Shripati Acharya of Prime Venture Partners on the ‘elusive third co-founder’

When a startup gets off the ground and begins its journey — usually with one or two founders — what happens after that? The two founders struggle with a common dynamic –the inability to add a third senior person to the team at the right time, says Shripati Acharya, Managing Partner at Prime Venture Partners. 

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Two-person founding teams have several benefits initially in the journey. From fast decision making, for having a trusted person to discuss thorny issues with, and someone with whom to share in the thrills and spills of the journey, and at the same time having sufficient equity to around among the founders. 

However, once the startup begins to evolve, especially when it starts to get customer validation, also known as product-market fit, the execution pace picks up. The startup now needs focussed engineering, marketing, business development (for enterprise SaaS), finance, and product efforts. It now becomes difficult for two people to manage everything. 

In this week’s Prime Knowledge Series, Shripati discusses the ‘elusive third co-founder.’ 

Priority defining role

In a typical tech startup, engineering and business functions are well covered. In the early days, one of the founders can be the product person as well. But soon, this becomes self-defeating. The areas that get neglected are the ones that drive traction after the initial validation — product management and marketing. The need for a product champion, defining the priorities, or a marketing head driving online acquisitions becomes critical as a startup starts to grow, and this is when a third person should be added to the senior management team. 

Shripati says, “This person does not necessarily have to be brought in as a co-founder, but needs to be thought of as someone who has an equal voice at the decision-making table in the startup.” 

Whenever the founders realise the need for adding another person to the team, is also the time when a whole set of things start to call for attention, such as ongoing pilots on customers, marketing experiments, and engineering platform considerations, among others. At times like these, recruiting a new person takes the back seat. 

“The urgency of tactical executions wins over the strategic recruiting activity,” Shripati says, adding, “Identifying and recruiting the head of product, or head of marketing is usually a two to three-month activity in itself. And, not having the right person on board early enough becomes a double-whammy.”

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Founders’ mindshare 

When more activities start requiring immediate attention from the founders, recruiting is further kicked down the road. “The tussle is for the most precious resource in the startup – mindshare of the founders,” Shripati says. 

The more the recruiting is postponed, the greater is the pressure on the founder’s time, as well as the time lost on something that will have returns three-months down the lane.  

 While making mid and junior-level team additions are not as difficult, what exactly makes a senior hire difficult? Shripati explains: 

• Senior hires are difficult to find. The candidate pool is way smaller, and for startups, external recruiting firms do not usually yield the desired results.
• The stakes are higher. Making a wrong hire at the senior level can set the startup back in a big way. Thus, the process of hiring a senior employee needs to involve a lot of reference checks.
• The initial two founders are used to working together, and adding a third person might get uncomfortable. 
• Senior hires, who are not founders, usually demand higher cash compensation. This is because the equity portion is a lot smaller than that of the founders. 

Thus, the founders are unable to pull the trigger, even when the right candidate shows up.

Looking ahead

“Since the addition of this person will surely change the decision-making dynamic – do a realistic self-assessment. Is your culture prepared to accept a new element, and function effectively?” asks Shripati. 

If the founders are comfortable, they should consider the following advice: 

• Have a three to six-month look ahead discussion on the future of the startup during the weekly meetings between the founders. 
• Dedicate 30 percent of the time of one of the founders for the recruitment process. “While it might not be practical to spend this time every week, on the whole, anything less is unlikely to yield the desired results,” Shripati adds. 
• Get a realistic baseline on the market rate for compensation. Shripati says it is easy to get anchored to the bootstrap early-stage startup salary ranges that first employees come in at. 
• Additionally, founders should monitor the progress diligently every week. They should set a target date for the person coming on board. It is not uncommon to miss recruiting targets by even a year. Thus, having a target date helps founders benchmark, if they are falling behind their efforts. 

“Use all channels — your contacts, recruiting channels such as LinkedIn, or agencies, social media — to spread the word. The best talent is not looking out for a job, they need to be recruited into one,” says Shripati. 

While getting a product-market fit might be difficult, once that is achieved, missing critical talent can be a major roadblock towards creating a blockbuster startup. 

“Adding the right member to your team – as a co-founder or otherwise – can pay rich dividends,” Shripati adds.