Updated: Nov 28, 2022
Launching a startup is a risky venture. With the amount of time, effort, and money that goes into the process, building a company can just about drain a founder's resources. That's why it's always good start on the path of entrepreneurship with a co-founder, someone who not only shares your vision, but someone who complements your skills, someone who can handle the tasks you can't.
However, even if you do find that special someone, there are still several major factors that need to be taken into consideration before beginning a partnership with someone. Luckily, this guest post, by James Burbank of the Bizzmark Blog, outlines some of the key points co-founders should address before launching a startup together.
Deciding to go into the new startup venture with a partner in hand is a perfectly understandable decision.
For some people, the decision rests on the honest estimates of their own skills and capabilities which show them a need for a partner. For others, it may have to do with the financial injection this partner would bring to the startup. For some, it is that very human need not to be alone and have someone to share the ups and downs with.
Unfortunately, in the world of business, relationships between partners are even more volatile than in matters of heart. Moreover, since there is money involved, things can get very ugly. Ugly enough to end up as plot in a major Hollywood movie.
In order to avoid things getting unnecessarily ugly, startup owners should learn from the mistakes made by others and read about ways to avoid them.
Not Figuring Out the Money
Yes, it may seem cynical or even crass to start off with the issue of money, but we need to be realistic here. People start businesses to make money. People form partnerships to make it easier for them to make money. Pretending that this is not a fact is never a good idea.
In most startup partnerships, one of the parties will put in more money than the other. This will, in most cases, influence the ownership percentage in the company, but it does not have to. It is important that everyone is on the same page, though.
In certain cases, one of the partners is going to be much more involved in the running of the startup and they might draw a larger salary. Salaries can also be determined depending on the roles each of the partners will fulfil.
Friendship and enthusiasm are both very good, but the money needs to be sorted out up front.
Not Determining the Roles
Not every partner will bring the same set of skills to the table when partnering up to found a startup. If this was the case, there would be no point in partnering up with that particular person, would there? Depending on the skills and traits that individual partners possess, they should also work out a distribution of roles they will fulfil in the new company.
Once again, this needs to be done cool-headedly or even cold-bloodedly. If one of the partners does not exactly seem like the best person to handle day-to- day matters with potential employees, they need to understand this. If one of the partners is not that great with money, they will probably not be named CFO when the time comes. This skill and personality diversity is a good thing and there is no need to try and deny it.
Not Involving Lawyers
Unless you are a lawyer or have someone very close to you who is one, the chances are you do not like lawyers. That is just the way things are. For that reason, but also because they believe lawyer fees are too high, many startup partners decide to wing it and draw up the initial contracts themselves, if they even go as far as putting something on paper.
If you are planning on doing this, there is only one advice anyone will ever have for you – don't!
Lawyers need to be brought in sooner or later and people who have spent some time in the startup world will all tell you this is best done sooner. They will help put to paper everything aforementioned, thus preventing long, drawn-out legal battles if things go sour.
Lawyers will also come in handy for some of the more fringe aspects of running a startup, such as formulating foolproof trademark, patent or other intellectual property contracts; figuring non-disclosure agreements and so on.
When deciding whether to invest in a startup, venture capitalists (and their lawyers) will look long and hard at your startup's contracts and agreements. No one wants to invest in a company where everything is functioning until the first fight breaks out.
Not Preparing for the End
Startup partnerships end. According to Funders and Founders, 62% of all startups fail because of founding team conflict. When you start thinking about it, this is a huge percentage and if we are being totally honest, this is almost a disgrace. Just because the two (or more) of you could not work it out, there are people who are now jobless and clients who are abandoned.
There are innumerable reasons why startup partnerships end. Someone might be dissatisfied with the role they play in the company. Someone might think they are not being valued enough or their ideas are not being heard. Someone might think nepotism in the workplace is a brilliant idea and keep hiring their family members.
The important thing and the thing this article is supposed to help with, is to keep the startup running when the time comes for the partnership to end. That is why you worked out the money and the roles beforehand. That is why you hired lawyers to do their lawyer magic and make the company impervious to the partnership breakup.
It goes without saying that these are not the only mistakes people make when getting into startup partnerships but they are the most common and the most impactful down the line. Also, it would be a bit naïve to think that being aware of them will absolutely guarantee that your startup partnership will succeed.
Still, it can be a good start.
This post has been reposted from Founder Institute blog.
About the Author:
James D. Burbank has spent more than 15 years in the trade show industries, seeing startups all over the world succeed and fail for innumerable reasons. With a few friends, he runs a business blog called BizzMarkBlog.