Episode 408 | Should You Take on a Co-founder?

Show Notes

In this episode of Startups For The Rest Of Us, Rob and Mike answer the questions, should you take on a co-founder? The guys discuss the difference between hiring and being a partner, how to begin a partnership, and how to do if you’re a good fit.

Items mentioned in this episode:

Transcript

Mike: In this episode of Startups For The Rest Of Us, Rob and I are going to be talking about whether you should take on a co-founder or not. This is Startups For The Rest Of Us episode 408.

Welcome to Startups For The Rest Of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you build your first product or you’re just thinking about it. I’m Mike.

Rob: And I’m Rob.

Mike: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?

Rob: MicroConf Europe tickets are not available to the public. Head to microconfeurope.com and click on the ‘Gimme a ticket now’ link or we’ll link directly to our event right page in the show notes. I’m pretty stoked. It’s Croatia, man. It’s just a couple of months away.

Mike: Yeah, I know. The date is coming up quickly. It’s definitely something to look forward to though. The place where they are having it is right on the ocean. It should be a gorgeous view, if nothing else. I don’t know if I’ve mentioned this before, but parts of Game of Thrones were filmed there and over at Old Town in Dubrovnik.

I saw this article that showed a mashup of what the place actually looks like versus what the Game of Thrones scenes that’s associated with it was. Some of it is just breathtaking. It’s just fantastic architecture, the scenery, and everything else that goes with it. It will be pretty cool.

Rob: That’s super cool. I had heard that. I didn’t realize that they did it in Dubrovnik. Assuming we’re pronouncing that correctly, although we may not be. I’m excited both to get there for MicroConf Europe because I always enjoy the conference, seeing old friends, and hearing the speakers, but also excited to take a couple of weeks and see Croatia because we’ve never been. I’m going to be bringing the family, or I should say we’re––Sherry and I are going to be bringing the family.

Sherry and I are both speaking at MicroConf this year and we’ll probably take a couple of weeks before MicroConf Europe and head all the way down the coast. There’s some cool itineraries if you buy a guide book where they have a two-week driving itinerary. There’s also some online. You fly in to the capital and then you drive down different cities. The thing is, when we first talked about it, we’re like, “Yeah, we can probably take out the kids for two weeks because there’s school and all that kind of stuff,” but Sherry’s like, “I’m not sure there’s going to be enough to do in Croatia. Maybe we should head over to Greece,” and then as soon as we started researching it it was like, “No, there’s a lot to do and a lot to see.”

Reminds me a little bit of California. It’s not identical, obviously, but there’s, at least in that order of magnitude, that much rich kind of cultural things, natural beauty, beaches, mountains, all that stuff. So, pretty stoked to do it there this year.

Mike: Very cool. On my end, I have a Bluetick revenue milestone today. Just recently, Rachelle recently crossed the $30,000 in total revenue for it.

Rob: Good for you, man.

Mike: I’m pretty happy about that, but obviously I definitely have ways to go in terms of MRR but things are trending upwards in the correct direction. I’m pretty stoked about that and it’s just a matter of getting the things done.

Rob: Yeah, it always is. That long slow SaaS ramp of death is always just that. Long and slow. Hopefully, it’s not actually death, though.

Mike: Yes, hopefully not.

Rob: I was actually listening to CurrentGeek, which is a Tom Merritt podcast. He was talking about eBay and that he hadn’t sold something on eBay in 15 years and that he was moving and he’s getting rid of some old stuff. He started talking through the process of selling and how different it was. I realized that I just always done a lot of buy and selling online. Even before eBay and Amazon, I was in the Usenet groups in the 90s.

Mike: Oh, you’re old.

Rob: Yeah.

Mike: You’re old.

Rob: No, I am one of those guys and I used to buy and sell all kinds of stuff like comic books. I used to do guitar pedals, play electric guitar a lot back then. It was mostly for profit. I was trying to cover at least my living expenses, not my rent or my tuition, but just other miscellaneous expenses.

