Cofounder fallouts can be a death knell for an early stage startup.
They're ugly, costly and unfortunately commonplace. Research shows that 65% of all startups will fail because of cofounder tension.
The good news is that there are a few things that cofounders can do to avoid joining the statistics and ensure their cofounder relationship is a successful one.
1. Get to know yourself before finding a partner
Before you even look for a cofounder, think about your own strengths and weaknesses.
It’s common knowledge that you need to find a complementary skillset (ideas people need strategy people, sales people need technical people etc), but get deeper than this.
For your relationship to work over the long term, you need to take an even deeper look at yourself. What's the value system at your core?
One useful exercise is to write down the values that you want your business to embody. This could look like: ‘integrity, boldness, honesty, passion, autonomy and authenticity’.
Once that’s written up, be brutal and cull these values to your top three. These are your non-negotiables — but think about the ones you’ve discarded. Do you want a cofounder who can cover those attributes you’ve discarded, so you both can champion different and important values, or do you want somebody who shares (roughly) your top three?
Psychometric tests can also help you to get a clearer idea of your own drivers prior to starting a cofounder search.
2. Look for outlier operators
There are so many places to begin your hunt — business schools, incubators, Discord, Slack communities, your networks. You can even try your hand at cofounder speed dating.
How (and how not) to run a startup.
Keep your eye on startups that excite you... they’ll be populated with incredibly talented, rising star operators who’ve grown something from nothing.
But here’s my personal tip: keep your eye on startups that excite you. Don’t just talk to the founders. They’ll be populated with incredibly talented, rising star operators who’ve grown something from nothing.
Come exit, all these balls of commercial energy will have money to invest, confidence and a hunger to jump into the next project. And they’ll also have specialised skills that a generalist founder won’t have; if you’re a technical founder, look for great product or commercial operators.
If you can get your idea in front of them at the right time, you can end up with a partner of a seriously high calibre.
3. Find their ugly
Once you’ve found ‘the one’, how do you find out who they’ll be in their rawest moments? To prove to yourself that they really are the one, you first need to try and suss out all the ways they might not be the one. If you can find their ‘ugly’ and if you’re still sure, it’s probably a match.
Think of this as a values alignment test. How you go about this heavily depends on who you are and the company that you are planning to build.
If you like cold hard data, it might be useful for you to use online tools like the Political Compass or Moral Sense tests to see how you both line up. Or you could go for a long walk, a night out, undertake an escape room challenge or even have a transcendental experience at Burning Man.
The world’s your oyster, but remember that all of these activities are give and take. They’ll learn about you, you’ll learn about them. Have fun, be merry, ask each other controversial questions. And on that note...
4. Have an honest conversation about your roles and responsibilities
Nobody wants to talk about responsibilities and the weighting of power in the heady first days of getting a startup going, but if you don’t, you’ll just be storing up problems for the future.
Are you looking for cofounder equality, or will one of you be subordinate to the other? Will you be the ‘public face’ CEO with the final say (see Uber, Intel, Instagram, Salesforce) or will they have 50/50 input into everything?
5. Use your equity to instil the dynamic
Not all founders will own an equal share of the company. The decision over how to allocate ownership will be based on a conversation about responsibility, as mentioned above.
But it could also be informed by one of you bringing more funding to the table, or an email list of 20k prospects. Perhaps one of you has a proven track record in that industry.
Mike Moyer’s Slicing Pie is a great resource on the process of deciding equity splits.
6. Conditionality is important
Once the split is decided, how do you make sure that neither of you get burned?
The key is conditionality, which means setting milestones for the release of the equity. For example:
- Develop the app to minimum viable product (MVP) level by January.
- Secure five strategic partners over the next six months.
- Get us to Series A.
Or you could just keep it simple and allow for chunks of equity to be released at regular time intervals (every month, every quarter etc).
By setting goals that have to be hit in order to release the equity, the whole arrangement becomes relatively risk-free for all parties, and you create incentives for yourself and your cofounders to work your hardest to build the business.
Sharing is winning
The baseline for most healthy relationships is respect, aligned values and a willingness to share the spoils.
By building these elements into your cofounder hiring process, you’ll be future-proofing your relationship to the best of your abilities.