Moving From Friends To Co-Founders
Answer #4 to great questions I’ve been asked while teaching entrepreneurship to MBA students at AGSM @ UNSW Business School.
Before pitch decks, product prototypes, marketing plans, company registrations or investors there is an intoxicating moment when you wholeheartedly believe an idea has game-changing merit.
The inevitable need to collaborate inspires conversations with people who complement your skills and share your excitement and vision. After what seems like countless late night Skype calls and the exchanging of ideas and business models, prospective co-founders begin to emerge from your list of friends and classmates.
It’s important to be real about what’s happening here. It’s one thing to share your vision as a means to solicit feedback, it’s quite another to engage with a friend or classmate on the basis that they may, sometime in the future, become your partner. The exchanging of ideas and business models during those copious Skype calls is helping you perform due diligence on them as a prospective partner. And they are doing the same with you. This process usually adds a new dimension of trust and respect to the relationship which will prove essential if you collectively agree to pursue the vision. Equally, this process will also help determine early on whether a partnership is not going to productive.
Are they co-founder material?
It’s relatively easy to work out of if someone is well suited to being a partner. The reality is that achievements during their work history will tell you a lot about the quality and complementarity of their skills. And the all important capacity for industriousness and humour will become self-evident from working up the business model on Skype. The other essential ingredient in a partnership is trust and respect. If through the back and forward of Skype calls and the exchange of ideas your spider senses tingle because you’re detecting a lack of trust or respect, end the prospective co-founder conversation. Instinct usually prevails and you can almost guarantee that these behaviours will amplify when the going gets tough, and it will.
Combine these factors with your pre-venture relationship and you’ll quickly arrive at a decision about entering into partnership. Using this approach made it a no-brainer to start AirShr with Opher and Gautam because they tick every box (and then some!). Remember that finding the right partner isn’t trivial and that’s why this activity is more or less an audition. And that’s OK because you might not find the right partner(s) immediately. It requires the seriously brilliant partners to create a great company. Don’t settle, keep looking if you need to.
Three events place your new venture at risk from day one.
No matter how much you think you’re in control, start-up chaos begins the day you and your new co-founders start working to validate your business model. This chaos can affect people in different ways and when you boil down the reasons why founding teams don’t survive the early stages of company building, it’s typically because a founder:
- discontinues their involvement due to personal circumstances; or
- discontinues their involvement due to a breach of obligation or has irreconcilable differences with the other founder(s); or
- has been unable to perform duties due to prolonged ill health (or death).
Assume one of these scenarios will play out.
Be ready — In plain English.
The first step that co-founders need to take before starting to validate any business model is agreeing on the expectations they have of one another in plain English both operationally and in the face of the above scenarios.
Standard long-form shareholder agreements may address these issues but if you’re validating a business model, why would you already be incorporated (and therefore have a shareholder agreement)? In other words, you haven’t determined if there is value in the business model so spending money on forming a company, at this stage, is overkill and does nothing to help achieve traction.
This is the agreement we first used at AirShr and it served us well. It’s practical and easy to understand, sufficiently comprehensive to meet all early stage circumstances and its terms are transferable to long-form shareholder agreements at the appropriate time.
Many first-time founders have benefited from using this agreement and I hope it’s useful to you too.