Anyways, with that said, eBay was such a bear to sell on in the late 90s and early 2000s. It was like you had to take your photographs, then you had to get them scanned, then you make them digital. It’s such a mess. But with the eBay app now, you just take the pictures right in the app and then if you’re selling anything that’s moderately standardized, like if you’re selling a model of printer or a model of a laptop, or a set of headphones, they have all that data now. I don’t know why it took them so long to do it, but it’s not exactly the same, but it’s more similar to selling on Amazon.

I switched over to Amazon for almost all of my selling. I don’t do that much these days, but I will play some games and then we’ll get tired of them or will have some books that are worth something, and I’ll post them up because it takes 30 seconds to post. Then you can print the shipping labels both right directly from eBay and Amazon now.

I have my kids tape them on and they take typically some of their stuff that we’re selling, to be honest. I don’t have much physical stuff left like physical books and stuff, but my kids will take a portion of the profit and portion of the things. I’m trying to show them how to do it and motivate them as well. It’s just one of the comments that I typically have veered towards Amazon because it’s such an easy process to post.

eBay does still take longer but there are items sometimes that Amazon won’t let you resell. Like the manufacturer had said, there are certain types of games that don’t have replayability, there’s the escape room games, and Amazon just won’t let you sell them, so I’ve sold those on eBay. Then there’s some other like mighty wallets and stuff that I have that are in good shape that I was trying to sell. Really just public service announcement that if you’re going to sell something and Amazon won’t let you do it, head over to eBay. It’s not as catastrophic as it once was.

Mike: That’s some definitely good advice. I’ve tried to avoid eBay to some extent just because I don’t tend to just sell a bunch of my stuff. I guess, I just collect it, to be honest or just throw it away. I remember checking my eBay account. It was a couple of years ago and most of my radiance and stuff have completely gone away because I hadn’t used my account in so long. I’m just like, “Oh, all right.”

Rob: I don’t know if they do. They show lifetime ratings but them they’re like that. If you haven’t got ratings in eight, six months or a year, then they degrade, which I think is a good policy. Basically, people will buy an account with some ratings to swindle people, so they really have to be concerned about that.

Mike: Oh, I haven’t thought about that. Darn those people.

Rob: What else is going on with you?

Mike: The only other thing I have is that I spent far longer than I wanted to trying to rebuild my deployment process for Bluetick. I talked to about how I was in the process of deploying a public API, put that out there, and unfortunately as part of that, it creates another URL that I need to have software deployed to. Things just got more complicated and I’ve got multiple machines involved.

It’s no longer as easy as it’s just like, “Oh, just click this button here and then copy a folder from this machine to this machine and then run an executable or whatever.” Now that it’s much more complicated because I have four different websites that basically need to be deployed as part of the build process, I ended up re-engineering this whole thing.

It took me probably a week-and-a-half to two weeks to just rebuild that using different software, but it’s all working now. It’s really nice I can just click the button and then it just goes out and deploys everything on multiple machines and it deploys new copies of it. It’s no longer deploying over itself which is just fantastic because now if anything goes wrong, I can revert, whereas before, I didn’t really have that capability. I had to do a bunch of manual stuff in order to make sure that in certain cases, I have the ability to revert.

Obviously, there’s some changes that you’ll make that are like, “Oh, I’m changing some HTML here, an API call there, and it’s not a big deal,” but then there’s other ones where you know that it’s much more of a risky change and you want to have backups of stuff before you go deploy it because the build process can take a while for you to revert in any way.

Rob: That’s brutal to spend that much time on something like this at this juncture but I get it that these are the things that, at some point, you have to deal with and you can’t just keep kicking them down the line. You can, but then you get this crazy legacy stuff that really can hold you back down the line.

Mike: I kicked this down the line for a year at this point. I went back and looked at when I started trying to do what I just finished and it was a year ago. I was like, “Oh, I need to upgrade the software, put the latest version on, and all of these other stuff. I remember seeing the dates and it was about a year ago. It was complicated enough that I’m like, “Nope, I’m not going to do this now,” and I pushed it off for long enough that it’s like, “I have to do it now.”

