Your biggest challenge will be building a great team.John Doerr
John Doerr’s Startup Manual
February 28, 1997
It’s worth clarifying some terminology so we’re all on the same page. My definition of a founder is someone who works full-time on a project from day one. A founder takes risks equivalent to other founders. Someone who only contributes money I think of as an investor rather than a founder; investors can be business partners, but they aren’t implicitly founders.
Getting married should be a deliberate and carefully considered decision. Finding business partners isn’t all that different. A former boss told me his lawyer said that the legal and financial bonds between my boss and his cofounder nearly exceeded those between him and his wife. In some ways, business partnerships are a lot like other long-term relationships–they shouldn’t be entered into lightly. Your team can make or break a product, and there are several things to consider when assembling one.
The sooner you accept you will need or want a cofounder someday, the better off you’ll be. Ideally, you need to have known and worked with someone for years before taking the plunge with them. Spending some time getting to know someone will give you an idea of how well they can work with you and your other founders.
One of the best ways to find a cofounder is to look to the group of people you already know. If you’ve already worked with someone, you’ll have a pretty good idea of how well you work together. But your former coworkers might not be in a position to quit their jobs and become founders–whether for personal or financial reasons–so it’s not always that easy.
Before looking for cofounders, however, you should ask whether you even need one. While I think you’ll be better off with a cofounder, a lack of them isn’t a reason not to act. In fact, in many cases, the wrong cofounder can be worse than none at all. Don’t find a cofounder just to check off an item on your list.
I’ve found that the ideal number of founders is–in order–two, three, one, or four. I should mention that two and three are almost dead even in terms of benefits and drawbacks. The benefits and drawbacks of these options revolve around workload, communication, risk, and tie-breaking.
The workload when starting a company is enormous, and your life will be much easier if you can share that with other people. Unless you’re a sole founder, any number of cofounders will help alleviate the workload.
Communication is essential, and the more people you have, the more communication overhead you’ll need to keep everyone in agreement. With two people, there’s only one line of communication; but if you add a third person, there are three lines of communication–and with four people, you’re looking at six lines of communication.
With each founder comes risk. Chances are, at least one of your founders won’t last. This could be due to internal conflicts, or they may have their own personal or financial reasons. Either way, each additional person adds risk. It’s not the end of the world if someone doesn’t continue as part of your team, but it will invariably become a distraction. Fewer people introduces less risk.
With a sole founder, there’s no communication overhead, but you don’t have any help; your risk lies in your ability to maintain the business. With two founders, you have someone with whom to share the load–and you have only a single line of communication to worry about–but any disagreements can easily end in stalemates. With three founders, you have others to share the work, the lines of communication haven’t become unwieldy, and differing opinions still remain manageable. With four people, the complexity of communication introduces significant risk. Beyond three or four people, the lines of communication snowball, and it becomes much more difficult to move quickly. You may also be faced with too many opinions to be able to focus on the right ones.
Tie-breaking is a small but interesting detail; it doesn’t favor a particular team size, but it’s something to consider once the team is in place. If you have an even number of people on your team, stalemates can arise unless there’s a single team member who has the final say or there’s another means to handle ties–indecisiveness can kill your momentum if your team lacks a tie-breaker. Someone needs to have tie-breaking authority, and establishing that up front helps.
While it may sound silly, if your team regularly has differences of opinion that aren’t handled well, resentment can build. Feelings of resentment or of having views dismissed can lead to rifts in your team, and how well your team works through these decisions can have a lasting impact on the team’s longevity.
Target a Diversity of Skill Sets
Your business partners should be smarter and more talented than you in some key areas. Your team’s collective knowledge should cover all the core skill sets: business, technology, design, sales, marketing, accounting, and legal. Depending on your business, some of these skills may have greater or lesser significance–and you can design your team accordingly–but they all deserve consideration.
