Things that founders should discuss before teaming up
- Most startups go through challenging times. Founders should therefore have an open-minded discussion beforehand about how to ride rough times. Ideally, these discussions at the beginning of the journey help set the guidelines on handling potentially stressful situations.
- Time commitment that each person brings to the venture and what limitations or constraints some of these commitments could carry e.g. someone may not be able to travel to outstation locations or someone may not be able to relocate to another city if required or someone may be doing a part-time course, etc.
Often, the remuneration and equity holding is linked to the commitment of the founders.
- What is the equity holding of each founder: While most teams usually split the equity equally between the founders, there are enough examples of teams dividing equity based on the value that each founder gets. E.g. someone with the domain experience or someone who has more work experience could own a larger portion of the equity than others.
- What is the role of each individual? Unless you clearly define the roles and responsibilities, there will be chaos. It is also for this reason that it is important.
- Discuss and ensure that all founders are ‘seeing the same film’ in their mind. I often ask founders to write separately how much revenue their company would do in 5 years, and I often get very, very different answers from each founder of the venture. I am often surprised to note how different each founders views on the opportunity, goals, etc. can be …. just because founders have not had a detailed discussion among themselves on these things.
Most critical decision for founders
One of the most critical decisions that startups need to make, and most find it difficult, especially when it is a group of friends coming together is on who will be the CEO of the company.
For most investors, and also for the good of the company, clarity on who is the captain of the team is critical. [Also, investors worry that even if the friends don’t fight about who is the CEO, their spouses could !!!].
Also for employees, it is necessary to have a clear view on where the buck stops and who the leader is. Ambiguity on that front almost always leads to chaos and unclear plans.