Rob: It stinks to lose that much time when you’re trying to move fast on a startup and this is why, at a certain point, it’s either having money whether from revenue or from a small amount of funding like we talked a couple of episodes ago, to just hire someone who can come and help with that, or to hire someone who can come in and help with that, or to hire someone to build features while you’re doing that. It allows so much more parallelism, you can move a lot faster.

Mike: That’s a nice lead in to today’s topic which is should you take a co-founder? Obviously, if you have a co-founder, you don’t necessarily need funding. You can certainly go down that road as well if you’d like, but I think the problem most people are trying to solve by bringing on a co-founder is avoiding going down that road altogether or by adding somebody in in a way that feels much more cost-effective and helps to have somebody else who’s got some skin in the game and they’re going to help the business with a completely different skill set than you have and help drive the whole thing forward.

Rob: Yup, for sure and this is a topic I know we’ve discussed a little bit in the past, but I don’t think we’ve dedicated a whole episode to it and it’s something that a lot of people are faced with. It’s like, “Should you do this or should you go it alone?” I think it will be a big conversation today.

Mike: The opening question is should you actually go down the road and having a partnership or should you hire somebody? I think for most self-funded businesses, the big issue with hiring somebody is you simply don’t have the money. You either don’t have the revenue or you would have to cut significantly into your own amount of money that you basically put into your own pocket in order to hire somebody, and you may just not have enough coming in to be able to do that. Also, if your very early on, or you’re just working from the point of having an idea, there’s nothing there.

In many ways, it makes sense to go the partnership route versus hiring somebody because if you’re going to try and hire, let’s say, a developer or something like that, you’re probably going to blow at least $30,000 or $60,000 trying to get something to the point where you can just show it to customers and get it out the door.

Whether you validated that in idea in advance—obviously you should’ve—especially if you’re going to dump that kind of money into it because you want to be absolutely sure that this large quantity of money that your dumping in there for that work to be done is going to eventually pay off.

Rob: Jason Calacanis on This Week in Startups has a saying. He says, “Hire your co-founders,” or at least that’s what he does. He has the luxury that he has the funding to do that. He can basically keep the line sure of equity because long-term he thinks that’s going to be worth a lot of money. He can hire someone at a totally reasonable salary because he can either do it out of pocket or he can raise a round of funding and pay them probably market rate or something close to that and maybe they get 5% of the company.

They have skin in the game and they all get the upside, too, but he doesn’t have to give up 50% of the company or whatever it is as maybe if you were starting from scratch that you would have to deal with.

The hiring is a luxury that you will have if you have either raise some kind of funding on your own or have the power to do that because of whatever, because of your background or your network, or you have the money that you were able to sell fund from other ventures. But if you don’t, then yeah, it becomes not possible. If you don’t even have enough money to quit your own job, how are you going to have enough money to pay someone else’s salary?

Mike: The other thing to take into consideration is the skill sets, like do you have the skill set that ranges both the marketing sales side of things or can you only do development? If you’re a non-technical founder, then you need somebody to step in and perform those duties as a developer from the eyes of the business owner.

I’ve talked to a few different people or non-technical founders and they were like, “Oh, okay I want to bring somebody in to help out with the development side,” but I find it a lot of contractors are very hesitant to take the reins and say, “Okay, I’ll be the architect for this,” or the people just don’t have the money to hire somebody who’s a skilled-enough person to be able to have that high-level view who’s done it before. It’s more of the chicken and the egg problem, I think, but even with the skill set, you have to figure out what is going to be complementary to you and what is the best type of person to bring in.

Rob: What’s interesting to me, you’re talking about having a technical co-founder. I don’t believe it have backed a single company in terms of my personal angel investments that did not have a technical co-founder. I have passed on several that did not and that was my biggest concern is how are you going to get the tech right? This is a software company.

Obviously, the marketing’s important, but the software has to work and someone has to own that. If you don’t have someone who is either has some skin in the game, whether it’s co-founder or whether if someone say, “Hey, I’m employee number one and I’m able to pay my full-time salary and I give them 5%,” I’d be like, “Okay, I can live with that.” But just saying, “Hey, I’m going to go hire an agency. I’m going to hire a contractor or something.” That wouldn’t work for me. That’s a personal bias or a personal belief of mine. It is obviously possible to do, build a software company without a technical co-founder. I’m sure we probably know people who’ve done it, but very, very difficult especially SaaS, which is, as we know, even more complicated than the traditional downloadable software model.

