Picking A Co-Founder: Learn From My Mistakes (by @manukumar)

Posted by Jessica Alter /September 22, 2010 / Uncategorized

This FounderDating Guest Post was written by Manu Kumar for our new series on the FounderDating Blog: Founder Talk – the Real Story. Manu is the founder and Chief Firestarter at K9 Ventures – a seed stage fund in Palo Alto, CA. Manu is an entrepreneur turned investor who previously founded two companies, both of which had hugely successful exits.

I’ve been a big fan of Founder Dating ever since I first heard of the concept from Jessica Alter. While I haven’t attended any of the Founder Dating events myself (apparently investors are not allowed, which I think is a good thing!) I have recommended several people for the event and continue to do so.

Picking your co-founder(s) is probably the most important decision when starting a company. I don’t say this just to turn up the pressure on an already stressful activity, but because it really is true. Ultimately, the three most important things in a startup are: 1) People, 2) People, and, 3) People. Yes startups are about technology, and business, and all that jazz, but who builds the technology? Who figures out the business model? Who buys your product? Who sells your product? Who invests in your company? Who do you get advice from? Who do you partner with? I think you get the idea — at the core it all boils down to one thing: people.

Going it Alone: As someone who started my first company as a solo-founder (not by choice), I can say that one of the best things you can do to improve your chances of success is to have a co-founder. Doing a startup solo is hard for many reasons. You can wind yourself up in a loop of circular logic where you become impervious to good reason. It is important to have tempering factor–a sounding board–someone who can play devil’s advocate. I was fortunate to have had some excellent advisors who helped fill this role for me in my first company.

Being a solo-founder is also hard because when you’re going through the ups and downs of the roller-coaster that is startup-life, it helps to know that there is someone else there with you. Otherwise, it’s easy to get disillusioned and fall off the wagon. There may be times when one person is down, and the other person helps to keep morale up and keep things going.

Being Friends First: When I was starting my first company, SneakerLabs, Inc., in 1996 I tried really hard to recruit some of my friends and classmates from Carnegie Mellon as co-founders. These were people I knew. I’d already worked with them for a couple of years on various projects, I knew their strengths and their weaknesses and most of all we respected each other. However, we were also friends. I found that despite my best efforts, I couldn’t convince my friends to join me. The lesson I derived from that (or at least how I justified it to myself!) is that it is hard for people who know you as friends to transition to someone you can work with (the converse however is a lot easier and several of my friends today are people I worked with). This is especially true if you’re taking a relationship of peers and changing it to one where one person is in-effect becomes the boss.

Two’s Company: The highest chance of success is for founding teams of two. Three founders is okay too, but two seems to be the ideal number. Look at some of the most successful companies out there: Apple (Jobs and Woz), Google (Brin and Page), Microsoft (Gates and Allen), HP (Hewlett and Packard) — notice a pattern?

Any more than three founders and it’s usually just a mess, and there’s bound to be a shake out in the future. A solo founder is a special breed and only those people who have the determination and strength of will to hold on to the roller-coaster can make it as a solo founder.

Trust and Integrity: Founding a company together is really the most intense relationship you can have. You will be spending more time together than you will be with your respective significant others. You eat together. You drink together. You work together. And in some cases, even sleep in the same office — usually under a desk, or on a couch! So you’d better pick someone you can get along with, someone you can trust implicitly and someone who’s integrity is unquestionable.

The Dating Game: The best founding pairs can predict how the other person will react to a situation. Heck, they even know what the other would order for lunch. This is probably why some of the best founding teams are people who have worked together or been friends before but have come together to go after a common goal/vision in building the startup. (Yes, I know this is contradictory to the section on Being Friends First, but I’ve seen both play out).

If you’re teaming up with someone you don’t know — don’t rush into it. Get to know the person well. Do tons of reference checking — not just first hand reference checking, but indirect reference checking. Ask people who else you can talk to — very often people may not want to say something negative, but they’re more willing to refer you to someone else who can give you the real skinny.

Finding Un/Common Ground: Founders must respect each others abilities. There will be times when you will disagree. When that happens, the only thing that will help to keep the team together is if you have a level of mutual respect that can transcend differences of opinion. The best founding teams will also have complementary skills and/or complementary interests. If there is too much overlap in skill set you will end up stepping on each others toes. If you do have a founding team that has similar skills, they must have complementary interests — where one person truly wants to be the behind the scenes person building the product, and the other person really wants to be the public face of the company. Having two people who both want to be the CEO is not a good recipe to start.

The Talk: Whatever you do, have the equity discussion amongst founders early. The worst scenarios are when people start working together and think that they’ll figure out the equity split later. I’ve never seen that play out well. It becomes a case of divergent expectations and it’s harder to make/keep everyone happy.

I firmly believe that an equal splitting of equity (50-50 or 1/3-1/3-1/3) is very rarely justified.
Typically, there is always a person who is playing point. I also believe that the buck should stop with one person. So I always advise founders to consider their equity splits very carefully and that equal splits are usually a sign of someone feeling they’re compromising and others getting more than they deserve.

If you have co-founders you *must* have vesting — that’s the rule. Remember it, and follow it. You don’t want to find out a month into it that a co-founder’s decided to leave and he/she walks away with a big chunk of equity. Or worse yet, that someone isn’t cutting it and you need to make a change to the founding team, but can’t because there’s no way to take back the equity. As a corollary to founder vesting — you will probably also need to file 83(b) elections within 30 days of issuing founders stock, but I’ll leave that to your legal counsel to grill you on that.

If you’re looking for more startup advice, check out the slides from my recent #20tweets talk which gives 20 tweet-sized bites. If you have questions or comments, you can reach me on Twitter at @manukumar.