A Guide to Co-founder Fit

FundersClub reviews thousands of technology startups every year, and as a VC, has backed a global portfolio of top startup founders. Our insights come from our network of top startup founders and startup investors, and from our own experiences. Christopher Steiner was a co-founder at Aisle50, YC S2011, acquired by Groupon in early 2015.

What we cover in this piece:

• The depth and length of relationship matter

• Know your co-founder's true strengths, weaknesses — as well as your own

• Complementing Skill Sets

• Define roles and be happy with them

• Ensure that the definitions of success—and failure—are the same for all co-founders

• All co-founders need to be content with equity distributions

• Co-founders should regularly spend time together outside of the office

• Support each other always

The relationship between startup co-founders, especially through the early stages of a company, can be as intense as a marriage. And like marriage, co-founders have to learn to balance their emotions and how to best modulate their own behaviors to mesh with that of the person or people with whom they work every day, often for 12 hours or more at a time. The chemistry between co-founders—good or bad—can help propel a startup to growth, or doom it to mediocrity.

Disagreement and conflict are inevitable. It's how a startup's founders mend relationships, respect others' decisions, and avoid stubborn dogmas that determine how well a founding team will perform together. Companies have succeeded even with co-founder strife—Twitter is a classic example—but a well-balanced team of co-founders will more likely find success than a company that must constantly deal with friction amongst its leaders.

Noam Wasserman, a professor at Harvard Business School, found in researching his book, The Founder’s Dilemma, that 65% of startups fail because of instability within the management team. Getting the co-founder mix right, he says, sharply increases a startup’s chances of success.

There exists no formula for matching co-founders. Sometimes fits that look perfect in all ways don't work out, and in other instances founders who may seem polar opposites of each other work in relative harmony. For founders, there are few issues that, early on in a company's rearing, are more important. With that in mind, we've tapped our networks and our personal experiences to give founders some points to keep in mind when either looking for a co-founder, or building a company and relationship with their current co-founder.

Sometimes searching for a co-founder before you begin building doesn't make sense, especially for non-technical founders, as they will have a hard time luring technical people whom they don't already know. Engineers are constantly barraged by people with ideas who have no way of executing. Budding founders who are serious about their venture but lack technical skills should start by getting some, if possible, says Philip Greenwald, CEO of CodeUndercover, which helps people build products and learn to code. Build a prototype, test with users, talk to potential customers, chat with analysts, map the market. Having these kinds of things done ahead of time makes a startup more appealing to good engineers. And it's while carrying out these tasks that founders can meet people with domain knowledge and technical skills who might be interested in teaming up.

"Actively searching for a co-founder before starting the company rarely works out," says Greenwald. "Most people end up accomplishing nothing for six months and quit the startup world before even creating a product."

The depth and length of relationship matter

Y Combinator values founding teams who have worked together and remained friends for years, as relationships with deeper roots have likely already survived strain and conflict. The YC application, points out Paul Graham, has more questions about the commitment and relationship of the founders than their abilities as coders or managers.

Co-founders needn't be best friends. But, as a popular Quora question asks, it's probably easier if they like each other. Most important, they should respect each other and the different capacities they bring to the team. Not trusting a co-founder's ability will lead to overreach and likely a battle for more control between all involved. Most partnerships can't survive such infighting.

For founders who don't trust in the abilities of their co-founder(s), it may be best to look for an exit or find a way to dissolve the partnership. A CEO who doesn't trust her CTO as a technical operator will constantly be dogged by the thought that her company is producing an inferior product, a situation that can subvert all that a CEO does. Likewise, a CTO founder who doesn't trust his CEO will constantly second guess his co-founder's decisions, perhaps in front of employees, which will lead to poor morale all around.

Mark Michael knew his co-founder Daniel Rust in high school—and the two attended college together as well—before they started DevHub, which allows companies to quickly build websites and landing pages. More than a million websites and apps have been built with DevHub, which has raised $2.5 million in Series A funding.

The pair started the business with a third co-founder, who was a more recent acquaintance, and who left the company after the stresses of pivots and the ups and downs of grinding on a startup created cracks in the partnership. Old friends can more easily ride these things out, says Michael. People who have known each other have a sense of how to find platforms of compromise. "Here's how I boil it down: try ordering a pizza together,” Michael explains. “If you can't get it done in one minute, you might not be a good fit.”

Know your co-founder's true strengths, weaknesses — as well as your own

Respecting each other's skills and strengths doesn't mean that a founder can't be cognizant of her co-founder's weaknesses. She should be—and vice versa. Longer friendships naturally lead to knowing somebody's best attributes and skills. But founders who have only been working together for several months won't have as good a sense of this.

If a non-technical founder in search of a technical co-founder—there are a lot of them—teams up with somebody who will ostensibly be the technical co-founder of the startup, the non-technical founder may have a difficult time measuring the skills of their technical co-founder.