That’s not too much of a tangent but it is something that I think folks should think about. This is part of why that stair step approach works for even non-technical founders. You start super simple and you start with the one-time download like an info product or it could be a WordPress plugin because I can see you paying a contractor to build a plugin to solve a problem, making a few grand a month from that, then you build, build, build to the point where you either have the network, or the relationships, or you have the funding to then where you can self-fund and actually bring someone on who really is more of a technical co-founder.

Mike: The next question I think the answer is how do you know if you are a good fit for each other? I feel this is a hard question to answer just because it depends a lot on what your relationship already is with the person. If you’ve known them for 15 or 20 years, it’s a lot easier to make the determination is to whether or not you would want to work with them.

But if you just met them at some local meetup or something like that, or you met someone at a conference, or you followed them online, and you’re just starting a new relationship with them and you haven’t known them personally for very long, then it becomes a lot more difficult to make, I’ll say, an objective consideration about it.

I think that there’s a couple of things I would keep in mind and try out when I’m doing this. First one is, before you make a full-blown agreement, have a trial period of some kind on a project. It could either be that project or it could be something else. You might hire them to build something for you. That’s more of a contracting basis. I wouldn’t say that I would hide it from them that you’re interested in potentially pursuing something later, but probably wouldn’t bring that up as like the first thing as, “Hey, I want to think about having you brought on as a partner and I want to hire you for this project in order to figure out whether or not we’re going to be a good fit.” Because then, if it doesn’t work out, then you already set those expectations that, “Hey, this might turn into something.”

Rob: Yeah and on this topic there’s an episode of the Zen founder that is probably 100-150 episodes ago where Sherry interviewed Jordan Gal and Ben Fisher, who were the co-founders of CartHook and just about the “dating process” that Jordan and Ben went through. They had spent months trying to figure out how, “Are we a fit to each other? Are we going to work well together?”

I believe Jordan flew out and worked for a week or two from Ben’s co-working space. Ben went out to New York and did that with Jordan and they just went back and forth and it was definitely a long trial process, but they were really feeling each other out and figuring out, “Can we work well together? Are we a good fit? Because if we’re not, let’s not do this. Let’s not waste either person’s time and let’s not have the agony,” because the agony of a co-founder breakup is pretty bad. It’s pretty rough.

I think that pre-arranging a trial period—you had mentioned not mentioning it—to someone that you think of bring them on, I think that is definitely one way to do it. For some reason, I don’t remember the context of the story, but Jordan and Ben had already––there was more context to it to where they’re both equally willing to walk away. It wasn’t like one guy bringing the other guy on. It was really they were trying to find a fit. I think you can do it both ways.

Mike: I think that whether you bring it up upfront or later on is dependent a lot on how well you know them to begin with and whether or not you even broach the topic. If it’s someone you know online or you seen them and you are considering potentially asking them, then I probably wouldn’t bing that up first thing. But if you already have some relationship with them and you see them on occasion, or you’ve talked to them before and they know you personally already and you have the sense it might be something you want to pursue, then yeah, I would probably bring it up upfront at that point.

There are some red flags, I think, I would look for. One is if you’re trying to communicate with them and they are not very willing to communicate back with you especially if you hire them for a project, that’s obviously a red flag. If there’s any social power disparity between you in terms of what you guys would be bringing to the business relationship, not like Twitter followers, more along the lines of, “Oh this person has all the contacts in this particular industry and he’s going to try bring them in as customers and the other one basically has none.” It can be an issue. I’m not saying that that’s a disqualifier or anything, but it’s something to examine with a magnifying glass, say, “Is this going to be a problem?”

I think the obvious question is, “Could you see yourself hanging out with this person as a friend?” Because if there’s a business partner with you, you’re going to have to talk probably quite a bit and it’s going to be a relationship that you’re going to have to maintain for years.

