Cofounding The Right Way
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Cofounding The Right Way

A practical guide to successful business partnerships

Jana Nevrlka

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eBook - ePub

Cofounding The Right Way

A practical guide to successful business partnerships

Jana Nevrlka

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About This Book

Jobs & Wozniak, Page & Brin, Ben & Jerry... any list of successful companies seems awash with cofounders who are a match made in business heaven. The benefits are obvious: by combining resources, knowledge, expertise and motivation, cofounders can often build something far more successful together compared to going solo.And yet... two-thirds of startups fail because of disagreements between founders. Why? Because cofounding isn't as simple as drawing up an agreement and shaking hands on it.In fact, there are seven steps required to build cofounding teams that win and last. Cofounding The Right Way will take you through these steps, one simple step at a time, from finding the right cofounders all the way through to structuring your team, splitting the equity, making sure everyone stays motivated and documenting it in your cofounding agreement. Is a partnership even right for you in the first place? That's Step No. 1!Get your cofounding team right, and you'll be in the best possible position to handle any challenge that's thrown in your direction. Get it wrong and not even the best business idea will be able to survive.Foreword by Mike Moyer, author of Slicing Pie.

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Publisher
Panoma Press
Year
2018
ISBN
9781784523282

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PARTNERSHIP YES OR NO?

Common Partnership Disqualifiers

I appreciate it might sound a bit odd to start to read about business partnerships with the question whether it is right for you. But believe me, as much as I do believe that together we are stronger than alone, I also believe that one size does not fit all. And that if partnership is not the right answer for you, you will do yourself – and the others! – a big favour to know it earlier rather than later.
Typical disqualifiers that might indicate that business partnership is not the right choice for you or in your current situation include:

You have all the essential resources to get the business going by yourself

If that is the case and you are considering business partnerships it might be either because you do not want to do it by yourself or you prefer to have a team. I would strongly recommend you to consider other ways to address your needs (more on the options later) than business partnership as it might not be the most suitable option for your situation. Whether it is the need for team, or support, in case you really do have all the resources, adding employees or creating a network of mentors and ambassadors could be a better solution to address your needs. As much as having business partners could be very powerful, if you do not really need them, you might not be in the best position to really use it, and having a business partner next to the benefits also adds complexity. Always. So if you have all you need, consider moving by yourself.

You prefer to keep full control of the business

There is no way around this one. If you prefer to keep full control of your future business, you are best positioned to remain a sole shareholder. In cofounding teams, even if you remain the majority shareholder, you will lose part of the control of your business. It depends a lot on the legal set-up and your cofounding agreement; some decisions in your future business might (legally) require unanimous decision (of all shareholders), some might need qualified majority or some could be done independently by any shareholder. It is not possible to explain all the potential scenarios in this section; to a large extent you can determine it by choosing the legal form of your company, voting rights and decision-making rules in your cofounding agreement. The fact remains though that once you include other partners in your business you no longer have full control of it.

You are not a team player

Without any judgments attached, knowing yourself is the best starting point. And if you know you are not a team player, you might do much better by growing your team with employees rather than cofounders – more flexible, much clearer hierarchy and no need to push the square peg through the round hole.
If you answered yes to any of the above points, I would strongly recommend to you to think again if you do want to proceed in a business partnership. It is better to consider carefully before getting involved with a business partner then realising later that it was actually not the best course of action and reverse it.