There’s a dizzying array of skills needed to create a successful business, and you’ll find that a diversity of skills, perspectives, and opinions helps create a healthy environment in which ideas can grow and flourish. Moreover, for any skill missing from your team, someone is going to have to acquire it, and you can be sure that it’s going to take them longer to get up to speed than if you were to have someone who’s already accomplished.
Prioritize Trust and Respect
Trust and respect are essential to any relationship. This is even truer when founding a business, and it needs to flow both ways. If you don’t blindly trust your cofounder to have access to the bank account while taking care of their work without oversight, that’s a red flag.
Ensure Financial Alignment
Money can complicate relationships. If some founders invest money while others don’t, there can be tension when things don’t go according to plan. Similar problems can arise if some founders are in significantly different financial situations than others. You’ll have fewer problems if everyone is on the same page.
Let’s look at an example. If one founder is a millionaire and feels that anything less than a $100 million business is a failure, while the other founders are living paycheck to paycheck and would be content with just a healthy salary, there’s going to be some tension. If the company gets an offer for $15 million early on, the founder with millions in the bank will probably want to pass on the offer, while the less fortunate founders may be more than happy to accept it. It could come down to the person with the most equity making the decision, but that doesn’t mean it won’t create a rift in the company.
Commitment and Risk
Founders should aim to have similar commitment levels. If one person is working full-time, and their livelihood depends on the new company, while another still has a full-time job and just dabbles with the project in their free time, there’s an unequal commitment. If everyone is working part-time with equal amounts of risk, that’s fine. But if the levels of commitment vary, that needs to be reflected in varying levels of equity and control, or else a rift can form.
Anecdote: Our Sifter Partnership
With Sifter, Keith put up some money, but he also helped in ways far beyond that. He never answered support requests or wrote code, let alone fix a bug and do a release, but he helped offload most of the legal and bookkeeping so I could focus on the product. He rarely put in more than five hours per month, but if you were to ask me how many founders Sifter had, I’d say it was about one and a half. I wasn’t completely alone, but I didn’t have anyone else in the trenches with me.
Keith and I had known each other and worked closely together for five years before he cut the $16,000 check for Sifter. In addition to Keith’s equity, we were using all of my hardware and software, so I was contributing some capital to the company as well. To this day, I think that one of the greatest hallmarks of our partnership was that we had cultivated a mutual trust such that Keith didn’t even log in to look at Sifter until shortly before it launched–he had complete faith in my ability to design and execute on the vision put forward in the presentation.
When it comes to skills, Keith knows business. He built and sold a small company, and has been involved in a variety of roles managing projects and businesses. I’m a product person–I design, develop, and support the product. It would have been nice to have a seasoned developer, but not having one wasn’t reason enough for us to hold back. Without a deep technology person, we brought on Dan Benjamin as an advisor. His experience and connections played a significant role in helping us fill the gaps in our skills.
Five years into a project would have seen most investors asking when they’re going to see a return on their investment. Other investors might expect to start receiving dividends or to see other benefits. But not Keith. We talked about it, but he always fully supported my decision to continue investing all our profits into improving the business. As the supermajority shareholder, I could have done whatever I wanted–but throughout, if we were spending more than a few hundred dollars, I always called Keith to discuss it with him. I wouldn’t have had it any other way.
How to Meet Your Next Cofounder. Tom Preston-Werner provides some great pragmatic advice about finding a cofounder.
How to Avoid Cofounder Conflict. Dharmesh Shah on some of the critical considerations for avoiding problems when choosing and working with cofounders.
Three’s Company. Spencer Fry shares some insight on his experience with varying numbers of founders.
How do I allocate ownership fairly? Joel Splosky, cofounder of Stack Exchange provides an in-depth explanation of a great way to determine equity distribution among team members.
Being a Solo Founder: Pros, Cons, Tips & Tricks. Josh Pigford provides some great insights from his experience building and running Baremetrics as a solo founder, and his experience largely mirrors my own.
Being a solo founder. Spencer Fry provides some great insight on being a solo founder and how having no cofounder can be better than having a bad cofounder.