The Case For A Cofounder

I am working with an accomplished sales executive who has a vision for starting a professional services business. He has industry knowledge, selling skills and solid relationships to sell the services. But he does not have the skills to deliver and run the day-to-day business. This entrepreneur has missing ingredients.

That said, he could choose to be a solo founder, since he has the money to bootstrap the business and hire people to service the clients. However, this approach brings two risks. First, no cofounder increases the potential for failure. Second, growing too slowly increases the risk of missing the opportunity to grow big.

This choice of going it alone or starting your business with cofounders is critical to your short and long-term success. In my experience cofounding teams, when each founder contributes unique experience and skills, have the greatest chance of big success.

Every startup needs capital to get to positive cash flow. But money is not the only form of capital needed. The right people on the bus before it gets moving make it all work. This is the findings from the book, Good to Great. Startups are all about the people.

For a solid foundation your startup needs three types of capital.

1. Experience Capital

The founding team must have the right blend of industry experience and functional skills to give the business the opportunity to start, grow and flourish. First and foremost, you need employees who understand intuitively how your target market works, thinks and buys. People buy from people who understand their business.

I joined a company who sold into the telecom industry. I came from the software industry. I remember pitching a group of telecom execs on our product and within a few minutes one of the exec asked me: “Have you ever worked in a telecom business?” I was shot dead on the spot.

You also must have a team with interdependent functional skills. I have seen teams made up of all salesman. They were great at going to market but never could deliver. Someone has to sell the product. Someone else build and be continually responsible for the product. Finally, someone must be the process/operations guy who makes the pieces flow in an organized and efficient manner.

2. Social Capital

This founder brings credibility to the company by owning a good brand and reputation with the prospective customers, vendors and employees. This includes someone who is ingrained in the social network of the market.

The sales executive I spoke of earlier built the salesforce and market for the software vendor he intended to serve. He has a sterling reputation and people are drawn to his competency and electric personality. He casts a vision everyone wants to be a part of because, when you hear it, you know it will happen.

3. Financial Capital

Startups need cash because they have no revenue. Before you can sell something, you have to have something to sell. This means you need employees to build the product and sell to the market. Employees need to satisfy their basics needs and that takes money. If you do not have money to pay them they will be distracted with their personal life and the business will suffer.

In addition, lack of financial capital is a huge public distraction to the business. It impacts your credibility with your market, partners, vendors and employees. Everyone knows you are living hand-to-mouth and no one wants to do business with you except those who are also living hand to mouth. Not a formula for success.

Therefore you should think of your early investors as cofounders. They should bring financial capital to the business and experience capital and social capital to the team. The right cofounding investors make for the “triple braided cord which is not easily broken” as outlined in Ecclesiastes 4:9-12 NLT.

Two people are better off than one, for they can help each other succeed. 10 If one person falls, the other can reach out and help. But someone who falls alone is in real trouble. 11 Likewise, two people lying close together can keep each other warm. But how can one be warm alone? 12 A person standing alone can be attacked and defeated, but two can stand back-to-back and conquer. Three are even better, for a triple-braided cord is not easily broken.

One final note

These three categories are covered in detail in The Founder’s Dilemma by Neil Wasserman. I give this book 5 stars. Good read. Good research. Good insight.

What’s your startup entrepreneurial challenge? Your tweets help me decide what to write about next. @cpaparelli