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Treat Your Co-Founder Like a Spouse: Choose Wisely

Last Updated on June 19, 2019
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The thrill of starting a new business venture is nearly unmatched. From excitement to anxiety, to downright fear, it is indeed an exhilarating experience. To offset these nerves and mitigate the anticipated workload involved in launching a new company, founders very often decide to begin their new undertaking with the help of a co-founder. How might this eager entrepreneur find a co-founder? Well, quite predictably, by turning to one’s immediate network of friends. “I’ve known Dave for years, he’d be a great partner!”

The intuition here is to choose someone that the founder feels he/she can trust. Unfortunately, this ancient heuristic of reflexively aligning oneself with a trusted ally may prove to be an enormous mistake. It is critical for founders to instead select partners objectively and impartially, judiciously weighing pros/cons, which extend far beyond “friendship”.

Selecting Partners

Naturally, every business dynamic is different and rather than list specific characteristics a founder should look for, it would be far more useful to consider the meta-objective of procuring a co-founder in the first place. Remember, a co-founder might very well assume a 50% equity stake in the company – this is a massive percentage and should only be given to a deserving and necessary partner. Fundamentally, the purpose of the co-founder is to fill a need and satisfy a role that would otherwise not be met.

The founder must begin by first taking stock of his own deficiencies (vis-à-vis this particular business) and decide where he needs the most help. Is the founder a wiz at accounting and excel but is shy and feels intimidated at the prospect of pitching much-needed investors? In this case, the ideal co-founder might be an extrovert that relishes the opportunity to get in front of people and stoke interest in the company. Is the founder a fantastic salesman but lacks the requisite experience to manage a company’s production logistics?

Perhaps selecting an experienced COO with a knack for organizational efficiency would be the best choice. Ultimately, a cofounder should compliment the originator’s skill set, not act as a clone performing the same duties.

Setting Expectations

Next, it is essential that the expectations and terms of the founder/co-founder relationship are discussed extensively at the onset of the new partnership. In my experience as a startup attorney, perhaps the most common complaint I hear from an aggrieved entrepreneur is that his co-founder is not doing his fair share. Of course, when I ask this disillusioned entrepreneur what his colleague’s “fair share” consists of, I am rarely met with a coherent response. Indeed, a founder who selects a friend, as a partner will very often feel that it’s unnecessary to officially set job duties and delineate partner responsibilities.

Determining who is responsible for what aspect of the business, the consequences for not meeting responsibilities, equity splits, dividends payouts and all of the other potentially awkward discussion CLG | Abe Cohn points are left for later, because they are, after all, friends – “We’ll work it out”.

Nothing could be further from the truth. It is important to have the difficult conversations from day one so that expectations are set and mutually agreed upon. By selecting someone who is not a friend, this conversation will be much easier and honest because any point of contention is truly not personal – only business.

Finally, like any meaningful relationship, it is critically important to maintain the integrity of the partnership by keeping the lines of communication open and straightforward. At a minimum, monthly meetings should be had to review the performance of the founders and the company and match the work output of each founder with his/her respective responsibilities outlined in the operating agreement. A co-founder can be a blessing or a curse. Keep the lines of communication open and brutally honest.

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Abe Cohn is a partner at Cohn Legal Group, a specialty group of a larger law firm, designed specifically to provide a boutique and highly individualized experience for entrepreneurs and startups.

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