searchlight experience to possibly bring in more partners. (anyone out there who’s interested in the executive search business? 🙂

Oh, and employees you hire can never fully share the startup experience with you. You will end up looking at stuff from different perspectives. It’s different when someone co-OWNS it with you.

If you’re somewhat a super-Swiss Army knife mega entrepreneur who’s also a bit of a loner – then yes, you can pretty much put up a startup by your lonesome, it might even be faster.

But for the rest of us? Bring in co-founders!

Let’s now tackle some fundamental questions about co-founders.

1) How many?

The quick answer is that it depends. One of the things I do is I break up a business opportunity into its key areas, then I try to look for people who would fill those key roles.

STORM is pretty much a combination of HR and IT. There were early iterations, but this quickly settled into me and Pao.

When I was trying to find that founding team to do a UI/UX consulting firm, I figured we needed to have a user-experience person, a design person, then I figured I can do the selling. I experimented with a few iterations with this one.

I suggest you bring in as few co-founders as is necessary though, as too many heads can quickly become counter-productive. The trick then becomes finding people who can fill in multiple roles. If you identify 6 roles, try finding them in just 1-2 more people – don’t bring in 6 founders.

Easy? Of course not. 

From experience, I’d say 2-3 co-founders in a firm is ideal – decisions are much faster, there is less lost in the translation, increased accountability, and the best ideas win out.

2) Does doing it with friends benefit?

One thing I’ve had to learn in my years in HR was to properly assess friends when they applied in the firms I worked in. I had to push my biases aside and be very objective.

This is even MORE crucial in startups. I’m sure all of you have heard of friends fighting in their joint business exploits. This almost always boils down to one reason: one friend didn’t live up to expectations.

Remember those crazy things you did in high school? Isn’t it just so easy to put something up with friends? It’s exciting, there’s no feel-out process, and of course, you feel that you can trust friends easily, and therefore jump into things more easily.

This isn’t about high school escapades though. It’s war. In war, you want the most qualified generals.

If your friend is the best qualified person out there, and if she complements your own skill set, then go on right ahead.

Those IF’s are just huge though. Evaluate objectively.

3) Is a pre-nup possible?

Where rich ex-wives happen.

If there’s one more thing Kobe Bryant and Michael Jordan have in common, is that they both failed to do a pre-nuptial agreement – so both lost (Kobe just about to) half of their huge fortunes because of their respective divorces.

Is there any way to do a prenup in startups? This would seem so practical.

Fortunately, the answer is yes. This is called vesting, and it should be something all startup founders should agree to.

Vesting involves not getting your stock immediately, instead, it is distributed or “vests” over a period of time. A classic model is a 3-4 year vesting period with a 1-year “cliff”.

Three years means that you will have 100% of your stock after 3 years. Vesting is usually linear: 25% vested after 1 year, 50% after two, 100% after three, etc.

The “1 year cliff” means that you don’t vest anything the first year, but you get 25% on your one-year anniversary.

The idea behind this is to prevent rewarding partners who just disappear or cease contributing. This is a great insurance policy.

Friends, finding the right co-partners(s) is the MOST important aspect of startup life. You may find out your idea may suck, or that your strategy isn’t working – all these things can be overcome by a strong team. When it’s the team that’s the problem that it gets to be debilitating. It’s very very difficult, to recover from drafting a non-functioning co-founder –  someone you cannot so easily get rid off. The effect on your company can be incalculable.
The best way to solve this problem? Avoid it entirely.
Pick a few people. Evaluate ruthlessly. Vest.
(Take a leap and join the movement! Subscribe to the email newsletter to join the forum!) 

Peter Cauton

Entrepreneur, writer, speaker, startup advocate, HR guy. Husband, father of 6, teacher, unabashed follower of Christ.

This Post Has 2 Comments

  1. Another great post!

    Naku pano yan sir? Bringing in a tech guy and a creative designer would bring our start-up team to 6 pax. Would that still be ok?

    1. Glen, drop the “sir” 🙂

      6 people in a startup will be awfully tough to manage Glen. I’m not saying it’s impossible, but it would be tough. Immediately, you will find decision-making slower than you’d wish it.

      Here’s a possible quick fix: find a way to split the company into 2, with each going after a different but related business opportunity. Then, if the founders split in half, have the other half own a small percentage of the other firm as a hedge. So, say the firm is split in two – 3 founders each. One set will own and operate 90% of one firm and own 10% of the other. Then vice-versa. Of course, this is me shooting from the hip, as I don’t even know the roles you envision for each of the 6. PM bro if you need any detailed help.

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