In these unprecedented times of (using the word unprecedented) uncertainty, many of us are contemplating taking the leap of faith and becoming a full-time entrepreneur. One of the most common questions I have encountered is – “Co-Founders and where/why/how/when do I find them?”
So, is the Fit-Founder a myth?
Err… The Founder-Fit… Is the Founder-Fit a myth?
Actually, above the “Product-Market fit” is the “FOUNDER-Product-Market fit.”
Managing a venture is so often likened to being in a marriage. Finding the right co-founder is one of the most difficult decisions entrepreneurs face. Whether co-founders are bound by friendship or sewn together by VCs playing Team-Tinder; co-founder relationships are incredibly powerful in deciding the success or failure of the venture. Co-founder conflict and the ensuing situations are responsible for the failure of over 65% of startups.
Examples of typical conversations I have with both first-time and experienced entrepreneurs include:
- “Who should I co-found this business with?”
- “My best friend and I have this great business idea…”
- “My work-colleague and I – both full-stack engineers … have this great business idea…”
- “My classmate and I – both MBAs and CFA charter-holders… have this great business idea…”
- “My study-groupmate and I, both former C-suite executives…, have this great business idea…”
- “Forget co-founders, my father told me not to enter into business with anyone…”
- “I have prior experience of working on every aspect of the business, so I don’t need anyone…”
There are some more questions I cannot quote here, but you get the general idea. Let’s see how each situation unfolds.
The easiest way to lose a friend is by co-founding a business with him/her
There are several positives to founding a business with a friend (trust, the background of their strengths and weaknesses etc.). However, the inherent qualities that make someone your friend (understanding, amiable, good-natured etc.) do not always translate into them being good at business or good at having difficult conversations. When someone is merely a “friend”, in the event of an unfavourable situation or incident, the choice of “continuing” the friendship is up to you. However, in a business, it can get quite ugly, in case the tide is not in your favour or in case one falls into the trap of FAE (Fundamental Attribution Error).
Before taking the plunge, try to put yourself into situations where you can understand whether you can carry a difficult conversation without getting into a shouting match.
And yet, many of us fall for it.
OK – we get that co-founding with a friend or friends may not always be the best idea; but why does it not work? The reasons why some of these improbable odd co-founder pairings thrive while other friendly ones implode boils down to a bizarre combination of reasons.
And, what about the other scenarios?
Two former C-suite execs?
The short answer is – “it depends”
That’s a tad vague.
Academic backgrounds or qualifications do not really mean anything. And neither do IQ, EQ, CQ or other talents. What counts most in this game is a combination of:
- past entrepreneurial experience – specifically the openness and resilience to failure
- founder’s mentality – specifically ownership, drive, vision and execution skills
- complementary skills and backgrounds
- transferable skills to a new problem statement
OK, it has started to make some sense… What specific skills should I look for in a co-founder?
One has to juxtapose several parameters across several dimensions. The short answer is – “it depends, again…”
Allow me to elaborate. At the conception and in the first year or so, the 3 key skills are:
- Product/Engineering / Subject-matter expertise – to build the product or lead the service
- Marketing – to create the marketing mix, formulate the go-to-market strategy, generate leads, manage branding and support sales
- Sales – to nurture the funnel, close deals, manage accounts, collect and report feedback to product development and continue to build a deal pipeline
The below Venn diagram hopefully articulates the relationship between the trifecta and it’s not difficult to see why these 3 skills are super-critical when the venture is in a nebulous state.
The best validation of the product you are looking to build or the service you are looking to offer is having paying clients. Revenue from clients trumps various other forms of financing a venture any day. Unless you have an engineer/designer/subject-matter-expert, the product/service cannot be shipped or sold. Unless you have a marketeer to chalk out the marketing mix and generate leads (etc.), the product cannot be put in front of clients. Unless you have a salesperson on your team who can close the deal (preferably, on your terms) and manage accounts, you cannot generate recurring revenues.
OK, has started to make sense now… But how come there is no CFO or a “finance-expert” in there? We are business school alumni/students after all…
Unless you are running a FinTech or a financial advisory firm, you don’t really need “just-a-finance-expert” as a founder. Unless you have substantial revenues or financing requirements, you don’t really need a CFO on Day-1 (unless you want one for vanity). In fact, the CFO is one of the last roles one should hire (and till such time, have independent consultants/advisors assist them).
Is there a certain order of hiring?
What matters most in the early years is having a team of hustlers who can develop products/create services and create a market to sell them to. While there is no prescribed guideline, one of the approaches used is to hire someone to lead the function subject to ARR milestones:
- Conception – Product Development /Service Expert + Sales + Marketing skills
- First 5 clients – Specialist marketeer/CMO
- >$1 mn ARR – Head of Sales/CSO
- $1-3 mn ARR – Head of account management + customer support
- $3-5 mn ARR – Head of product management and engineering
- $5+ mn ARR – CFO and COO
The right number of co-founders – 0, 1, 2, 3, 4, 5?
There is no magic number and no right or wrong answer. It is ultimately a function of your individual skills and the gaps you need filled until you can hire specialists. VCs do not really fund solo-founders, and a team of two-three is just perfect. However, not every co-founder chooses to stay back till success manifests. So, choose wisely.
The entrepreneurial voyage, romanticised with media stories of achievements, but in reality, is actually quite lonely if you do not have the right team.
Parting thought till the next blog:
“People will show you who they are, but we continue to ignore the signs because we want them to be, who WE want THEM to be“
See more from this series here.
About the author: 24x Founder, 3x Success, 2x VCExit, 19x Failure, 100x Resilient, 14x Sectors, 6x Continents, $2+bn deals originated and advised.
Chennakeshav Adya (Keshav) is an eclectic value creator for mid-sized firms and PE/VC funds on Fund-raising, M&A, growth, corporate strategy and deal-making (currently, as co-founder of Adan Corporate). He is a resourceful entrepreneur with 20+ years of global experience in building businesses from a concept and growing global teams from 2 to 200+.
A deca-lingual, multi-talented zymurgist, Keshav is skilled at using the founder’s mentality and thrives in uncertainty and chaos, directing teams through the “Unknown” in the initial 1-2 years of setting up any type of new venture.
As an Entrepreneur Mentor in Residence (EMiR), Keshav is associated with London Business School’s experiential entrepreneurship activities supporting students and alumni who are interested in pursuing a career in entrepreneurship, whether launching or growing their own ventures.