- Understand that a co-founder is a true peer and ally in your business;
- Make sure your co-founder covers your skills gap first before you start looking for evidence of entrepreneurial flair;
- Never compromise on quality for the sake of saving money;
- Consider what matters in a discussion about equity.
- Setup a vesting schedule so that your business is ok if it doesn't work out
Hiring a co-founder is also your first (and often your only) opportunity to find a true, trusted partner that can run parts of your business without you feeling the need to check-in very often. You should be able to rely on them to reinforce your leadership with the rest of the team and you should never feel that your being undermined by them at any point. A co-founder should also challenge your assumptions and raise concerns / start conversations with you that no other employee in your business can. They are your one true ally and also the devil's advocate in your business. Thus hiring the right co-founder is tough. And very few founders get it right to begin with. In our experience when hiring for a co-founder there are a range of scenarios that the entrepreneur has to grapple with. Below we have outlined a couple of the main ones along with a few tips on how to navigate such situations should they arise.
Entrepreneurs typically look for entrepreneurial flair in their co-founder. This can range from an insistence that the candidate has founded a business in the past, to simply wanting to see evidence that the candidate is comfortable in highly changeable and scrappy environments. The immediate challenge here is that many of the more entrepreneurial candidates don't necessarily want to work for anyone. This is true even when the opportunity is to become a co-founder and the rewards are almost the same as a complete start-up. And even if they can be persuaded to join your business, a highly entrepreneurial candidate may find it constricting / frustrating having to work with you and your team.
The role of a co-founder in an established startup is not same as starting a business In our experience the entrepreneur that is hiring for a co-founder is hiring for a skill-set that they themselves lack. This typically means that they are hiring for a technical co-founder/CTO. In these scenarios entrepreneurial flair comes second to technical competency and the ability to actually write mission critical code. By all means emphasise the importance of being flexible in a highly-changeable start-up environment but ultimately being a co-founder in an established business is not the same as starting one - hire for the skill-set you don't have and for someone you can see yourself working with.
Make sure that they play nicely Being entrepreneurial doesn't always translate into being a great team player. Often firing from the hip, trusting one's instincts and ignoring general consensus is synonymous with entrepreneurial flair. The truth is that very few entrepreneurs can get away with the lone wolf visionary image that Steve Jobs pulled off. In a co-founder you will want to find someone who shares your core values, believes in the company's mission, and can build brand ambassadors in your team through thoughtful and considered leadership. You want your business to be be disruptive not your co-founder.
Previous success is not always a good indicator for future performance This is not too dissimilar to falling in love with the optics of a CV with Facebook or Google written all over it. When looking for a co-founder it can be tempting to assume that previous success in a startup will translate into assured performance in your business. This is not necessarily true. Make sure that you really dig deep into their experience. What impact did they actually have? The most important thing you can do is to not accept their first answer(s). It’s usually by answer six that you start to get to the truth in an interview. Ask them what actual decisions they impacted; the kinds of conversations they had with the wider team; how often they happened (frequency is a good proxy for impact / influence); and examples of successfully pushing back. In other words, try to figure out whether this person was treated as a core part of the exec team, as opposed to be being the nerd at the end of the table. Then, and only then, can you judge their previous companies success as an indicator of their potential value to you.
Startups are often cash-poor - this is particularly the case when the business is at the stage where it is hiring for a co-founder. It comes as no surprise then that entrepreneurs tend to rely on the future potential of their company and the lure of equity to land prospective candidates. In our experience this throws up a number of challenges, chiefly of which how much equity to give and how much to pay upfront. The former we address later in this post and the latter is often only loosely based on an entrepreneur's financial firepower. Instead, it is much more common for an entrepreneur to decide on a package based on what their peers have done, what the standard pay is for a particular role, their experience in hiring, and the entrepreneurs perception of their company’s strength. In short - the best people cost the most. It may be the case that the prospective candidate is willing to significantly sacrifice up-front cash for equity but the tradeoff here is that you will need to give them a meaningful chunk of your business for them to think it worthwhile. Generally the best advice is to never rely on a candidate's passion for your industry or business to offset any feeling of being shortchanged - this rarely works out in the long run. Very rarely does passion trump the feeling of being underpaid - either in cash or in equity. Pay them what they deserve and / or be generous with your equity. This is supposed to be a co-founder. Make them feel like one. However, if you can't find the right calibre of person with the cash / equity available to you then the following tips may prove to be useful.
Compromise on Seniority Hiring a strong ‘up-and-comer’ who wants to prove themselves by growing into the role is preferable to hiring a senior operator who is not as capable.
Expand the remit of the co-founder role Increasing the breadth of a role allows a candidate to rapidly develop their career and will likely keep them in your organisation for longer. If your co-founder is a functional expert i.e. a Lead Developer then think about how they will impact the business outside of technology. How close to the product will be they be and how much operational responsibility will they really have on a day to day basis? Expanding your role into a true 50/50 co-founder setup with shared responsibilities is likely to attract ambitious candidates looking to progress in their career.
Take the time to really find out what makes a candidate tick It is likely that many of the candidates will be interested in being a co-founder as they view the idea of working in a start-up as glamorous. Really take time to deep dive into the candidate's motivations. Presenting a range of options when discussing the role and its remit is another useful way of approaching this in a head-on fashion.
The equity discussion
There is a lot of content on this topic. Generally the best advice is to be generous. You want your co-founder to be properly incentivised to join you on the journey. However, there are a few tips for navigating a discussion about equity - especially when your prospective co-founder is perhaps less experienced than other candidates and basing most of their knowledge on advice from their contemporaries. In this situation it is not uncommon for equity expectations to be wildly off the mark (both ends of the spectrum) and in this scenario we have found the following tips to be useful. Note: This also applies to any role that comes with equity attached.
It is rarely about about the percentage In our experience many of the discussions around equity are based on what percentage of the company a candidate wants. They usually base this on what they think is fair or what they have gleaned from discussions with others. The truth is that percentages don't really mean anything. You could give them 50% of your company and they could feel like they hit the jackpot or feel short changed depending on how they view the opportunity. But if that company is worth 2p on exit then it doesn't matter what you have given them it is still worth next to nothing. Instead of starting discussions with a percentage in mind try instead asking how much money the candidate wants to make. It is a simple question but very few candidates really know how rich they want to be. Moreover, going back to our previous point around drivers it may not even register on a their radar for money to be an incentive to join. But assuming that they come back to you with an idea then it immediately becomes your job to convince them of the value of your business / idea. If they want to make £10m then on the surface of it that means 1% of a £1bn exit will work. The question then is, do you think you can convince them that this scenario will become a reality within a reasonable time frame? The benefit here is that; you are reinforcing the idea of this business being a great place to be; you are steering a discussion with predefined parameters; and you are coming to an agreement where there is no uncertainty about what everyone wants to get out of the ride. N.B. It is worth noting that we don't recommend trying to find a co-founder with 1% equity but we use this scenario to simply illustrate a point.
Make sure you have a vesting schedule
Sometimes things don't work out between co-founders and therefore it is really important that you set up a vesting schedule for the shares that you give. This is usually over a 2-4 year period with either a 1 year cliff then monthly or just monthly. That way if it doesn't work out whoever is left can run the company with the majority of the shares. VCs will anyway ask you to install a vesting schedule as standard.