Posted by Early Growth
March 12, 2013 | 5-minute read (827 words)
Originally published on CoFounders Lab.
Co-founding a company is like getting married; the early days are the honeymoon period. During those first, exciting days of startup bliss, you may not think it’s necessary to sit down with your co-founder to hash out potential concerns.
But it is.
From day one, it’s essential for you to align your visions and generally ensure that you are in synch in terms of what you hope to achieve.
Talking through the following issues—and documenting your agreements—can help you to avoid disputes, expensive lawsuits, and, even, the unwanted dissolution of your company. A startup is a living entity, so this will be more of a working document than a binding contract, but it will still serve as a good starting point: a shared foundation for your business that you can refer back to in days ahead when your goals may get cloudy and your partnership may be tested.
1. Goals and vision. This is the nitty gritty of your company make-up. The big questions. Why are you creating this startup? What need will it fill? What will your initial product/service offering be? And what is your strategy for growing the company? But your goals and vision go beyond your starting position. How will you handle events down the road that will impact your company such as acquisition, taking on new partners, and/or going public?
2. Company values and philosophy. Your company success will depend on vision alignment: alignment between you and your investors, your employees, and your customers. But this alignment starts, first and foremost, with you and your co-founder. You should share the same priorities and agree on what’s most important to you both personally and for the future of your company.
3. Measuring success. This question is often overlooked, but really gets at the heart of your business. What do you and your co-founder hope to get out of this business? How will you know if you’ve achieved your goals? For one founder, success may be measured qualitatively in terms of revenue earned, while for another it may be in global reach and influence. If you’re not shooting for the same target, how can you agree when you get there?
4. Target market. Presumably you and your co-founder are already clear on your product/service offering (although that’s not always the case...). But that’s only part of the equation. Once you know what you’re selling, you need to be clear on who you are selling to—and how you are going to reach this target audience. And remember, “everyone” is almost never a viable target audience.
5. Decision-making. Since it’s impossible to think through every aspect of your business from day one, it would be unrealistic to expect that you will be able to make every important decision from the outset. That’s why it’s so important to have a decision-making process in place. You and your co-founder need to agree on how decisions will be made and who will be in charge of making which kinds of decisions—and, what steps you will take if co-founders don’t agree on a decision.
6. Founder roles. Work out the division of labor for you and your co-founder. What will be your specific responsibilities and what will be under her purview? Also, discuss—and add a provision—specifying what action you will take in the case that a founder isn’t adequately managing their individual responsibilities.
7. Equity and ownership interest. This is often the most common cause of conflict amongst co-founders so it warrants a serious dialogue. Some co-founders opt for a 50/50 equity split in the name of “fairness” to minimize conflict. But this doesn’t really make sense for most startups. Rather than shoot for a 50/50 split, how can each co-founder negotiate his way to an equity split that feels right for him based on his individual role, responsibilities, and contributions?
8. Overall objectives in terms of exit.It may seem odd to start a business thinking about its end, but not for entrepreneurs. What is the exit plan if a founder leaves the company—voluntarily or not? It may seem like overkill, but it’s a good exercise to work through every potential scenario.
Discussing these issues with your co-founder could get uncomfortable, create rifts, or even uncover deal-breakers. Better to find that out now than somewhere down the road. If you are able to successfully have these difficult conversations, this is a testament to your partnership and to the strength of your relationship—and will serve as a solid foundation from which to grow your business.
What issues do you think are essential to discuss with a potential cofounder? Let us know in comments below.