Kean Graham, founder and CEO at MonetizeMore, an ad tech platform, had started his company without a technical co-founder but felt he needed to bring one on board when his business began ramping up. He found an engineer who was willing to partner and seemingly had the right skills to carry out Graham's vision, which at that point was to automate many of the processes that Graham was then doing by hand. After two years, however, Graham had to cut his co-founder out of the business as his skills didn't measure up to his resume and his claims. There were warning signs, Graham notes, such as when his co-founder didn't show any deliverables from his previous work, only describing the work verbally, but Graham failed to heed them.

"Non-technical co-founders like myself should be extra skeptical and should bring in someone highly technical that you trust to interview potential co-founders." Graham says.

Separately, Paul Graham has said that hiring bad engineers is one of the major mistakes that kills startups. And knowing who is bad, he points out, isn't easy to figure out when you're not an engineer.

With that in mind, Kean Graham recommends that founders who already have a startup operating and off the ground but who are seeking a technical co-founder should take these steps when vetting a partner:

• Do a test project that ends with a deliverable.
• Run a skills assessment test (he recommends Codility or HackerRank)
• Have a 6 month out-clause in case the technical co-founder does not perform.

"Overall, I made a lot of mistakes and didn't listen to my gut," Kean Graham says. "It resulted in the worst decision I ever made."

To avoid that kind of co-founder mess, it's helpful to work on some projects together that may not be the startup itself at first.

The same goes for technical founders seeking a business co-founder to head up business development. If a founder doesn't have a deep resume that exemplifies those skills, and many young ones won't, it can take time gauge to gauge if a person is truly fit for the role.

Learning to put pride aside is essential for startup co-founders. The best co-founders will recognize another co-founder's superior skills in a particular area, whether it's sales, management or technical expertise, and let them lead the company's efforts in that realm. Knowing one's own strengths requires objective honesty and assessment of oneself, says Corey Bray, co-founder and CEO of Legal Nature, a service that automates the creation of legal forms and documents. "The old adage 'look within yourself first,' applies here," he says.

The first step in finding somebody with a complementary skill set is to figure out what your own skill set is. "You can only do that by being honest with yourself about your strengths and weaknesses," says Bray. Some people gravitate toward those who are clones of themselves. Others pick people who are so different that they are in constant conflict. "Find someone who complements your skills, rather than sharply contrasting with them," Bray advises.

Complementing Skill Sets

Bray's advice isn't a requirement, but when co-founders have diverse sets of skills and strengths, it can greatly help a startup in the early going, when there are no other employees and outsourcing tasks isn't within the budget or scope.

Nathan Gilmore co-founded TeamGantt, project planning SaaS, in 2009 with John Correlli, and has grown the business to 5,800 customers in 120 countries, including 17% of the Fortune 500. The team remains a skimpy 9 people, and Nathan attributes much of TeamGannt's outsized success to having a perfect mesh of co-founder abilities. The key, he says, is to have opposite skill sets and identical value sets.

The two got to know each other while developing software for Correlli's family's roofing company, where they found there to be a scarcity of cloud-based project planning tools available. Correlli is a quick-working back-end developer, and Gilmore is the planner and interface designer.

"The product you sell will change, the employees will change, but you're stuck with your co-founder. There's little more important that getting the right person."

Define roles and be happy with them

Those differing skill sets also help founder teams naturally divide duties, roles and, in some cases, titles.

It can be helpful if there is a decided demarcation of duties that break according to each co-founder's skill set. Angela Watts, a co-founder at Slyde Handboards, which makes body surfing equipment and recently garnered funding from Mark Cuban and Ashton Kutcher, recommends that co-founders "work separately, but always together."

"You should have your separate roles that you have in the business but always be open to feedback from your partner," says Watts, who founded the company with her husband, Steve. Watts focuses on sales, customer service, financials and operations while her husband spends his time on the website, visuals, content creation and marketing.

One co-founder will likely be the CEO. A co-founder who isn't chief, especially if they're not part of the board, should have utter trust in the CEO's leadership. And the CEO should include co-founders in all major decisions and discussions; complacency on this front can disintegrate relationships and sow discord throughout the company.

When co-founders begin working on a company, official titles usually haven't been doled out, with good reason. The CEO moniker doesn't mean much when the company is one or two people and has little or no traction. But that doesn't mean that co-founders shouldn't discuss roles and how they will possibly evolve if the company grows. Not discussing this early in a company's life, especially if both founders have similar skills, can lead to awkwardness and conflict when the time comes—often this comes with the first major outside investment—to decide who is the chief and what the title of the other co-founder will be. Many investors will also be wary of situations where the co-founder roles aren't well defined, as they’ve seen companies laboring under the weight of co-founders who are jockeying for power.

Geoff Woo, co-founder and CEO of Nootrobox, a San Francisco-based nootropics company funded by Andreessen Horowitz, has been through both situations, good and bad. "At my first company, my other co-founders were heavily engineering focused - as was I," he says. "Our strategic vision was limited and there also was much more friction on who got to call the shots in areas where there were multiple experts."

Ensure that the definitions of success—and failure—are the same for all co-founders

Founders with the most tenacity do not view the success of their startup in financial terms, but rather from a mission orientation. Their startup is a cause, and they will run through brick walls or die trying in pursuit of the success of their mission. However, not all founders view startups in this way, and even founders who begin with a mission focus can sometimes shift into thinking in financial terms.

The tale of one co-founder pushing to exit before another is common enough. It's not a trite lesson, however. For founders with a successful enterprise, the key to avoiding conflict on this issue is talking about it somewhat regularly. Goals should be set early on in a company's life, and while many founders will espouse no interest and no thinking about an exit when they're just getting started—and that's a fine thing—lives and expectations change, which is why this topic needs to be reconsidered at regular intervals. Many founders will think about the subject naturally on a regular basis, but it's the discussion between founders on the matter that often requires prompting. Just talking about this subject doesn't mean co-founders will agree on it. But when differing points of view have been acknowledged is when compromise can be more readily reached.

Some founders might prefer to aim for the moon and burn lots of cash in an effort to get big quickly, and not fear the obvious downside of that strategy: flaming out quickly and sinking the startup. Those founders might prefer that go big, go fast strategy in comparison to grinding out a product, keeping headcount low, conserving cash and trying to grow in a more organic, measured manner. This latter strategy might appeal to some founders but not to those who feel it's prolonging the resolution of the startup, be it good or bad.

"One partner might want to 'pump and dump' and the other one might be in his dream job," says Craig Vodnik, co-founder at Cleverbridge, a provider of subscription billing services that he and his co-founder have grown to more than 300 employees. "If you spend $5,000 on furniture to create a better work environment and your partner is the frugal type, you’ll be seeking a marriage counselor very soon.”

All co-founders in a company want to succeed, of course, but their perception of failure can motivate just as many operating decisions as their perception of success.

All co-founders need to be content with equity distributions

Harvard professor Wasserman found that 73% of co-founding teams determined how to split up equity within 30 days of founding the company. While equity splits certainly will be one of the first things that any founder thinks of when starting a company with somebody else, the truth is that nobody knows, at that point, who will work the hardest and whose contributions will be most valuable to the startup. Determining the split so early can lead to problems later. If it can be avoided, wait till you’ve had a chance to understand what it will be like to work together before officially divvying up the pie. It will also make things easier if one co-founder flakes off in the early going. That being said, you should not defer this decision for long past that point, as the conversation around equity could reveal discrepancies better resolved earlier in the life of the company.

Teams that draw up shares early on will need a vesting plan that ensures only the co-founders who stayed committed and on board receive their promised ownership stake. That's an easy thing to ensure with standard covenants; most startups operate on a four-year vesting plan that can sometimes be restarted with the first major investment. But a vesting plan doesn’t mean all founders are content with their share. This situation can quickly kill a business, or, at the very least, put it on the rocks.

Often, one co-founder will be working on a project, grinding away for months before she gets her co-founder on board. Or the company will be one co-founder's idea first, or one co-founder will have more experience and connections, or will possess skills that are worth more on the open market—all of these factors give rise to startup equity plans that aren't split equally among co-founders. This happens often enough that thousands of companies have grown up to be successful with co-founders who had non-equal shares. But it's still an area that founders must be hypersensitive to, because the more equity a person has in a company tracks closely with her motivation to scrap, grind and build.

A disagreement about equity shares early-on, if an adjustment isn't made (and sometimes it shouldn't be), often signals deep-seated discontent that will eventually subvert the relationship among co-founders if not the entire company. Y Combinator partner Michael Seibel recommends erring toward equal shares, as much of a company's value is built later on, and having fully motivated co-founders is worth sharing more equity with those who may have come later or been less integral early on.

Co-founders should regularly spend time together outside of the office

As a startup grows, co-founders will spend less and less time one-on-one. To preserve the unity that existed from the start, co-founders should schedule time together outside of the office. A weekly dinner or drinks can work well.

This gives co-founders a chance to catch up with each other’s lives, and to privately celebrate or commiserate the state of life and the startup. Conversation will invariably turn to work, but it provides an outlet for co-founders to be frank with each other regarding the business, employees and prospects in a way that isn’t always possible in group meetings.

Taking measured steps to preserve time together will help strengthen the communication and bond between co-founders as time goes on.

Some co-founding teams take the extra step of hiring an executive coach to proactively manage their relationship and overall performance. This can be expensive, so it’s not usually a step that works for very young startups, but it’s a measure that can provide leveraged dividends for a rapidly growing company and co-founder relationships once the budget permits it.

Support each other always

This might seem academic, but co-founder relationships can be capricious, especially when affected by differing opinions, board members, and employees who may favor one co-founder. Support between co-founders provides confidence and assurance not only to co-founders, but also to employees, who will infer the shared sense of mission.

The team should understand early that each co-founder has the other’s back under all circumstances, so co-founders should strain to never subvert their counterparts in front of employees, board members, or others. The co-founders should be viewed as an unsplittable unit. This can engender a vigorous sense of camaraderie throughout the rest of the company, and it gives each co-founder a sense of calm knowing that the other will always be supportive.

Companies have succeeded famously with co-founders split by conflict or even cleaved off by the actions of another or a board. Far more companies, however, find success with co-founders whose relationship, both in work and in friendship, perseveres.