Entrepreneurial Crossroads Part 2: Funding, Friends, and Co-Founders—How Much Help Do You Need?
Welcome back to Foundr’s series on overcoming those big crossroads decisions that every entrepreneur will face. If you haven’t already, please check out Part 1 of this series, or just keep on reading!
At some point during our evolutionary journey from the primordial ooze, humans developed the ability to think about time. We might take this for granted but the ability to think about the past and make educated guesses about the future is a distinctly human trait.
The ability known as chronethesia isn’t just an awesome-sounding name of a blockbuster sci-fi movie, but it’s also one of the reasons humans are at the top of the food chain.
While it’s generally considered impossible to see into the future, we’re still able to make educated guesses that are usually more right than wrong. For example, I know for certain that toast is going to pop out out of my toaster if I push bread into it. Just like I know for certain that if I light the candle in my living room the whole apartment will soon smell like sandalwood.
All of my experiences with similar situations in the past predict such things with near 100% certainty.
At the same time though, if we have limited experience with something, our ability to predict the future gets a little tricky.
“He that has a choice has trouble.” – Dutch Proverb.
I have no idea if I’ll be able to get a basketball into the hoop when I throw it, just like I’m not sure if I’ll like the food at a restaurant I’ve never been to before. When we’re robbed of our confidence in our predictions of the future, our ability to make decisions suffers.
That’s why, when you get to these entrepreneurial crossroads decisions, it’s almost impossible for you to know how to make the right decision.
But in order to get you through them with confidence, I’m going to look into the past for you to give you some auxiliary experience in making these particular choices. Let’s take a look at the people who have done these things before so you can make the right decision for yourself.
#4: Should I get co-founders or go solo?
When it comes to entrepreneurial crossroads decisions, this one is a classic.
At the beginning of every startup in the world, every entrepreneur has come to the realization that they can’t possibly do it all themselves, whether it’s just lacking certain technical skills, or not having enough time or resources. Every entrepreneur has come to grips with the reality that they’re going to need some help.
But the question isn’t whether or not they need help, it’s about where you’re going to get that help.
For the moment, let’s think of a startup as a baby and the founders of that startup as the parents. Of course it’s entirely possible to be a great single parent, but the road can be difficult. Having a partner to help you raise the child is a lot easier and can help take the pressure off of you.
In some instances you can even have a team of parents, although you’d be hard-pressed to find one with a bushier mustache than Tom Selleck
But finding a partner to help you a raise a child isn’t easy, and starting a relationship with someone for the sole purpose of having another parent to help you out isn’t the best start to a relationship either.
So what should you do?
Well statistically speaking, you’re better off with a co-founder than without.
According to the Startup Genome Report it takes solo founders, on average, 3.6 times longer to scale a startups with two or more founders. Investors and incubators are also more likely to look upon your startup favorably if you can show that you have more than one person who believes in your idea.
Even if it’s just to share the workload and reduce stress, having a co-founder means you’re at less of a risk of burning out, and you have someone to share the highs and lows with you.
The main benefit of having co-founders though, is that you gain diversity. Remember how I mentioned that it’s practically impossible to do everything by yourself? That’s not just in reference to workload—it’s also about your own personal perspective, abilities, and aptitudes.
Having a team means you have someone who can reliably do tasks and provide insights that you can’t. It means you can rely on different partners to contribute their own unique roles within the company’s dynamic.
In fact, the perfect founding team needs to fulfil these three roles: the visionary, the hustler, and the hacker.
You might be able to find someone who can fill two roles at once, like the hustler and the hacker, for example. But it is very rare that you’ll be able to find someone that can do all three roles at once. That’s a vulnerability you just have to accept if you go solo.
That said, just because you may have some serious gaps in your own skillset doesn’t mean that you have to start throwing out equity left and right. There are other solutions. For example, going back to our baby analogy, you can always take on contractors who can serve as babysitters, tutors, or teachers—filling gaps and helping to carry the load.
Before anyone thinks about taking on a co-founder, I will always strongly advise that they do themselves a favor and complete the business model canvas.
By doing so, you’ll be able to find out what key resources your startup will need. Sometimes you find that you don’t need another partner, just someone who can babysit for you from time to time.
If it’s possible to do something without a partner, always try it first.
No matter what skill you think your startup may need, we recommend you think long and hard on how vital a resource it is before you start handing out equity. After all, Foundr itself is a case in point that you can successfully go it alone.
