As it becomes increasingly trendier to startup, we are seeing people across ages and walks of life drop whatever it is that they are doing to launch their own companies. Some are maverick enough to strike out on their own, whereas others prefer the comfort of a co-founder – a friend, an ex-colleague, a spouse, a sibling, or a college roommate – to begin their journey with.
So is it better to fly solo or in tandem? As with every good debate, there are equally convincing arguments for both sides. Having worked closely with several startups, we note here the main facets of having multiple co-founders in a company. This article will be helpful to wannabe entrepreneurs planning their teams, as well as to startup investors who are keen to pre-empt the issues that can crop up.
Pros: Building a business from scratch is a long and lonely process. Parents, partners, and spouses find it difficult to maintain an objective view of how much sweat and toil is required to get a business up and running. Having a co-founder who understands exactly what you’re going through can go a long way in maintaining sanity through highs and lows.
Cons: Is your partner in crime an equal partner in crime? We often see cases where some co-founders end up contributing more than the others. For example, a company with three co-founders started with 33% shareholding each, but wanted to tip it in favor of one or two founders when investors came into the picture. This is very natural – it is practically impossible for each co-founder to add exactly equal value. Therefore, co-founders need to either be comfortable with sharing equal stake for unequal value add, or be mature enough to have conversations around how much stake each one gets.
Pros: The right co-founders bring complimentary skill sets to the table. If one has a strong product/service focus and the other is good at sales/BD/marketing, then you have a great partnership to begin with. Older entrepreneurs are expert at this – they commonly find co-founders with different skill sets from their own. These are usually people they worked with in their previous journey.
Cons: With increasing number of enterprises starting out of college dorms, we are seeing co-founders with very similar skill sets. This is a problem, especially if the co-founders are young and inexperienced. If there are multiple co-founders with the same skill set, turf wars and one-upmanship can fire up pretty easily. It can get even more challenging if you try to push one of the co-founders into doing a role that does not leverage their strengths – this can prove to be disadvantageous for both the company as well as the individual.
Pros: A one-man show refers to a startup where there is no clear successor to lead execution if the main founder is unable to continue. While we always encourage founders to put in place a strong second line of management to mitigate key man risk, in most cases, none of these managers are usually visionary enough to proxy for the CEO and front exponential growth. In such cases, co-founders can be perfect substitutes. A strong back-up to the founder with enough skin in the game gives a lot of comfort to investors as well.
Cons: With too many co-founders, passing on the reigns can be even trickier than launching a CEO search. Dispute resolution and succession planning are crucial to resolve such problems. Make sure you have these clauses in your employee/shareholders agreements and discuss these openly with your co-founders and board members.
Pros: Increased value creation and productivity is the most obvious benefit of having co-founders. Having someone to share the load can also result in better work–life balance and lower burnout rates.
Cons: Note that I did not say 1x increasing productivity for each additional co-founder. In a single founder company, the founder frequently has to perform at 1.5x of its natural productivity – there is no choice – just too much to do! But when there are two or more founders, decision making becomes slower and bucks start getting passed around. In a startup, you have to be agile and nimble. You have to experiment and iterate your offering, and these iterations need to be fast. In the process of getting each co-founder on board with new idea, teams frequently get stuck in analysis paralysis and finding a middle ground can come with its fair share of ego clashes.
Pros: Visions and business plans should be informed by the market and evolve as the company grows. Founders often fall into the trap of being too married to their ideas and having an inside-out approach. Multiple co-founders can make sure that some people are looking outside-in as well and help alter plans to be in line with market realities.
Cons: In an ideal situation, each co-founder would be completely in line with evolving visions and plans, but this rarely happens. You might want to think about different lock-ins and different exit plans for each co-founder depending on their role and personal situations. Some roles can be very important in the beginning of the startup journey, but can go into auto-pilot later on.
As more capital comes in, there is also greater dilution of shareholding if there are multiple co-founders. After a few rounds of fundraising, the founder group might have a combined holding of 20% in the company, which is considered large enough from the investor’s point of view. But each individual co-founder might only have single digit shareholding – this can often be demotivating for individuals.
All said and done, there is no one way to startup. Human-related problems can be the most wicked to resolve, so it is just important to be cognisant of the potential pitfalls along the way. Whether you decide to fly solo or in tandem, take advice from mentors, investors, and others who have the benefit of a good vantage point into the startup ecosystem, and you will ensure yourself a less laborious journey to the top.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory)