Co-Founders: Problem or Opportunity?
Karl R. LaPan, President & CEO, The NIIC
3 out of 5 startups fail because of compatibility issues between co-founders.
An often-overlooked question for an entrepreneur is whether to go it alone or take on co-founders. It is often lonely starting a business. No founder can possess all the talents and skills to start and launch a new business. Microenterprises are businesses less than five people and annual revenues of $250,000 or less. These businesses represent over 92% of all US business establishments.
Today, solo founders start most new businesses, but the ability to grow and hire employees can be difficult for them. Every entrepreneur has weaknesses and enjoys certain parts of the company more than others. Scaling a business can sometimes prove difficult for solo-preneurs. Likewise, businesses with more than three co-founders often face big challenges that create disagreements and produce undesired behaviors in the workplace. Before moving forward, consider the following:
- Figure out if your work styles, behaviors, and values are complementary;
- Be sure to establish expectations and determine what success looks like individually and collectively (and ensure alignment);
- Develop excellent problem-solving and conflict resolution processes to address potential potholes; and
- Talk through how to value the relative financial investment/sweat equity contributions of the partners, compensation/distributions, vesting, unwinding the partnership and the exit strategy.
The best place to start if you are considering a co-founder is to talk through the important questions to see if you are compatible and a good fit for cofounding a company together, start here with these questions.