Examine Your Motivation Carefully

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The next stage starts with knowing your motivation first. Why is it so important? Because knowing your motivation helps you to decide whether you are entering the partnership for the right reasons. Understanding your motivation for wanting to have cofounders is also an essential prerequisite for choosing the right ones. The most common motivations include:
You need additional resources
You cannot do it on your own; you are missing some critical resources which could be:
Human resources: skills, experience, expertise, ideas, hands.
Social resources: access to networks.
Financial resources: cash or other assets.
Examining your vision – or even better, a concrete business plan and mapping the gap between what you have and can provide and what you are missing – is the way to identifying if and which additional resources are needed. This process also applies for existing teams in need of expansion.
Once you have identified what you need, the next step, before moving on to look for a cofounder who would have these resources, is to evaluate if finding that resource in the form of adding a cofounder is your best option. It can be that outsourcing, getting a volunteer or buying that resource is more suitable. Or that you can obtain it in a different way – for example an external loan instead of exchanging part of your equity for financing from an investor or cofounder. Similarly, sometimes a faster and more flexible way to access the needed resource is by collaboration or joint venture (which is a much more independent way of working together, frequently limited in time and to a specific project and without creating a joint legal entity).
Mapping additional resources is explained in more detail in the next chapter.
You want to have a team
Theoretically you do have all the required resources to start by yourself, but you are well aware how difficult it is to do it on your own. It could be that you prefer to work in a team. Or that you feel isolated when doing things on your own. Or that you prefer to share the risks. Or have the feeling that someone else being willing to develop your idea with you is the additional confirmation that you are looking for.
If your main motivation is in this category, please pause and reevaluate. Is there another way to address your need? Many misplaced founder’s choices tend to come out of this category. The reason why you are looking for the cofounder does not clearly specify what the cofounder should deliver to the business. Unless you combine it with adding a cofounder with a resource that makes sense from the business viewpoint, you are actually looking for a cheerleader. And sooner or later the choice of adding a cheerleader as a cofounder will backfire as it is neither right for you nor for the ‘cheerleader’ cofounder. In the many failure cofounding stories, many come out of this category. There needs to be more understanding of why someone would join your cofounding team – from both sides. If you do not have that or clearly define it, these partnerships are typically not only the least stable ones but also the ones that are quite complex to dissolve as very often neither the motivation nor how the partnership should have worked was addressed upfront.
The strongest motivation being not to do it alone blurs the selection criteria for the future cofounder because if your main motivation is not to do it alone, pretty much anyone would do. It is also a very strong factor contributing to ignoring warning flags as you have less clarity on what you need to evaluate in your future partner because you simply only want someone to join your dream. Remember that there are other ways to address the emotional needs of this motivation – be it by getting a mentor, coach, advisory board or independent network of partners. Or create a team by hiring employees or getting on board enthusiastic volunteers and ambassadors, not cofounders.

You are looking for (innovation) synergies

Especially if your future business aims at creating something new – be it a new product, service or a new way to deliver an existing one – innovation is typically born on intersections and from diverse teams crossing between different areas of expertise, cultural backgrounds or points of view. Diverse teams are known to be more likely to innovate. Or maybe you are looking for any of the other known benefits that cofounding teams are known to deliver – if done right – be it shared responsibilities, better decision making or spreading risk.
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One of the most successful – in terms of innovation, growth and maximising diversity – teams that I had a chance to meet is the Balboa cofounding team. They managed to create a gym for people who like to work out but do not like gyms. This is in my words. In theirs – they created an urban community which provides sustainable fitness for the mainstream population in a way which is fun and addictive. They do not have members. They have fans. In an industry which is highly oversaturated but oh so repetitive at the same time, they managed to progress from a ghetto garage next to Zurich main station to three prime locations in two years and with an international expansion coming next. What was their secret? They are all great guys. And as much as we are used to seeing examples of the synergies in sports and music, they managed to combine their individual strengths and very different backgrounds, personalities, expertise and way of working into one of the most functional and inspiring teams I have ever come across. Is there anything further apart than Swiss ex-banker, Argentinian artist and German IT specialist turned fitness trainer? When interviewing their team it was very interesting to see how much they were aware of each other’s strengths and differences, and managed from the beginning onward to maximise the use of the diversity and at the same time use each other’s strengths.
And witnessing how powerful such a diverse team can be in creating something truly new, I also will admit that making it work is an art (which can be mastered) and not commonplace.

External factors

Being pragmatic, you might be aware that whether it is to participate in some of the excellent accelerator programmes or to get external funding, cofounding teams are preferred to solo founders. This being a valid motivation, in order to work it still needs to be executed properly, by choosing the cofounders that will bring the additional valuable resources and choosing the right ones. Because whether in business or in life, it is better to be solo than to be in the wrong relationship for the sake of being in a relationship.

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Checklist

I am sure that business partnership is the right choice for me.
I am fully aware and conscious of what is my main motivation for business partnership.

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KNOW WHAT YOU ARE LOOKING FOR

After this chapter you will know:
How to identify what you are looking for.
Cofounder’s story on (correcting) Step 2.
How to find cofounders.
Considerations ...

Table of contents