Do NOT Rush into a Founding Team

Most companies get founded when one entrepreneur has an idea that she recruits her friends to build with her.  The common assumption is each founder will work well together because they get along and their skills compliment one and other.  So the founding team gets formed right away, ownership and voting rights are set during the incorporation, and everyone starts working.

The scenario I’ve just explained often leads to one or many founders leaving the company.  They recognize after weeks or months of work that the company isn’t the right fit — maybe the role isn’t interesting, or maybe one of the other founders is too difficult to work with.  A company that loses one or many founders isn’t necessarily doomed for failure, but the process you’ll go through is messy, expensive, and emotionally draining for everyone.

The founding team should be formed carefully and patiently.  By being careful, you’ll save yourself much frustration in the future when one or many founders need to leave.

Here are the steps you should take when choosing a founding team:

  1. Get to know one and other — break bread and drink beer.
  2. Work on a side project — something that won’t share intellectual property with your future startup, yet something you’re passionate about.
  3. Brainstorm — bounce ideas off one and other; make sure you can rev on ideas.
  4. Push a few buttons — see what people do when they’re upset, sad, or vulnerable.
  5. Discuss the startup — the product, go-to-market strategy, branding, competitors.
  6. Discuss roles and responsibilities — who will run product, engineering, sales, recruiting, etc.
  7. Discuss the board and ownership — equity split, vesting schedule, and board seats.
  8. Incorporate and start working full-time, guns blazing.

Here are qualities you should look for in a founder:

  • They have a passion for the product.
  • They’re product minded.
  • They’re onboard for the long haul.
  • They have a skill that will give your startup a competitive advantage.
  • They’re fun to work with.
  • They’re good at communicating.
  • They’re positive, inspiring, and excited.
  • Ideally you’ve worked with them before.
  • They make you better at your job.

Here are founder qualities that should raise a red flag:

  • They’ve never worked at a startup before.
  • They have lots of side projects that they enjoy maintaining.
  • They’re considering going (back) to school or a job.
  • They want a quick exit (acquisition).
  • They’re hesitant to quit their preexisting commitments.
  • They don’t have a passion for the product.
  • They’re negative.

Lastly, here are general tips for incorporating.  These are very subjective:

  • Put everyone on the same vesting schedule — don’t forward-vest anyone. [1]
  • Give all founders a one-year vesting cliff. [1]
  • The founding CEO should be the founder most dedicated to the company’s success.
  • The founding CEO should have control, which usually means they have more stock.  (I used to think otherwise.  And there are lots of varying opinions on this subject.)

Don’t expect founding a company to happen quickly.  You should date potential founders for months before you decide to work together.  The founding team is more important than the idea — the founding team is everything.  Be careful and patient when choosing or joining a founding team.  And do not rush into a founding team.

[1] Each founder will work on the company for years, so vesting schedules don’t matter.

Update: Steve Blank agrees.

  • http://twitter.com/phredmoyer Fred Moyer

    I’m torn on the one-year vesting cliff for founders. They are essentially working for free, and sometimes things happen where they need to withdraw from the project for a while. I think it is more appropriate to have active vesting anytime they are putting full time hours into the project.

  • http://alexlod.com Alex Loddengaard

    If a founder has a good reason to leave early before their vesting cliff, the board can give the leaving founder a comp package on her way out.