This article is part of The Preparation Stage section of 📕 Zero to Sold: How to Start, Run, and Sell a Bootstrapped Business.
Building a business alone can be daunting. You might lack a few skills; in fact, I am sure you do. There is a lot to learn when you start a company, and you will never stop running into unexpected challenges that require the acquisition of new skills and knowledge.
So, should you find someone to make all of this easier?
A partner, an equal, a co-founder?
In this article, I will share my learnings from starting several bootstrapped companies with co-founders. It worked out with some, and it didn’t with others. I’ll point out what to look for in a co-founder to maximize your chances of success.
Some founders are lone wolves and thrive on overcoming the daily challenges. Other founders want to work on the things they enjoy and leave the other stuff to someone who is better suited to that work.
Some founders want to live a life of responsibility and share none of the spoils, while others would instead work in a more relaxed way and split the profit with like-minded people.
So do you need a co-founder? I don’t think you need a co-founder. But your business will benefit immensely from having a co-founder.
Choosing to build a company with another person is a challenge. All of a sudden, responsibility and accountability are part of every decision. If you are a solo founder, you just do what’s right. With co-founders, you have to justify your choices, or at least create alignment about them. For some people, that is very easy, and others may have a hard time. It boils down to one core component: communication.
Communicators First, Founders Second
If you are looking for a co-founder, look for someone who can communicate well with you. No matter how different your skill levels are, you can work together well if you know each other’s goals and methods. That requires you to make sure that you’re aligned regularly. That can only happen if you speak to each other face to face.
I had a co-founder once who would only talk to me when they felt that I was lagging behind on my work. Before that, they were incommunicado: they didn’t reach out, didn’t ask if I needed their input, they seemed not to understand the subtleties of technical work, and they never tried to learn them. As a result, my own frequency of communication decreased, as I got more and more annoyed with their apparent detachment. Needless to say that business went nowhere.
Communication is a trust-building activity. When you don’t understand something in the business, you will need to make sure you talk to your co-founder and find a common understanding. You don’t need to be an expert in everything they do. However, you should have a solid grasp of the why and the how of their contributions to your business.
Personality Alignment (And Why It Shouldn’t Involve Beer)
There is the saying in the startup community that you should find someone to have a beer with, but this rarely ever translates into an excellent entrepreneurial relationship. Sure, it’s great to work with a friend, but there is no connection between socializing and working together successfully. Particularly with entrepreneurial people, social drinking can mean completely different things: a mostly introverted thinker might avoid these events, while an extroverted networker thrives on those situations. If “having a drink” means “having a meaningful discussion about your potential impact on the problems of the world,” that’s another story. But don’t look for someone who you can have a beer with. You don’t want to miss out on a great co-founder because they prefer a glass of wine.
Find someone you can solve a problem with. Both of you should get excited at the prospect of tackling a complicated and annoying issue. This tendency is the core indicator of the entrepreneur: we can’t look at a problem without wanting to solve it immediately. If your co-founder does not express any kind of interest in solving real problems but is more interested in “playing startup” or toying around with technology, be very careful. Their drive to get through the painful parts of your entrepreneurial journey might fizzle out very quickly.
Find someone who is equally excited when they talk about their work and who will glowingly speak about your business when they’re asked what they are doing. Even the most introverted character can capture the attention of a crowd with their enthusiastic portrayal of how you are impacting the lives of hundreds of customers. You want a co-founder that will do this at least as well as you do. If they lack the passion for your business when they speak to others, how much passion can they have for it when they talk to themselves?
When you start talking to potential co-founders, find out how much they care about empowering people. That’s a good indicator for several important things: their willingness to help your customers, their focus on building a problem-solving product, and their perspective on building and enabling a great team inside the business.
Enabling and empowering people is at the core of entrepreneurship. Co-founders have to empower each other to do their best work. This is so much easier if they have a burning desire to make the world a better place for everyone.
If your co-founder cares as much as you do, you are aligned along a fundamental axis. They might be more into marketing or development than you are, but their real goal is to build something that lifts everyone. And that is what you can expect from a business that lasts.
When it comes to the skill set, you can go either way. It doesn’t matter if you are polar opposites, clones of each other, or anything in between.
Complementary skills are excellent and allow for separation of concern. Now you can work in parallel, with every founder focussing on their strengths. But in the end, you will both need to do work that lies outside your comfort zone. Make sure to lay out the responsibilities for that kind of work from the beginning, so there are no “I thought that is your job” discussions when it comes to working on things you both don’t enjoy.