If you can’t see yourself working with this person or hanging out with them, maybe you just don’t like the way that they treat other people or they’re racist or something like that, there’s certain things that you’re going to have to say, “No, this is a deal breaker and we’re just not be able to do it.”

Rob: Another thing to think about, obviously, is this is a little bit like hiring someone that you want to have references, you want to do references checks. So, talk to friends or colleagues that run in the same circles who can potentially know this person. Hiring someone who’s completely unknown is certainly a possibility that could work out, but it is less likely if you don’t have any overlapping circles and no one you know knows this person. Don’t know if you’re just starting out or have been going longer, you have to get contacts to it, but certainly if you know anyone who knows this person, it will be a lot better off if you can talk to them about it, how this person works and all that kind of stuff.

Mike: Of who has done business with them before, how do they treat their clients and other people that they interact with at business level because if they are in the habit of screwing over their customers, then is that the type of person you want to be in business with?

Rob: Yup.

Mike: The next question is, how to begin a partnership? There’s lots of different ways to go about that like you put together a vesting schedule, think that most startups tend to do that if they’re granting options, for example, but I do think that even in a partnership, a vesting schedule of some kind is probably a good idea.

In the early days, you can track hours. Just say, “Okay, well I put in 20 hours this week. How many did you put in?” I wouldn’t necessarily use that as a weapon, for example, in a relationship but use it as a barometer of how much effort are people putting into the business. What you don’t want to do is you don’t want to end up in a situation where you’re putting in 95% of the effort and the other person is putting in 5% or 100% and 0%. At that point, the whole thing is just going to fall apart at some point down the road. You can’t have a long-term business relationship if that’s going on.

Another tip is having regularly scheduled meetings to just discuss what’s going on, put together an outline of what those things are going to entail, and then make sure you have a set of common goals and expectations for one another. Know what your expectations of that other person are and make sure you communicate them because if you don’t tell them what you expect of them, then they’re going to be hard pressed to just come up with it on their own.

Rob: I think the thing is you’re trying to find common goals. It’s a ‘do you have’ common goals. That could be a big thing from the start is like, “Hey, I want to start a SaaS company and one person wants to go raise funding and go through YC and the other person just wants to build a lifestyle business and work as long as possible and pay the bills. That is overly simplistic way of looking at it, but these are the hard conversations that will save you so much pain and anguish down the line.

I think this is probably a good point to talk about. We’re talking about how to vet a co-founder right now but the title of the episode is Should You Take On A Co-Founder and I think I went off a tangent about if I were non-technical, I would look for a technical co-founder and that’s a very common thing. But what if you are a single technical founder? The question I’m posing here is, do you that that you should go look for a co-cofounder? And what are the pros and cons about it?

I know that when folks apply to Y Combinator, that they tend to fund a lot few single founders because from their perspective, the code is like the journey is hard and you tend to need someone else to lean on.” I don’t know if that’s programmed pattern-matching. I don’t know if this program had, I believe, two or three other co-founders when he launched and grew his startup. What are your thoughts on that question, specifically? If you’re going to build a SaaS and you are a technical person, what are the ideas? Obviously, if I say should you, you could say no because you’re a single founder. But what is the thought process there? What should someone think about as they’re thinking that thing through?

Mike: I think the interesting point to bring up here is actually the Startups For The Rest Of Us podcast actually came from a blog post that I’ve written a long time ago about when Y Combinator was first and announcing that they going to be funding a bunch of companies and they were going to be offering $6000 to move for three months to some certain location. I’m like, “That’s just not enough especially for somebody like me and what about the rest of us? Startups for the rest of us?” That’s where the original idea came from and plus, obviously, I had the domain singlefounder.com. It hit really well, but I do think it’s a really interesting question because one, there’s no right or wrong answer. It’s really what is right for you? What is it that you are comfortable doing?

I have met people who are perfectly comfortable taking all the responsibilities for a business on their own shoulders, and I’ve also met entrepreneurs who are not. They want a co-founder to share the responsibility and they’re okay sharing everything because they don’t want everything on their shoulders. It really depends on the type of person that you are. I also believe that depending on the type of business that you’re trying to build, you may or may not need help. That’s a big question as well. How complicated is the thing that your building. Are you going to be able to do both the marketing side of things and are you also going to be able to do all the technical side of things?

