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What should never be compromised when picking a co-founder

When picking a co-founder for your company, there are key factors that should never be compromised, regardless of your industry.

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picking a cofounder

Setting Yourself (and Your Co-founder) Up For Success

There are many articles online that discuss what an entrepreneur should look for in a co-founder. One of the leading references on this was published on Venture Hacks a few years ago. The truth is that there are rarely scenarios that come together where every piece of these criteria fit together perfectly. Regardless, the aforementioned article and many like it are helpful guides as an entrepreneur picks a founding team.

An entrepreneur might not be able to check every box on the wish list, but there are a few criteria that I believe should not be compromised when picking a co-founder and setting up a company with them. This article is about these “must haves.”

Two is the Magic Number

The correct number of co-founders is two. A founding team should be two partners who 1) work well together, 2) compliment each other and 3) share a vision. All three components of the two-person team are important.

You have to be able to work long hours, work quickly, take and mitigate risks, make hard decisions, and more with this person. You need a truly strong working relationship that will remain strong in a very dynamic work setting. You’ll have to work together intensely at times and totally independently at other times; you’ll have to meet a one-hour deadline one day while having to plan strategically for several quarters down the road the next.

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You have to have skills and experience that compliment each other, and trust in each other’s abilities. While you will be working together, learning from each other and sharing a lot of responsibility, at the end of the day it should be obvious which partner will take the lead on each aspect of the business, and on opportunities and challenges that arise. If you and your partner both believe that you each should be leading the investor outreach or the product development effort, you’re probably not a good pairing.

You have to share a vision for the product and the company trajectory. It is important that this symmetry exists not just for launch but also through growth and the eventual long-term plan. You don’t want a partner who envisions being in a lifestyle business if your goal is to sell in 3-5 years!

Finding the right combination of two is the primary challenge, but it really should be limited to two. Any more and politics starts coming into play, personal interest (from one or more parties) may start to supersede the company’s interest and both work and planning will likely become inefficient.

Founders should bring in additional skill and experience to the management team, though, as time, money and opportunity permit. While not equity or title equals, these additions are vital members of the team and should be treated (and made to feel) like owners.

Shared Ethics and Philosophy

Ethics are the most important element in a partnership. A hard truth is that when money is a factor – especially when times get either very good or very bad – many people suspend their morals and opt of self-preservation (or self-gratification). You have to find someone who will keep promises, stay ethical and fulfill commitment throughout. Lawyers will cringe at this next statement, but a legal contract is only as good as the men and women who sign it. This is especially true in a start-up when finances are scarce. Simply put, there is nothing to “go after” if a partner fails to comply with an agreement.

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Talk about ethics with your potential partner. You most definitely have to put a legal contract together governing your relationship and company ownership, but it is equally important to make sure you both understand the moral bond that is going to be formed, and that you both embrace it. Look each other in the eye and make a commitment to uphold your agreement no matter what happens.

Equality

Most issues between partners arise due to unequal treatment. This could be as practical as financial disparity or as emotional as jealousy over power and notoriety (and it is often both). Knowing this up front, co-founders should set up the corporate structure and compensation packages to be equal. This is not always easy, as one founder may have been involved longer, hold the IP/patents, etc. I suggest that you find a way to make it happen (and find a partner who is able to make it happen with you).

Ideally, two co-founders will have equal equity in the company, equal voting rights, equal representation on the board, and equal pay (I would even go as far as putting in an agreement that the co-founders will always have an equal compensation package). One partner may have to “buy in” to get this equal partnership. If this is not possible, perhaps that co-founder buys in by taking no salary (or a reduced salary) for a significant period of time (after which the compensation would revert to the equal status mentioned above).

There are some situations where equity (or other) equality is not possible. This can be ok. Set up the relationship so that it is equal as possible – both in perception and reality. Even if this means one party is generous at the outset, equality will pay dividends in the long run. I guarantee that more money has been lost by damage caused by partners clashing than by a business owner being generous with his partner (or generous with employees in general).

Parting Shot

Choose your partner wisely. Trust them and design a truly equal relationship. Be generous with the people who are in a position to impact and grow your business. That recipe will give you your best shot at success.

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Written By

Hoyt David Morgan is an entrepreneur, angel investor and business strategy leader. He is an investor and/or adviser to a handful of exciting and high growth companies, and has been a part of several high-value exits. He is passionate about customer experience, smart business and helping innovative companies grow... and sailing.

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