When Nathan first started this company as its sole founder, he hired contractors to cover the gaps in his own skills and studied up on the ones he knew he could do. Wherever possible, he leveraged the technology available to make up for any other resources needed.
These days I think maybe it would be a nicer to have a co-founder. I definitely don’t wish I had a co-founder though. Sure you can share the load, the responsibilities, the stress and the pressures, and all those kinds of things.
I don’t really care about those kinds of statistics of how having a co-founder makes you better. If people start quoting averages or that kind of stuff I don’t pay much attention to that. There are many solo founders out there that are crushing it. – Nathan Chan, CEO and founder of Foundr.
#5. Should I hire my friends or not?
No matter what stage of a startup you’re in, you’ll be faced with the choice of whether or not you want to mix friends and business.. Whether it’s to be your co-founder or your employee, you will have friends and family look to you for a job. Especially if you’re in the late stages of a successful startup.
Conventional wisdom is that you never want to hire people close to you. Managing a professional relationship is hard enough already without the added baggage that comes along with working with a friend.
Considering the fact that one of the biggest reasons why startups fail is due to “people problems” you might want to rethink hiring your buddy.
A startup will do to a relationship what a dog does to a sock. It’ll find every way possible to tear it up.
No one ever thinks about whether or not the dog wants equity for its services
Founders will inevitably butt heads during the course of a startup. When you’re in such a pressurized environment, even a minor problem can explode and kill a startup.
If managed improperly, a simple disagreement can turn into a full-blown conflict that destroys your startup before it even has a chance to succeed. If you bring on the wrong people who don’t 100% believe in your vision like you do, you’re just inviting disaster to happen.
“In the past, I’ve had to let go of a family member, just because I felt that their low performance was affecting everyone else. While it was a difficult decision to act on, letting them go meant that the rest of the team were compelled to work harder and smarter to improve overall productivity levels.
What’s the lesson I learned from this? Avoid working with family, just love them!” – Nick Bell, Managing Director of WME Group
Asking your friend to join a startup with you is almost like asking them to marry you. You’ll be seeing them day-in and day-out for as long as your company exists. You’re essentially asking them to be your partner through thick and thin and to share all the highs and lows of the journey. Not a small ask or something to be taken lightly.
Personally I’ve always preferred hiring people via flash-mob over the traditional interview.
But aside from the big commitment, the tricky thing about hiring friends is that important decisions can be made based on personal feelings instead of what’s right for your business. You can end up keeping someone on longer than you should have, and favoritism can then cause employee morale to go down.
In reality, though, chances are you won’t have much of a choice either way if you’re still in the early stages of a startup. Entrepreneurs inevitably do so, because most strangers won’t work for the paltry sum you can offer early on. As Jordan Harbringer, co-founder of The Art of Charm puts it:
The tough decision is not necessarily hiring them, it’s when to let them go. So when you hire your friends, when you hire your family you have to do so with a plan that says, “look eventually we’re going to replace this position unless you really grow into it.”
You can’t say that and then fire them because they didn’t. You have to really carefully negotiate this and a lot of the time the only way to do that is to make that position temporary. But you have to let people in for equity or you have to let people in on an IOU and it can be really tough because most of the time those people are your friends.
If your business model canvas indicates that you have no choice but to bring on friends and family to be a part of your team, or you have the perfect candidate in mind who is also a buddy, don’t fret.
Working with friends isn’t necessarily a bad idea. All you have to do is take a look at founding teams like Adam Franklin and Toby Jenkins of Bluewire Media, or Bill Gates and Paul Allen of Microsoft. Sometimes it leads to magic, and many of the pitfalls can be dodged with the right team.
“Most of the disputes I’ve seen between founders could have been avoided if they’d been more careful about who they started a company with. Most disputes are not due to the situation but the people. Which means they’re inevitable.” – Paul Graham, cofounder of Y Combinator.
The most important thing you need to know when working with friends is how to manage conflict effectively and, like Harbringer suggests, make sure you have an honest conversation with them before you bring them on. Set clear boundaries and let them know what you expect of them.
Remember that you want to hire based upon their working style and personality and how well they fit with yours. Don’t ever bring someone onboard just because you feel obligated to.
#6. Do I bootstrap or get funding?
Before we dive into this entrepreneurial crossroads decision, I need to cast aside the myth once and for all that the only startups that matter are the ones that get funded.