If you’re building something that’s extremely complicated like the level of Drip or something like that, there’s a ton of stuff that goes in there. I think it would be extremely difficult to build that as a one-man band. There’s just so much technical stuff going on and so many things that need to go into it and a short amount of time, that you are not going to have the bandwidth to build the stuff and also do the marketing for it.

I think that’s probably one of the contributing factors to why you and Derrick worked out together so well because you have technical architecture level stuff and you can help with the design, but then you went off and did the marketing stuff while he did a lot of the implementation. You served as a barrier so he can get work done. I’m speculating to some extent here but you can confirm or deny that.

Rob: Yeah, Drip started off as a smaller idea. It was going to be a lifestyle business. Derrick was a contractor at that time, then became W2 at some point. When we made the decision to become more ambitious about it, I was bouncing ideas off Derrick. At this point, I was still the full owner of the company. It was truly my decision whether or not to go into this market. But he was like a confidante and he and I just had a lot of co-founder-like discussions, is what I realized. Between the two of us, he and I made better decisions than I would make alone. That’s what wound up happening. It was just a natural thing.

Honestly from the very start, I did not think there could be a co-founder. It was not a plan for me. He was literally a contractor working half of his time on HitTail and I said, “Hey I want to build another product. What do you want the other 20 hours of your week? Do you want to get paid for that?” And he was like, “Sure.” It was fun to build a product from scratch and his UX chops are good. It was just a funny little thing and we unintentionally traveled down this road that you’ve outlined here of how to vet but we didn’t have any of the presuppositions of, “Oh man, are we going to make the decision someday to be a co-founder …”

Eventually, Derrick started a couple of apps before that, before Drip that hadn’t panned out and he knew that he wanted to kind of own something. He didn’t just want to work for somebody forever and knew that about him. It came to the point where it’s like, “Look, I’m going to do my own thing,” and it was like, “Well, let’s talk about what I can do at Drip for you to not do that, to make it worth your while to stick around in that.” That’s where it went. It’s very natural and by that time, I trusted him, he trusted me, we both knew how we work.

It was a Cinderella story so to speak of just making it work. But you’re right. I don’t want to say it wouldn’t have been what it was without both of us. It just would have been different. You know what I mean? Drip, especially in the early days just built a lot on my network and my very early vision for the product that quickly became our vision, and it was built a lot on my public speaking and my audience and all that stuff, and that’s what got early traction. Even my network later on got us affiliates and got us people recommending it and people willing to try it and all that stuff.

I think Drip could have worked without Derrick but it wouldn’t have be able to grow as fast. It would have been way more stressful for me. Derrick took so much of the load of the technical side as well as just building good software. I wasn’t dealing with a revolving door of contractors, I wasn’t dealing with that headaches which would have severely hampered the growth of the business, I believe. I think either of us having not been involved, it still could have been successful but it could potentially have been calamity as well.

I think it comes back to that question, should you take on a co-founder? As you said, Drip is very complicated. It’s very large in terms of the app. I can’t imagine doing that alone. I can’t imagine doing that as a single founder. If we’re doing a simpler app, I had HitTail before that. I didn’t take on a business partner with it, nor I didn’t build it, but it wasn’t that many lines of code. I did grow it essentially from $1000 a month to $30,000 a month over a course of a couple of years really on my own. Then I had a couple of contractors helping me out. For that one, I didn’t need a co-founder. That was definitely a nice little lifestyle business.

Mike: But I think there’s an order of magnitude and complexity difference between those two different products and that’s my whole point is that, if there is an order of magnitude difference between what you currently have going on and what you intend for that product to be or what it is going to become, then having that co-founder is probably really a good way to go, regardless which of the two is writing the code or if only one of them has technical experience, that’s fine. But there needs to be help because you are not going to be able to switch back and forth between both of them very well.

I’m saying this as somebody who’s in the middle of that right now. It’s really, really hard to switch back and forth between them because Bluetick is complicated under the covers. It’s way more complicated than I thought it would be and that’s just the nature of it.

