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Co-founders Dirty Laundry

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It looks so rosy on the outside. Every now and then, we hear stories of some young entrepreneurs who founded their tech startups after school and became millionaires at age 30. Some may say it’s all about luck. While this statement is not completely wrong, founders’ early choices are critical in steering the direction of their startups towards success or failure. One of the most critical and risky decision for a founder is building the founding team. In fact, 62% of startups fail due to founding team conflicts (Source: fundersandfounders.com) and many of those failures lead to “dirty” legal battles. While there is no right or wrong approach to finding and choosing co-founders, here are some thoughts  an entrepreneur might consider before building his team:

Complementary Skill-Set: A study by Funders and Founders highlights that a two-member founding team is optimal and increases the chance of success.

Optimal

Accordingly, an entrepreneur should consider choosing a co-founder with relevant and complementary skills. For example, a “technical” entrepreneur who comes up with a great product might need a “business-minded” partner to help him manage the operations and launch the product efficiently and vice versa. For the partnership to be successful, both co-founders should realize that their skills are complementary and equally indispensable for the success of the startup.

Personal / Professional Relationships: Entrepreneurs should be very careful when choosing a best friend, a sibling or a spouse as a co-founder. Although success stories exist, we know of many cases where co-founders’ conflicts have led to disastrous outcomes with long term impact on their personal lives. For example, Alex Nelson and Christina Wallace, who were best friends when they founded Quincy, have destroyed their friendship when they went through hard times and had to shut down the company. Moreover, Hillary Mallow and her husband’s ended up getting a divorce after several conflicts on how to manage ProLab. Before committing to founding with a friend or family member, entrepreneurs should realize that even if they really know them, people change and there is a high chance that their private lives and dirty laundry will be exposed to the public. Keeping in mind that 30% to 40% of startups fail1 (failure referring to assets liquidations with investors losing most of their money), one should think carefully about the consequences of the “worst scenario” on his or her personal life, weigh the priorities then take a decision.

Finally, once an entrepreneur has found his co-founder, they should make sure to write down together their vision for the business going forward and how they plan to address future issues. This “Partners’ Agreement” will be the co-founders’ bible and may include a preliminary equity split, a vesting schedule, the co-founders roles, an IP clause, how to deal with acquisitions and any other clause that the founders find relevant. Building trust and setting clear expectations from the beginning is key to any successful working relationship. 

1 Source: According to a Study by Shikhar Ghosh, Professor at Harvard Business School

 

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