How you should choose your cofounders.

Deep Dive into the study of potential partners with whom you could associate.

The myth of the lone entrepreneur is very interesting in business literature since it highlights the success stories of corporate superheroes, people one should admire and keep on following the path.

However, as of October 2022, of the top 25 U.S. technology companies by valuation, only 2 had been founded by a single person at the origin (Rippling and Biosplice Therapeutics), so the vast majority of companies have at least two original partners. We can thus witness that less than 10% of U.S current biggest startups were founded by a single entrepreneur.

Finding co-founders to build a company and take it to the next level of success is crucial. Thus, questions remain: how do I find the right co-founder(s)? Who can I partner with? Is it better to build a company with someone whose skills are similar or someone complementary? Is it better to partner with friends or family than with people I know less well? It is actually to this last question that I will try to answer in this essay. To do so, I will dwell on technical issues such as capital allocation, governance or innovativeness, but also on psychological aspects such as trust or transparency. First, I will analyze the idea of founding a company with people we know or know little about. Then I will look at the creation of family businesses. Finally, I will show why it is better to start a company with friends who have complementary skills.

You don’t usually start a business with strangers.

According to a 2020 study led by U.S. investment firm a16z, 83% of the startups it has funded were founded by friends or family. The remaining 17% were founded by entrepreneurs who encountered co-founders once the idea was more mature.

Yet, it seems that a clear advantage of partnering with someone outside the family or friends circle is that there are more options when it comes to choosing with whom to share the entrepreneurial adventure. This offers the possibility of finding complementary skills and making the most of them. In addition, a business venture is demanding and the road is full of pitfalls. Not having a special relationship with your partners allows you to keep your personal life separate from your professional life. Thus, in case of difficulties, home can become a breath of fresh air and vice versa. Finally, at the governance level, the organization is leaner because it is in everyone’s interest to maintain order and clarity in order to lead the company to success.

However, experts do not recommend partnering with someone who is not well known. The famous partner at Y Combinator (the reputed California accelerator), Harj Taggar, advises tech entrepreneurs who want both support and funding to partner with people whose reactions are already known, i.e., close friends or family members. Not knowing the character and personality of partners can have dramatic consequences for a young company, whose first months of life are characterized by stress and pressure.

That’s why, in the words of Harj Taggar, one could think that the best partner we can have is a family member, because we know their reactions after several years of living together. This idea may thus be reinforced by the success of Stripe, the FinTech founded by brothers John and Patrick Collison that facilitates online payments. Patrick is a computer genius capable of inventing a new coding language at the age of 13, while his brother John has impressive business acumen. The key to their success, according to them, is the complementary nature of their skills and the unwavering trust they have in each other, so that they have not experienced any conflict since the company was founded. Therefore, one of the biggest advantages of creating a family business is related to governance. Even if the capital is diluted by fundraising, the family can remain in the majority for a long time without recourse to statutory clauses, simply because 100% of the shares originally belonged to members of the same family. Similarly, a family business has its advantages in terms of taxation, as inheritance tax is in average quite low in Europe, at 0.82% on a transaction of one million euros.

However, partnering with relatives is a risky bet for two main reasons.

• The first is that it is difficult to know the motivations: is my brother joining me in this project because he believes in it and really wants to participate? Is he doing it just to support me? If so, wouldn’t it be better to receive funding from him?
• The second reason is undoubtedly the most important. If conflicts arise at the professional level in the family, what repercussions can they have at the personal level? It is certainly better to keep the personal and the professional separate for a good balance in life and for the success of one’s own business venture.

So I tend to believe that the best partner to start a business with is a friend of ours.

Of course, power struggles disrupt the functioning of the company. Therefore, roles should be clearly defined to avoid any ambiguity in management. Yes it is more difficult to take orders from a friend as this can create uncomfortable situations, especially in decision-making, where emotional feelings can intrude. Sometimes founders may leave the company for personal reasons, and not having a clear exit strategy when this happens can leave the departing founders with a significant stake in the company, which can create discomfort among the remaining team members.

However, reaching milestones is an exciting part of the entrepreneurial journey. Sharing this feeling with our friends makes the experience much more enjoyable. The development of the company will be facilitated by the complicity and trust that exists between the founders. Years of sincere friendship greatly increase the capacity for empathetic communication. There is no need to worry about political correctness and it is possible to disagree and move forward. Each knows the strengths of the other and respects them in such a way that if everything is structured and defined beforehand, from the creation to the exit, the entrepreneurial adventure would be facilitated.

To make it clear, this reflection on the advantages and disadvantages of creating a company with relatives or lesser-known people does not give a perfect formula.

Entrepreneurship is not a mathematical science governed by laws and theorems. If a trend seems to be emerging in founding teams with founders who are often friends or members of the same family, there are counterexamples. Amancio Ortega ran Inditex single-handedly before turning it into a leading “family” company in the global textile industry.

The real key to success undoubtedly lies in the organization and structuring of processes and decision-making to maintain maximum transparency, coherence and fluidity in the company.

Bibliography

• Andersen, D. 28th of July, 2015. Startup Grind. The Collison Brothers and story behind the founding story of Stripe. Taken from https://www.startupgrind.com/blog/the-collison-brothers-and-story-behind-the-founding-of-stripe/
• Desjardins, J. 2nd of Auguts, 2017. Business Insider. Here’s why small businesses fail. Taken from: https://www.businessinsider.com/why-small-businesses-fail-infographic-2017-8?r=US&IR=T
• Humphries, L. Lifehack. 15 reasons why you should not start businesses with friends. Taken from https://www.lifehack.org/articles/work/15-reasons-why-you-should-not-start-businesses-with-friends-2.html
• Hysi, K. 23rd of July de 2022. Medium. Is it a good idea to found a startup with your friends? Taken from https://keihysi.medium.com/is-it-a-good-idea-to-found-a-startup-with-your-friends-44d1dcb26a29
• Jones, C. 18th of November, 2020. BBC. Should you start a company with your friend? Taken from https://www.bbc.com/worklife/article/20201103-should-you-start-a-company-with-your-friend
• Mellerio, O. Transmettre une entreprise familiale. Published on the 7th of July, 2011.
• Taggar, H. Y Combinator. How to find the right cofounder? Taken from https://www.ycombinator.com/library/8h-how-to-find-the-right-co-founder
• Tank, A. 14th of August, 2019. Medium. Choosing a co-founder is tough. Should you consider the solopreneur route instead? Taken from https://medium.com/swlh/choosing-a-co-founder-is-tough-should-you-consider-the-solopreneur-route-instead-21e99fb3d5d5