Want to start a company with a friend? Here’s what you need to think about.
Friendship and business partnership are not the same.
I have seen a lot of friendships destroyed or at least heavily strained from starting a business together, so it is important not to make the assumption that just because you get along well socially with someone that it is a recipe for a great working relationship.
It is ideal if you have some experience working with this person in the past, so you at least have an understanding of their style, temperament, strengths, and weaknesses, etc.
If that isn’t the case, it’s not the end of the world, but you should both make a conscious effort to assess those attributes in each other and feel comfortable that they are complementary.
Once you toss two (or more people) into a stress cauldron, which most startups are, the person you thought you knew might be different from the person you are currently dealing with.
I’d really stress the COMPLEMENTARY skills part of the equation. This is certainly more efficient in terms of getting things done (as there will be quite a lot to do), but most importantly it will reduce the likelihood of resentment from one person to the other if there are feelings of unequal contribution.
There are also certain skills that, in my opinion, are most important when starting a company.
Sales, design, marketing, engineering, subject matter expertise (ie a lawyer for a law startup, a doctor for a medical one), raising money. If a person does not have hands-on experience in one of these areas, I would exercise more caution in including them in a founding team.
I don’t want to make universal claims, but for example, a person who has “scaled operations” or done some more abstract tasks at a larger company may not have as much to contribute on day one. Even more important than these hard skills is a “growth mindset” (there is a great book on this topic by Carol Dweck: Mindset: The New Psychology of Success — Kindle edition by Carol S. Dweck. Health, Fitness & Dieting Kindle eBooks @ Amazon.com.).
I can guarantee you will become very annoyed if one of your Co-Founder(s) says things like “I don’t know how to do that” or “I’m not really good at writing content or building marketing materials” or “I’m not comfortable doing a demo”.
I understand that people are better at certain things than others, but there should be a commitment amongst all Founders to be willing to figure out how to do various tasks that require different skills and even if they aren’t the best at them, to be scrappy and give it a shot.
A growth mindset can overcome the lack of ideal background experience.
Abundant resources are not a luxury most early-stage companies have, so the more things you can learn to do on your own, the faster you’ll be able to iterate with your product and customer experience, test ideas and move forward.
You’ll learn the most by doing not by delegating tasks to paid consultants. So don’t let a “fixed mindset” get in the way of rapid progress. It will also become very frustrating if you have to drag someone along for the ride because they are only willing to do one thing.
This leads to my next point.
Make it a priority to get a formal corporate agreement in place (these documents can vary a bit from C-Corp to LLC to S-Corp, etc).
This can lead to some rather uncomfortable discussions about equity allocation and board composition.
My advice here — do not feel obligated to split equity 50/50 or equally amongst partners.
Be reasonable, but don’t shortchange yourself under the guise of “fairness”. This will breed resentment in the future. In my opinion, equity allocations between founders come down to value generation and also minimizing future “resentment”.
If you assign equity in relation to expected future value, there is a much lower chance of significant resentment. It is also very likely that at least one Co-Founder will end up leaving the company in the not too distant future. For this reason, make sure to include a vesting period (market standard is 4 years, with a 1-year vesting cliff) so that you aren’t in a situation with a massive chunk of dead equity in the event someone leaves.
On this same topic, I would suggest constructing your board with an odd number of people, one of whom is an independent member and then NOT requiring unanimous consent for major decisions.
This may seem counter-intuitive because you likely don’t want to put yourself in a situation where you don’t have full control in your own company from day 1. But what is worse is if you and your Co-Founder have a falling out and are trapped an extremely toxic situation with no way to resolve it.
There is no guarantee people will act reasonably in these situations, and you need to hedge against this possibility because the downside is destroying a potentially promising company over an ego battle.
Lastly, be conscious of a “passion gap”.
One of the most exciting parts of starting a company is the camaraderie of going through the highs and lows, solving really challenging problems and having people to talk to about all of these things. If its evident one partner is far less passionate or enthusiastic about the project, this can become a source of major frustration and added stress for others who want to go full throttle.
There aren’t many people who want to listen to you ramble on about your company for 24 hours a day, so if your co-founders aren’t as interested in it as you, that will make you much more likely to experience feelings of isolation, loneliness and becoming demoralized.
Starting a company will be one of the most challenging and rewarding experiences you can undertake.
As long as you are mindful that friendship and a working relationship aren’t the same and are deliberate about expectations, you should have a great chance of finding the right partner.