What “Working Capital: Assembling Your Team” Has to Say About Cofounders
When it comes to cofounders, there can be a lot of questions regarding the logistics, relationship, and even the necessity of them. Luckily, Sean K. Murphy’s book, Working Capital: Assembling Your Team, Vol.2, addresses most of the common concerns and inquiries surrounding such partnerships.
Instead of merely recommending this book to you, I’ve outlined the insights Murphy provides toward developing a cofounder partnership.
Murphy starts by addressing that cofounders are very similar to the initial startup founder. They’re both ‘generalists’ and ‘fast learners,’ and they have the same sense of perseverance. Of course, that’s no surprise, because each founder wants their business to be successful as much as the other does.
So, if both founders have the same mindset, why need two? Especially if it means surrendering partial ownership of the company.
The answer is compromise.
Murphy states that “The advantage of that long-term partnership is that it forces you to compromise,” (page 16). The essence of doing business is compromise. Building a company that does not have a foundation in this practice can hinder your future relations and the overall success of your company.
Most people become entrepreneurs because they like the fact that it brings them freedom; they have no boss. While it may seem like having a cofounder would restrict these privileges, finding the right cofounder will allow you to progress further than if it was just yourself.
“While it’s true that many solo founders have become successful, it’s been proven that having more than one founder allows for your business to have a higher success rate.”
-Sean K. Murphy, Working Capital: Assembling Your Team, Vol. 2
While it’s true that many solo founders have become successful, it’s been proven that having more than one founder allows for your business to have a higher success rate. If we go back to high school economics, we can compare having multiple founders to the fundamentals of comparative advantage. By having each founder specialize in something, and particularly something that they do best, you can achieve higher success than if you were having to juggle everything yourself.
What does Murphy have to say about what an ideal cofounder looks like?
For all you know, the best cofounder could be right under your nose. Since building a business is all about taking risks and persistence, the person you choose as your cofounder must be someone you can place a lot of trust in. Preferably, someone you already trust and who will share similar goals and visions.
Finding someone who can be held accountable is also a key characteristic to search for. Your partnership will allow the two of you to ground each other in creating realistic plans as well as taking responsibility when executing them.
Being a founder comes with lots of networking. It’s important to look for a cofounder who will be able to negotiate, communicate clearly, and stay true to their word. When considering strengths, it’s important to do some self-reflection to realize what skills and experience you lack that a cofounder can fulfill.
Murphy notes that one of the cofounders must be in charge, as an even split can lead to what he says is a ‘deadlock,’ (page 27). Even if it is just a 49-51 split, this ratio can be crucial when making complex decisions.
So where do you find cofounders?
Murphy categorizes contacts into three levels: established contacts, mutual acquaintances, and strangers. You’re looking for someone who is an entrepreneur at heart – they can bear the risks, networking, and problem-solving that come with the job. They also need to have a general understanding of running a business, a creative mind, and preferably some level of experience in business operations.
If your potential cofounder ends up falling into the mutual acquaintance or stranger buckets, keep in mind that trust is built over time. Be clear, transparent, and patient, and allow some time for the both of you to get acquainted. Running the risk of having mismatched values can make or break your business. Murphy recommends allowing three to nine months to build your working relationship. “Work on a few projects of escalating complexity before making a final decision to go forward with them,” (page 39). Setting a deadline will let you see how they work under pressure, as well as gain confidence in their skill sets.
If you decide to move forward with a cofounder candidate, you must create an offer letter. Make sure to include your company’s idea and vision, the problem you are solving, the solution you’re creating, the skills you possess, the type of cofounder you want, proposed compensation, and a probationary period (page 41). These points will meet all the different regulations necessary for an official offer.
Murphy concludes his chapter on cofounders with some do’s and don’ts. I’ve noted the key ones below:
- Don’t think that you ‘need’ a cofounder to start your business. If you start your business alone, you should make some slight progress before finding a cofounder. Creating a minimally viable product will give you a sense of accomplishment as well as a future cofounder a tangible model that will draw them into the project. You’ll get a sense of what you’re looking for from a cofounder and know what you both need to contribute.
- Do be transparent about spending. Murphy specifically recommends that one person writes the checks and the other signs them. Make sure that everyone has access to all the expenses, checkbooks, registers, and deposit lists.
- Do agree with who is the CEO. Earlier, we touched on how there shouldn’t be a 50-50 equity split. Having someone who has the final say is necessary for keeping a company afloat. Keep in mind that cofounders are more likely to support a complex decision if everyone has made their pitch.
- Don’t go into business with a cofounder who doesn’t see the weight or risks and investments the way you do. Having unbalanced views regarding the decisions being made can lead to a failed business.
- Do have patience and kindness. Be patient for your work relationship to develop. Show that you care not just about the business’s success, but your cofounder’s success as well.
Make sure that you take the time to pinpoint all the characteristics, skills, and values you are looking for in a cofounder. Agreeing on your company’s goals will determine the extent of your startup’s success. Remember that negotiation and compromise are important skills to have for both of you, too. While you must share the same values, it’s equally important that you balance each other out with skills that the other lacks.
To continue reading Working Capital, you can purchase the book on Audible, Kindle, or Amazon.
About the Author
Faith Emmitte is a student intern for the Next department at the University of North Texas Health Science Center at Fort Worth. Faith will be a second-year student at Texas A&M University, pursuing a BBA in Marketing. Gig ‘Em! All thoughts and opinions are her own and in no way reflect the thoughts and opinions of HSC.