Business Startup

The pros and cons of having a co-founder

The pros and cons of having a co-founder

Do you want to start your own company? If so, do you want to go solo or thinking about bringing a co-founder on board? In reality, having a co-founder is, like many other things in life, a mix of benefits and disadvantages. For some people, this can be where their whole business idea will either make it or not. To help you with this dilemma, I will share with you some of the pros and cons of having a co-founder. I hope this small guide will help you make the best decision.

The pros of having co-founder

Co-founder bring another brain to the table so you don’t have to rely only on your own. This, in theory, will increase the amount of experience, knowledge and brain cycles available to help you solve the issues that your company will have to face. If your co-founders are as smart and capable (or even more) as you are, then that alone should count as a big advantage. Chances are that they are not only that, but in different directions, and that’s where the real advantage lies.

This closely follows with the fact that different co-founders have different skills. It’s a well-known fact that co-founders that work really well together when growing a company don’t share the same experience, neither do they have the same professional background. For example, when one is a computer wizard, the best for him would be to have someone great at sales and marketing or more skilled in business development as a partner. On the same note, since both of you have a lot of knowledge to draw upon in discussion, you can achieve things that neither of you could do alone. Remember that the sum should be significantly larger than the parts.

Another advantage of having a co-founder is that he can stand in for you. Your co-founder is second part of your business and can go places and do things in a physically different location than the one where you currently are. This brings a lot of practical benefits. Co-founder can be sent out as evangelist of the company to enhance and improve your presence in the physical world. They can give interviews, visit customers, approach prospects and do all kinds of business development activities while you are taking care of other parts of the business.

In case your company is web oriented this translates in to more online presence, building stronger brand and the ability to serve more customers. It also means that sometimes you will want to take a time for personal things, recover from illness and many other things that can be very hard when you are a single founder. Simply said, having a co-founder is like having a co-pilot … You know that in every situation your back is covered (and of course that also goes the other way around).

Co-founder brings more manpower to the company. In other words, the more hands you have available the more work your company can do in the same, or even less, amount of time. Sure, some types of work cannot be sped up by throwing people at it, but a majority of the work that goes in to running a company can be done more quickly and efficiently if there are more people working on it. What’s more, some work has a linear effect on the growth of your business. Great example can be people in sales. Having two sales people instead of one should in most cases double your turn over. Make sure you have someone on board that has expertise in this direction.

The last pros of having a co-founder to discuss is that they will tell you the truths no one else will. When going solo, meaning that you are working on your own projects without having a third-party opinion it is very easy to walk down dead end street for a long time or to be working in wrong direction or even on the wrong thing For example, working on the wrong product or focusing on wrong customer. This is one of the reasons why businesses fail.

Even though customers can tell you about your product, this is useless when it comes to strategy or dealing with adversity. On the other hand, a co-founder has a stake in the company, you and your co-founder sink or swim together. This means that if your co-founder has the feeling that you’re on the wrong track with something he will be willing to address it head-on instead of remaining quiet. Understand that your co-founder is not saying it to make you feel bad. His and your fate are connected so it is in the interest of both of you that your business is successful. Also, keep in mind that when co-founder will disagree with you it gives you opportunities to learn, unless the disagreements become too strong.

The cons of having co-founder

Let’s now talk about situations when co-founder can be pain in the arse. Co-founder can be a liability when he has different level of standards when it comes to work, ethics and making business decisions than you do. When you and your co-founder has different standards, it is like trying to drive in two opposite directions. What’s more, depending on your distribution of competences, this will create tension between both of you and confuse your employees. Even if your co-founder has no power over internal processes and decision making, just showing different opinion can do a lot of damage to team morale.

Another way in which co-founder can be a liability is when he is taking risks that can affect the company in a negative way. This can include activities on the other side of the law. Putting thyself in risk of any kind is one thing, but putting at risk the company and its name is whole different story. If this is what’s happening right now in your case, you have to sit down with your co-founder and have a serious talk. You cannot afford to having these kinds of problems while trying to build your business. It is simple. Either your co-founder will get his shit together or he will have to go.

Always make sure you know as much about your co-founder as you can. If there are any problems with law or anything similar, you have to know about it. When you are about to create a partnership with anyone, you need to trust him. There is no other way around that.

Having a co-founder can complicate things because now, instead of doing things the way you want it you are now looking to for consensus with your co-founder. It is no longer possible for you to make decisions in a split second and make the move. Your co-founder is part of the business and so he has the right to say his opinion and eventually disagree with your decision. Remember, when you have a co-founder you have to learn to make trade-offs. You also need to get used to that your decision will not always go through.

