How to startup…blog 10 – Co-founders

by Adrian Lloyd

How to build a successful start-up

I started this series a late last year with the 1st blog on Generate an idea (but remember that it’s worthless) followed by In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users” and then Document your Plan A and Identify the riskiest parts of your plan and then Systematically test your plan, Get to release 1.0, Reach product/market fit, and Define your strategy and most recently, ScaleI have copied the intro to the series directly below and you will then find part 10: “How to do the co-founder thing” – the subject of this post

Original intro to the series:

The goal of a founder who wants to create a big company is to find product/market fit in a large market – one that is at least £0.5B/$0.75B in size. Much smaller than that and a venture investors won’t be confident that he or she will get 10x on their investment (and note that it doesn’t matter at which stage you’re working, as if an early stage investor like us, we need to believe that we will be able to sell you onto a Series A/B investor who also has to believe he or she can get 10x and so on). It’s not right all the time, but it’s a rule of thumb.

The Lean methodology, thought up by Eric Ries and then evolved by many others, is the best way to work through the early stages to product/market fit.

We like Running Lean by Ash Maurya for a clear outline of what this entails.

What Ash excludes from his thinking is in-depth customer observations, as developed by IDEO, the design firm founded by David Kelley in Palo Alto, right next door to Stanford University, my alma mater, and a clear definition of “strategy” for the start-up.

(Overly) Simply put, we think a founder needs to take the following steps:

  1. Generate an idea (but remember that it’s worthless) 
  2. In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users”
  3. Document your Plan A
  4. Identify the riskiest parts of your plan
  5. Systematically test your plan
  6. Get to Release 1.0
  7. Reach product/market fit
  8. Define your strategy (Goals, Scope, Competitive Advantage, Logic) 
  9. Scale
  10. How to do the co-founder thing – the subject of this post

I will write a bare-bones explanation for each of these 10 steps with as many links and references as I can so you can read better writers’ thoughts on the subject.

And the last thing that you absolutely need is a great culture.

11. What is a great culture?

Here we go: HOW TO DO THE CO-FOUNDER THING

It is very hard to start a company. It’s very very hard to start a company without a co-founder.

Someone always has the idea first, but usually (and this is the case for every one of our portfolio companies) they will quickly (within 6 months typically) find a complementary soul to bring that idea into existence.  In generic terms, often the first 2 people are a salesperson and a tech person.  A good pairing to get things kicked off.

When I started my most recent failed startup in 2011, both co-founders were non-technical product/strategy/salespeople.  We couldn’t find a technical co-founder.  Took that as a pretty bad sign – no one we met was willing to take the opportunity cost to join us in return for equity and that was the final nail in the coffin.  Perhaps it shouldn’t have been and we should have paid for an outsourced agency to build the product, but that wasn’t what we wanted to do.

I’m not going to advise you on where to find a co-founder.  Impossible to be comprehensive or useful on that front, I don’t think.

What I think is useful to advise on are kind of questions you have to answer for yourself / yourselves once found.  Thank you to Dharmesh Shah for the inspiration for a lot of the ideas

    1. Do you have any hesitation about the integrity of your co-founder?  If so, find another one.  You don’t have to have the same personality, but you do have to trust them and really believe they bring as much or more to the company as you do.  You need to respect them.  You will spend more time with your business partner than your love partner.
    2. How you will approach the equity split?
    3. How you will make decisions? Clear role division is important – you won’t need to consult each other on many decisions if you know you have the remit to make those decisions.  Much more efficient.  VCs like there to be a single CEO.
    4. What happens if one of you leaves the company?  Always consider the worst case scenario up front during “peacetime” so when the worst case happens, you at least have an agreed (legal) process to follow.
    5. Can either of you be fired? By whom? For what reasons?
    6. What are your personal goals for the startup?
    7. Will the startup be the primary activity for each co-founder?  Should be.  Obviously impacts equity and responsiblity split.
    8. What part of the plan are you unwilling to change?
    9. What contractual terms will each of you sign with the company?
    10. Will any of you be investing cash in the company? If so, how will it be treated?
    11. What will you pay yourselves? Who gets to change this in the future?  Investors really (really) like to see CEOs who value their equity a lot more than a salary.
    12. What are the financing plans for the company?  How would a VC like to see you answer these questions?  VCs can afford to be picky so tart yourself up for them if you can.  Keep things simple.  Don’t give half your equity to a development agency for developing your app, for example.  There may be good reasons for it (probably not, in fact), but it makes it harder for a VC to say “yes”.

 

 

 

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