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Co-founders: the risk and benefits of having one

Starting a business alone is quite a challenge, so founders prefer to do it in partnership. But there is a downside: you and a partner can end up with conflicts, and this will ruin the whole business. This means that you need to understand all the pros and cons of this decision and know how to avoid risks in advance.

There’s no single opinion on which startups are more likely to succeed: the ones built by individuals or in a partnership. Research is quite controversial: for example, Ali Tamaseb, author of the book Superfounders, calculated that 80% of billion-dollar startups were built by two or three partners. Y Combinator co-founder Paul Graham calls solopreneurship one of the biggest mistakes that kill startups. According to Octopus Group survey, 87% of entrepreneurs believe that having a co-founder has made their business more successful.

However another study by the Wharton School of Business and New York University proves that single-founder startups are more likely to survive and generate higher revenue than businesses built in partnership. And CB Insights found in the research on startup failures that 7% of startups fail due to disharmony among teams or investors.

If we look at successful companies, we also don’t see any pronounced trends. Many market leaders were founded by teams — for example, Facebook, Google, Microsoft, Airbnb. On the other hand, Amazon, Dell, eBay, Tumblr and others were launched by solopreneurs.

But whether you choose to build a startup alone or find a partner, each solution has its advantages and disadvantages. Let’s take a look at all the pros and cons.

PROS

  • The expertise of a group of people is stronger than a personal one. Partners complement each other's skills: there are often tandems where one partner is good at business development, and the other is well versed in the product. For two or three people it’s easier to share the workload, come up with successful solutions, and take care of the business if one of you is burned out or has personal problems.
  • Investors prefer backing companies with multiple founders because they consider them more viable and less risky.

BUT: if there is a conflict between partners and the investors find out about it, it may reduce the chance of funding to zero.

CONS

  • Your personal income is lower if you have to share it with someone.
  • You may end up having conflicts because of disagreements over strategy, shares, strategic decisions, and a variety of other reasons. All of that can have a dramatic impact on the business.

HOW TO REDUCE THE RISK OF CONFLICTS

Conflict is a major risk of a partnership, but you can minimise it if you take some measures in advance. One of the most often disagreements reasons between co-founders is share size. For example, it happens when one partner believes that he does much more than the second, so he deserves a larger share.

To avoid such situations, fix all agreements in detail from the very beginning: shares size, responsibilities, and functionality — for example, one is responsible for sales, the other for product development and so on. You also need to think how you will resolve conflicts, and conditions for exiting the business. If you co-found with an investor or venture studio, this is all fixed by default, but for an individual partner you have to take the initiative.

It is important that all of this is not a verbal agreement but fixed on paper, even if your co-founder is your close friend. In the future, that can save you from unpleasant situations.

WHERE TO SEARCH FOR A CO-FOUNDER

Often startups are born as a common idea of two or more friends, colleagues, or someone in the network. In this case, there are no problems with searching for a co-founder. But sometimes an entrepreneur has a business idea, but doesn’t have a partner, so he needs to figure out where to find him.

Remember that this should be someone who can add experience to the business, not just share the workload. The co-founder must have experience in building or managing a business, preferably in your industry. A partner can be either an individual or a legal entity — for example, an investor or venture studio.

Here are the three most popular ways to look for a co-founder.

  • Personal contacts. Try to recall if you know anyone with the proper expertise or someone who might be interested in your idea. If you don’t know such people, visit business events, expand your network, and don’t forget about word of mouth.
  • Special platforms. There are some websites for searching partners, such as CoFoundersLab or StartHawk. Also, you can try the free Co-Founder Matching Program from YCombinator accelerator.
  • Investors and venture studios. Finally, you can co-found your startup with an investor or a venture studio. In this case you enrich your startup not only with funding, but also with broad market expertise. This is the key point: if an investor has been in the market for a long time, he knows it much better than one person. In addition, the risk of conflict is minimal here. Why? First, all the agreements are fixed in advance. Secondly, the studio has extensive experience in building partnerships. Thirdly, since you are dealing with a legal entity, you don't have risks of quarrelling for personal reasons.

But whatever way you choose, it is important to feel like you've found the right partner. If you have doubts, it is better to spend more time searching than to realise later that you made a mistake.