This can be quite a headache because the more opinionated people are and the more their views diverge the harder the decision making can get. This does not mean you and your co-founder should always have the same opinion and agree on every decision, nor should he be a yes-man. It is completely normal that from time to time there will be some tension or harder discussion, but this should not be on a daily basis. If you are at war with your co-founder on every decision, it might be worth while to consider terminating your partnership.

Co-founder can be a ballast when it comes to exit. If you and your co-founder have different ideas about making an exit, you might have a serious issue. These issues can cause real trouble, if the co-founder is important enough to the company that may mean can block exit. Maybe your co-founder thinks he should get more out of it, maybe he wants the company to remain small. Remember … As many co-founders as there are as many opinions on things like this you’ll have to deal with and that can be a real problem.

Mutual problems between shareholders can easily result in nasty stuff like lawsuits and so on. These complications will only cost you a lot of time, money and energy. Keep in mind that successful exit is only a result of consensus between the various shareholders and officers of the company. Make sure you and your co-founder has the same ideas about company future (exit strategy) before going through them.

One of the biggest disadvantages of having a co-founder is that whatever the take is, it now has to be split. In other words, co-founder will always have equity. This can quickly add up, especially if you have more than two co-founders. Think about it … It’s a big difference if you take a 100K business, subtract your operating costs and have to live off the remainder or if that remainder has to also be split in two, three or even more parts. And, if you thought that that problem is only there because the amount is so small wait until there is a million or more at stake.

It is a paradox, but the more the company will make the harder it will be to spit the remainder. Why? Because people, on average, tend to overestimate their contribution to the company. Meaning, there will invariably someone that see the rest as luggage to be carried along on their backs. This is also another endless source of tension and trouble.

While it’s ridiculously easy to get a co-founder on board of your company, it is much harder to reverse it. All it takes to make someone part of the company is a transfer of a couple of shares, a visit to lawyers office or a notary public and you are now „in business“ together. On the other hand, when you want to break things up, the whole process gets much harder. Unfortunately, you can’t just repossess couple of stock because someone turns out to be less good than you believed they were. Once someone has stock that stock is theirs until a large number of conditions are met.

However, if you really insist on dissolving the partnership, it can be done in several ways. For example, one of the founders can agree to be bought out by the others. Another way is when a third party will agree to buy out one or more of the founders (partners). Also, the company can go „dormant“ (you will still need to file taxes and maintain some other records). One of the founders can become a „silent partner“. Meaning, they won’t show up on meetings and they won’t interfere with the running of the company.

Silent partners still have the status of a partner, the right for part of the profits to be divided and a stake in a possible exit. Keep in mind that silent partner can also block the exit if his share in the company is large enough. All of these requisites and exact possibilities are usually governed by the corporate documents, and that’s also one of the reasons why you need to make sure those documents don’t contain clauses that might come back to bite you later.

Co-founder has his own life too. This might not seem as something to be afraid of, but that can change very fast. For example, what about if the shares in your company will become a bone of contention between your co-founder and his spouse during divorce? Well, this would mean that instead of with your co-founder you might end up with your co-founders ex-wife or ex-husband as a major shareholder in your company. Not so funny thing right?

It is usually wise to make sure that the shares in your company are held in such a way that situation such as this is not a possible scenario. Otherwise, you might find that your thoroughly planned exit strategy has just evaporated without a chance you can do anything about it. Remember, co-founder can start as a single, motivated young a-personality type and end up as hen-pecked 9-5 type of husband. If you and your co-founder are both single when you start your company, discuss what will happen if one of you decides to have a family.

As mentioned in the beginning, co-founders have their own standards and may not do a job as perfect or in the same way as you would do it. How will you deal with this fact can make a huge difference on the well-being of the company in the longer term. For example, some people will turn in to control freaks. On the other hand, other people will learn to relax and become a mentor to their partner. Anyway, if you can’t live with other people making mistakes, the life with co-founder can be hell for you.

Understand that sometimes you will be picking up the pieces after all. Sometimes you will have to make some extra work and fix things here and there. That is part of doing a business. However, when this “sometimes” turn into regular grind leaving the rest of you to hold the baggage, it can seriously damage your relationship and the company as well.

Closing thoughts on having a co-founder

Personally, I think that the advantages of having co-founders weigh up against the disadvantages. However, the final decision about whether you should bring another person on board or not is only up to you. No matter how big your business or idea is, you had better don’t rush this because it is hard to take it back. So, take your time, consider all the options, your goals and then decide. Thank you very much for your time.

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