If there is plenty of skill overlap, that can help your business too. Two sales-focussed founders can sell twice as much. If both founders like to code, the codebase will be built maintainable and team-compatible from the beginning. The challenge of this constellation is not to step on each other’s toes. You will need to be precise in the responsibilities of each founder and how to resolve conflicts, both in work and in the direction of the business. Follow the approach laid out in Michael E. Gerber’s E-Myth Revisited and create an organizational chart for what you think your business will look like in five years, then add one founder to every position on the chart. That will allow you to pre-determine who has the final say about what.
As long as the lines between the founders are clear, then having excellent communication will allow you to create a company where people respect and listen to each other.
The Perils of Being a Solo Founder
If you want to go at it alone, that is okay too. Just be aware that there is no one to help you when you’re sleeping or sick. As a solo founder, you are the company. Unless you can outsource or delegate work to employees, you are responsible for all things. It might mean a few years of all-day-every-day dedication to your business before you can hire people to help you out with these things.
If you have read the 4-hour workweek, you may have the goal of building an automated business that won’t take much of your time. That might be the result of your entrepreneurial journey, but the beginning phases will need much more time and attention. Be prepared to spend significant time on your business when you go at it alone.
You will need to build systems to deal with the high amounts of work much faster than with a co-founder. After all, a co-founder can take over things when you’re traveling. They can help out when you’re indisposed. Without a co-founder, you won’t have that luxury. Automating and documenting your internal processes becomes a front-of-mind action that is highly important to staying sane as a solo founder. It will also make it much easier to hand over the reins of the company at some later stage of the business.
Things to Look out for When Vetting a Co-Founder
There are a few things to look out for when considering working with another founder. You will both be interested in growing the business and deriving monetary value from it. This can get problematic if you’re misaligned on a few axes.
If you found a company with someone who has an excellent network for you to sell into, you run into the risk of doing all the work yourself, because they might feel they bring enough to the table by already having the network. Assuming that shares are distributed equally, both founders should work equally hard on the business. This might get quite complicated if your co-founder came into the company as a source of capital. How much work do a few thousand dollars genuinely represent? Be very clear in your communication what is expected of each founder.
If there is a noticeable difference in wealth levels between your co-founder and you, your decision-making might be impacted very differently by your drive to generate profits. If you’re living on a shoe-string budget yourself, you might want your business to be ramen-profitable as quickly as possible. A co-founder with a sizeable financial safety net might look at more long-term profitability. Neither perspective is necessarily wrong, as both lead to positive business results. Be very clear about the near-term expectations when starting the business. Find something that works for all founders.
Unequal Share Distribution
Often when founders look for co-founders, they already have been thinking about their business for a long time. They may even have built a prototype or have paying customers. At that point, it is quite unlikely that they will opt for a 50/50 share distribution with a new co-founder, as they took a substantial risk in getting the business this far. At that point, no founder is willing to part with half the company easily.
So what do you do? Usually, the co-founder gets a minority of the shares that is large enough to warrant them still being considered founders. I have seen everything from 49.9% down to 5%. Be aware that your co-founder’s interest in building the company into a profitable business might not be the same when thy only own 5% of the shares. Imagine selling the business for $1million: they would only get $50k while you would get the remaining $950k. These results are worlds apart, and while you might be financially secure for the rest of your life, your co-founder can maybe afford to scrape a few years off their 30-year mortgage. These are entirely different incentives. Be sure that both of you are fine with the distribution of your shares.
At the beginning of a founder relationship, things are usually looking great. You get started working on the business. Things begin to happen, and progress is made. You’re confident in your co-founder, and they are working with a lot of passion and drive. But who is to say this will last for more than a few weeks? You can’t know, and because of that, you should look into a vesting schedule for their shares. In VC-funded startups, vesting schedules are usually multi-year, as the momentum required to become a unicorn takes a few years to aggregate into speeds that allow for explosive growth. For a bootstrapped business, this timeline might be a bit of a stretch: you don’t have a runway, your business is a risky endeavor. I recommend a vesting schedule that starts after six months and then vests a part of the shares every quarter. This allows for dealing with contingencies and changes in the business landscape.
If you are a bootstrapper, you will be looking for a co-founder that wants to go down the bootstrapped route too. But what if they change their minds? What if they push for outside investment, derailing your efforts to build a sustainable business that has no investors telling you what to do? This needs to be very clear between the founders. Some entrepreneurs see bootstrapping as the initial phase of a business, and some see it as the optimal state for the lifetime of a company. Make sure you’re aligned here.
The same goes for eventually selling the business. While most people entertain the idea of the big exit, some founders don’t care about it. This can lead to unpleasant surprises when you get that call or email with a life-changing offer, and your co-founder shrugs it off. Make sure you work towards the same business goals.
Finding a co-founder that shares your passion and sees eye-to-eye with you on the future of the business can be the most incredible thing. Carefully vet your candidates and make sure that you can communicate well. Check for alignment on how vital empowerment is to the both of you.
And have a beer with them if you must.