Rob: Yup. That’s the struggle. Do you regret or do you wish you had a co-founder? Have you thought about looking for one?

Mike: Oh yeah. It was probably a year-and-a-half ago I actually approached somebody about coming on as a co-founder. It’s not something I haven’t thought of but at the time, I was like, “Okay, yeah, I know and trust this person and I’ll asked him.” He thought about it and we discussed it a little bit, and he decided to go on a different direction, which is totally cool. We’re still great friends and everything and he’s off doing something else and that’s great. But at the same time, I also have it at the back of my mind like, “Hey, it would be nice to have a co-founder or it would be nice to have funding to be able to either attract a co-founder or help in areas where I just can’t dedicate nearly as much time as I would like to then.”

I could either go in either direction and I honestly weighed them both pretty heavily over the past 6-8 months. I know that down the road I probably can’t do both side of the business. The question is what do I do? Do I go for funding and try to hire people that just do marketing and report to me or do I go the co-founder route? I think that it’s a hard comparison to make because on one hand, you’re saying, “Okay, well, if I get funding, maybe I give away some percentage of the company,” and I don’t really want to do that. But at the same time if you bring in on a co-founder, what are the logistics of that look like?

I’ve already spent months, actually years at this point helping build the product and get it to where it is. I’ve done a lot about, I’ll say, the hard, heavy lifting to get the products to be functional and do what it needs to do, but how does a new business partner work into that? How do you value the business, how do you value all the work and effort that I put in, the money that I paid to the contractors that help me in different ways, the infrastructure that I put in place, how do you put a price on that? How do you work out, what the terms of that would be?

Rob: You’re right. That’s hard to do but that shouldn’t be a reason that you don’t do it. You need to figure that out if you really need a co-founder. There’ll be some awkward or hard conversations and you’ll both have ideas of, “You know I have an idea that you should get this much equity,” and then the other person have different and you figure out, “Hey, are we willing to meet in the middle or are we willing to compromise? Or is this just not a fit?”

You’re right. There’s a lot of complexity to that stuff, but it doesn’t mean that it’s not worth doing. As developers, you and I see all the problems with everything, frankly, like Sherry can say, “Hey, we’re going to Croatia in two months,” and I’m thinking, “Oh my gosh, the logistics of that is going to be a nightmare. Everything is going to go wrong.” It’s like we’re used to looking at code and trying to figure out how it’s going to break. In life I try to figure out how are things going to break so I can think, be ahead of them, or whatever and I think that’s what you’re doing here. If it’s the right decision, you just have to figure it out.

But if it’s not the right decision, if you can raise funding and essentially hire someone to handle that, or if you can grow revenue fast enough that you can hire someone, and I’m not saying you in particular but just in general, I mean these are other options instead of having a co-founder, but it sound like you’re right. There’s going to be complexity but I still think that it’s something if you think it’s right for the business, that you should consider.

The good news is raising funding at a later stage or bringing someone at a later stage means that it shouldn’t be a 50/50 proposition or your evaluation should be higher because you do have more traction. If you’ve proven in the business that you have all of these and you have traction, then it becomes a different conversation.

Mike: Yeah, that’s true. Like I said, the situation for me personally is like I’ve got three different, I guess, pass so to speak, and it’s not to say that any of them is necessarily exclusive of the others but there’s the finding the co-founder, there’s also the funding, and then there’s the potential that is like grow the business revenue higher than it is currently to the point where I can hire somebody to bring on which I’m almost positive that like that would be somebody to help out on the marketing side of things, and then figure out things from there.

If I did that, it doesn’t necessarily mean that bringing on a co-founder is out of the realm of possibility because if I hire somebody to do marketing, I may decide that, “Hey, this person is working out in this capacity but I would not want to have them as a co-founder.” And the question is like, “Well, who would I bring on as a co-founder?” I don’t have an answer for that, to be perfectly honest. I don’t want to say a hard situation, it’s just I don’t have easy answers.

