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How Co-founders Make or Break Tech Startups

For more than decade now, Amy Katz and I have worked together in one form or another. In the mid-2000’s, we were employees at a closely held IT media startup. By 2008, we were out on our own — co-launching and building IT media businesses. The journey included an asset sale, and then re-emerging with After Nines Inc. in September 2014 and ChannelE2E in September 2015.

Our business journey together has been, well… awesome. But not all business partnerships involving co-founders perform well. Some well-intended relationships turn sour. In fact, 62 percent of startups fail because of co-founder conflict, according to FundersAndFounders.com.

With that troubling statistic in mind, Newsday’s Jamie Herzlich offered up these eight considerations before launching and building a business with a co-founder. ChannelE2E weighs in with some additional thoughts. They include:

michael drake

J. Michael Drake

gary-wiseman

Gary Wiseman

1. Focus on the Payoff: What is the potential upside from a co-founder relationship rather than building a business on your own? In our case, Amy is the business mind that figures out how to truly build, monetize and grow the business. I focus on the technology and content platforms. Without each other, we have an incomplete business — otherwise known as no business.

In the case of many IT service providers, co-founders often have similar technology skill sets. Do you really need that overlap? Or would you be far wiser to partner up the way CEO J. Michael Drake (the business guy) and President Gary Wiseman (the tech guy) have at masterIT?

2. Do the Math: As you measure the potential skills overlaps, figure out if a co-founder relationship truly delivers economies of scale (1+1 = 3). Also, determine if a co-founder can help you to raise your own game. In our case, Amy gives me consistent feedback on our content and technology platforms — fine-tuning our audience engagement strategy every step of the way. On the flip side, I offer occasional business growth ideas to Amy. The give-and-take are constant.

3. Think of the Big Picture: Remember that a co-founder relationship is a long-term commitment. And in many ways it’s like a marriage. If you don’t share similar long-term goals, the co-founder relationship could be derailed even before it gains momentum.

4. Consider Shared Goals: Do you share similar strategies or approaches for winning in the market? And do you have similar definitions for success, commitment and more?

5. Discuss What-if Scenarios: What if a buyer wanted to acquire your business in two years? Five? Do you and your co-founder share similar views on fair value, exit strategies, etc.? In our case, Amy and I met a lawyer together to draw up our partner agreement. It includes change-in-ownership scenarios and plenty more. But there are also unwritten agreements… basically, you need to make sure you have similar views on money, spending, saving and more.

Generally speaking, Amy and I spend very little time discussing our salaries, retirement plans and health care coverage because we come to the table with nearly identical priorities nearly all the time. And when we don’t agree I think the discussions last a few quick minutes, and are quickly resolved without much debate. Simply put, we see eye to eye on money, our respective family priorities and so much more.

6. Decide Who’s Doing What: Who’s handling finance, sales, technology, HR, and so much more. “We both will do it” isn’t a good answer. Clear roles and responsibilities are key. During our first few months working together in 2008, Amy and I gradually sorted out who will do what. It was important to us. But it was even more important to our clientele. To provide great customer service across all business functions, your clientele needs clearly defined points of contact — rather than endless cc:’s to multiple business owners, with no clear “ownership” of the issues at hand.

7. Keep an Open Mind: During our early days working together, I sometimes came to the table with pre-formatted views and dug in on issues. These days, I try to listen more. Many of our smartest moves as business co-owners involved ideas from Amy that were completely foreign to me. Or perhaps they were counter-intuitive. Instead of digging in an describing why an idea won’t work, jump to the other side of the table and brainstorm why the idea actually will work.

8. Try a Tryout: If you have no previous business relationship together, Newsday recommends some sort of “tryout” period — maybe you hire a key executive before offering them the option to buy a stake in the business. In our case, Amy and I have known each other since around 1998. We worked at large media companies and third-party startups together. We worked on some joint freelance projects together. We had a track record together before signing on the dotted line as co-founders in 2008 and again in 2014 together.

Bottom line: Co-founding a business truly is a marriage. Make sure you truly understand what you’re getting into — for the long  haul — before you sign on the dotted line.

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7 Comments

Comments

    Shael Risman:

    Couldn’t have said it better myself – very insightful – thanks guys!

    Ted Garner:

    Love this topic. Congrats to you and Amy (my Marcus Lemonis interview counterpart). 🙂

    A common mentoring chat I have with peer IT company owners is about the day my business partner, Jay, who is 5 years younger than me, sat me down for a business chat. It was hard for him – feedback to an “older” person. He told me that I was one of the smartest IT people he had ever met. He said he loved that I took on any technical or business challenge. He then said that – that was the problem. I was wearing too many hats and that I was doing 10 jobs…poorly. I was hurt and immediately got my back up. But, Jay, a VERY smart person, who thinks ALOT before he speaks is someone I trust immensely. We then worked on a multi year plan – I would pursue “business” and he would own all things technical. IT Weapons began growing & accelerating every day after that. Its one of the most impactful milestones of ITW’s history and of my career. Props to you both, Joe & Amy. Invaluable lessons, eh?

    Don Bentz:

    So true. When you file for that EIN number, you basically were given the SSN for your “Child”. Treat your child respectfully and you will be rewarded. Use the child against your “partner” and you will fail.

    Communications is key. Anything can go positive as long as there is clear communications. Second is accountability. Too many do the “team approach” for this. No can do. In the end ONE person becomes the responsible party. There is no “two” bosses. This is only confusing to all. Co-nothing when it comes to positions. Tried it, doesn’t work.

    Joe Panettieri:

    Shael, Ted, Don: Thanks for always sharing so much about your businesses (and your lives) with me during media briefings, and with the ChannelE2E readership on our comments board.

    I think every successful “co-owner” or “co-founder” partnership requires honest and direct feedback, owner to owner behind closed doors. Sort of like game planning in the locker room before you take the court. Or at half-time to adjust your approach. Amy taught me that a long time ago and we’ve always provided direct feedback to own another to move the business forward.
    -jp

    Stuart Selbst:

    AMEN! I couldn’t have commented better than Don. Thanks for sharing.

    Alistair Forbes:

    Very interesting post Joe, I was having a couple of conversations recently about the challenge faced by technical founders and the conversation reflected on the dynamics of startups in general and the fact that most successful ones have that balance between co-founders with complementary skills.

    Many service provider businesses in particular are founded by people with first class technical skills but less experience, and in many cases inclination for, spending time on the commercial side of the business. It’s hard to build a substantial business without someone who is excited and passionate about business development.

    I think that while many service provider businesses may have been “founded” some time ago, there is an argument that some should consider “re-founding” themselves by looking for the complementary business partner that can help to create the business that it could be.

    Of course, it’s difficult to let go of a part of what you have spent years building but it could be the difference between plateauing as a business and entering a new phase of growth. As you say in your article, having a shared vision and clear agreements about respective roles is critical.

    Alistair.

      Joe Panettieri:

      > “there is an argument that some should consider “re-founding” themselves”

      Hey Alistair, I think you’re onto something with that. Stay tuned for a potential follow-up article in the next few days. Safe travels and thanks.
      -jp

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