These days it seems like everyone and their dog is looking to get funded with nothing but half an idea and a flimsy business strategy. Everyone wants to be part of the “Unicorn club,” all the while ignoring the thousands of successful startups that bootstrapped and hustled their way to the top.
In the mad rush to get seed capital, many entrepreneurs forget about the fact that you should only seek funding if you absolutely need it. That means you seek funding when you’re read to scale exponentially, or if you absolutely need a working product right from the get-go.
When it seems like everything you read lately about startups is about how “X startup got funded X amount,” it’s easy to forget that less than 1% of startups actually get early-round funding. You read that right, literally less than 1% of startups get funded, 0.05% if you want an exact figure.
So if your entire startup hinges on the fact that you need millions of dollars in startup capital and you have no validation, no reputation, and no proven market strategy, then all I can say is: don’t hold your breath.
Now that we’ve dispelled that misconception, this certainly does not mean you should completely abstain from funding. If someone offers you money, there’s a good chance you should take it.
Just be absolutely sure who you’re getting into bed with. If you became an entrepreneur to become your own boss, you’ll want to stay far away from investors who like to micromanage.
Remember that at the end of the day, investors care about making sure they get a decent ROI. They might not necessarily appreciate you or your startup the way you want them to.
While it may be considered impolite, be sure to check the teeth of every gift horse you receive.
Don’t get me wrong, though, funding will definitely make your life easier.
“One of the reasons why bootstrapping is dangerous as opposed to getting funding is you don’t have much of a choice, because you don’t have much of a budget.” – Jordan Harbringer, cofounder of The Art of Charm.
Bootstrapping definitely puts your back up against the wall and gives you fewer options to work with. While this can be problem, it can also be a blessing in disguise.
Operating on a shoestring budget will force you to make realistic goals and appreciate what really matters in your company. Instead of fixing a problem with money you’re forced to be creative and think outside the box.
You get to have complete control over your company and grow at a pace you’re comfortable with, and not have to answer to investors. Again, our own Nathan Chan has some insight into this matter:
I think you should always bootstrap first because you need to validate first, bootstrapping is a great point to start at because you’ve validated and you’ll have a viable business model. A lot of people raise capital to have runway so they can do what they want, but that doesn’t always work.
The reason you bootstrap is because it lowers the risk of failure, and it forces you to be more creative and innovative with how to grow your company fast. If we had a million dollars in the bank there are certain things we wouldn’t be bothered doing.
While there are many benefits to each option, when you really take the time to properly evaluate your goals and what you want to achieve, it turns out it’s not a hard decision after all.
To anyone still stuck with this decision, I highly recommend they complete Matthew Michaelwicz’s goal pyramid.
Really break down what steps you need to take in order for your business to achieve success. Combine that with your business model canvas you completed earlier and see what resources you can cut down on or get creative with.
Finally, seriously think about your startup strategy and what resources you need.
For example, if you’re using the Get Big Fast model then you’ll definitely need investors right from the beginning. Stealth Mode can potentially be done on a shoestring budget and obviously the Lean Startup Methodology is all about bootstrapping.
Really question whether you need funding. In the end, the best case scenario for funding, for both you and investors, is that you bootstrap your way to a viable and proven product so the only reason you need funding is to take your business to the next level.
In the startup world, you can easily argue that money can provide the answer to all your problems. But no one has an infinite supply of money to just throw away.
Whether or not you believe in fate or kismet or what-have-you, you have to agree that we rarely have that much control over our futures.
Most of our lives are spent reacting to events around us and trying to make the best out of any given situation. It’s rare that we’ll ever come across situations where we’re not just doing what’s expected of us and instead find ourselves as the catalyst of a series of events.
Sometimes it can feel like the weight of the world is on your shoulders. Oftentimes it’ll feel that way because you have to make a decision, the kind of the decision which will dramatically shape your future and the course your life takes. It’s only natural to feel a bit daunted by the prospect, after all the idea of having control over our own fates is inherently terrifying.
Most people in the world will instinctively shy away from these types of crossroad decisions because they can’t handle the weight of responsibility that comes with having control over your life. They’ll live the lives that have been prepared for them and just continue to go wherever the wind blows.
But if you’re reading this then you’re an entrepreneur. You welcome facing crossroad decisions because you’re looking to do what few others can.
All we can do at Foundr is give you all the tools and lessons you need to make the best decision for yourself and take control over your own story!
Be sure to share your story in the comments below! Let us know what your toughest decision was as an entrepreneur and how you got past it. Also remember to like and share if you’ve enjoyed the article.