Rob: It’s startups, man. There are never easy answers. That’s the thing. I do think that though our discussion today about whether to look for a co-founder, I feel that should be helpful to people. This is one of those issues where there’s a lot of ‘it depends.’ It depends on who you are, your goals, your goals personally and for the business, and like we said, the complexity of the business and all that kind of stuff.

Mike: Yeah, and I think at the end of the day, I really feel it comes down to the complexity, and as you said, you probably would not fund a company that doesn’t have a technical co-founder if they’re trying to be a software business. I would agree with you but at the same time, I also say the decision to take on a co-founder, I feel, is heavily influenced by how complex the software is that you’re going to be building or that you’re working on.

The more complicated it is, I feel the more you are likely to probably need a co-founder because you need somebody who has a large stake in the business, who owns that and knows that they’re responsible for it, and is going to do whatever the right decision is, regardless of the cost, but also keeping in mind all of the other business things that are going on.

If you hire somebody to do the technical stuff, they are probably not going to be aware of this marketing effort that’s going on. That thing is going over on sales. They maybe even involved in some of the support stuff because they’re going to have to fix those issues. But their concern is not marketing. Their concern is not sales side of things. Their concern is building the tech stack and because of the lack of, I’ll say, visibility that they would have or their perceived lack of importance of that stuff to their job, I just don’t think that they’re going to do as well if they’re not an equity/co-founder type of person.

Rob: Yeah, I would agree. Is someone a co-founder? Co-founder is just a title. You can give someone a co-founder title retroactively. If someone has 5% of the company, are they a co-founder? I don’t know. Some people might have that title. Other folks might say, “I don’t know. They’re the CTO, they’re technical employee number one or whatever. Software developer number one.” We are throwing around this term and haven’t really defined it. But I don’t know. We don’t necessarily need to dive into that.

I think the thing to think about is, you know the reason that I haven’t funded any companies without a technical co-founder, you talk about the complexities versus non-complexity of an app. I think these days, I want to fund companies that are going to be seven figure or eight figure businesses. They’re going to be in the millions or above $10 million in annual revenue. I think today to build a SaaS that does that, you are going to have complexity.

I don’t know of a space where you can go back to the Basecamp days and build a project management system that isn’t that complicated. Let’s say Basecamp’s not complicated today, but realistically, when they built it, it was just a lot of CRUD, Create, Read, Update, Delete. That’s what Rails is really good at and that’s what Rails is really good at and that’s why DHH built Rails right out of––pulled it out of Basecamp. Those days are mostly over. I don’t want to say entirely over but the complexity of getting something to seven or eight figures these days, I believe, almost without exception, will require software that’s more complicated than we want it to be. How about that?

It’s like Drip was more work and more complicated than I wanted it to be and same with Derrick. Bluetick is more complicated than you thought it would be and want to be. That’s just what becomes because people want features, you look at the features and like, “Oh my gosh, it’s going to be hard to build,” but that is going to be my differentiator or that is going to get this client to sign up.

Mike: I think a close second behind that is the type of person that you are and whether or not you do well under pressure and how comfortable you are making decisions without additional input. I do agree with you in almost every case like two heads are better than one. It almost doesn’t matter what the situation is, but at the same time, somebody is going to have to ultimately make the decision and it’s more comfortable to have somebody to make a decision when you have somebody else there who’s on even footing with you, and they agree with the decision. Versus, “I think this is the right decision but I’m not sure, but I don’t have anyone to talk to about it or anyone who can say ‘Yes, we should go on in this direction,’ so I’m going to make it. But I’m going to be more stressed out because of that.”

Just by virtue of having somebody else to be able to act as that sounding board who is involved in the business, yes, mastermind group can help and other founders of other companies that you know they can certainly help out and give advice, but ultimately, if you’re the only person in the business making those decisions, everything falls on your shoulders enough a lot more stressful. Just having that co-founder to share the stress and the responsibility of those decisions, good or bad, is going to be helpful.

Rob: I feel that was a pretty good discussion. I hope you as a listener enjoyed our conversation. If you have question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening. We’ll see you next time.

Twitter Digg Delicious Stumbleupon Technorati Facebook Email

Comments are closed.