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What are the best ways to attract high-quality co-founders for my hardware startup when the company hasn't made any revenue yet?

What are the best ways to attract high-quality co-founders for my hardware startup when the company hasn't made any revenue yet?

By Tony Mcauslan

Next to choosing a ‘life partner’ to set up house with, choosing a partner or partners for a start-up is probably one of the most important decisions you’re probably ever going to have to make.

The right choice can help drive your business to new heights, whereas the wrong co-founder(s) can derail even the best start-up.

Having had extensive experience with both good and bad business partners, here are some of the primary issues you may need to consider -

1.) If you’re a ‘sole Founder’, ie. it’s just you and the dog, you need to be aware that investors such as equity firms and VCs DO NOT like a business where there is only one Founder, for the simple reason that if you get run over by a bus, their investment is potentially worthless.

They know that successful start-ups need vision, and if you’re the only person in the company with that vision, there’s a good chance that the business will hit a brick wall if something happens to you.

Why do you think Apple rehired Steve Jobs after firing him? He was the guy with the vision.

So, if you you are currently ‘The Lone Ranger’ I’d be looking for a Tonto, fast!

2.) When setting out to find a partner keep in mind the mission is to find someone who is going to compliment your skill set, not be your new best friend.

Even established businesses make the mistake of recruiting employees who they feel will best ‘fit in’ to the company culture - rather than someone who is completely outside of the box.

The problem with this is that you end up with a room full of people who are all violently in agreement with each other - so when a new idea is floated , there is no one there to challenge the validity of it.

Some of my most successful partnerships have been with people who are at the complete opposite end of the spectrum on any issue from me. That means we challenge each other (and sometimes want to kill each other) but at the end of the day, the solution to many of our business challenges lies somewhere in the rational middle of our two extremes.

So, if you and your new co-Founder both like chilli fries, or playing Call of Duty, that’s great. But if you find yourself agreeing on EVERYTHING, I’d start to worry.

3.) Finding the right partner is best approached by applying honest analysis to where your ‘gaps’ are.

You ideally want someone who has a set of skills that you are missing. If you’re a TechHead you might benefit best from finding someone who is strong on Marketing & Communications. If there is a lot of contract work, maybe consider looking for an ex-lawyer, and if you’re the shy wallflower type, maybe someone who can sell ice cream to eskimos is what you need.

4.) As for the vexed question as to ‘How do I attract someone when we don’t have much (or any) revenues?’

The answer is two-fold.

Vision’ and ‘Equity’.

Vision

Let’s start by throwing the question back at you. Why are YOU involved in this enterprise if there is no cash and nothing but plain biscuits and pot noodles in the office kitchen?

The answer is that you can see the ‘vision’ of what the company could be, if it took off.

Your ideal partner needs to see the same vision. If the Investors get you alone in seperate rooms, it is vital that you both tell the same story, and can speak with enthusiasm about the potential of the enterprise.

If you’re looking to partner up with some guy or gal who is more worried about the money, or having a nice office, rather than how you are going to convert a million people to your product, it’s time to move on.

The other consideration you have up your sleeve is the power of -

Equity

‘Equity’ is the total number of shares that are issued for a company. If you’re the original (and sole Founder) there’s a good chance you’re holding 100% of the total shares issued at this point, (unless you gave some to your uncle Charlie in return for that ten grand he lent you).

The long term payoff for anyone involved in a start-up is to be holding significant equity in the business when it becomes profitable - or even better, when there is a ‘monetisation’ event. eg, you list it or sell it.

Therefore, the ability to award equity to your key staff and co-founders is a very strong means for attracting good people.

But beware. Equity once given, is often hard, if not impossible to get back, unless there are some strict rules about ‘vesting’ - meaning there are often rules around meeting certain milestones in order to get your equity, or rules about giving it back if someone leaves or gets fired under certain circumstances.

The other thing to be aware of is that with any event that involves handing out money (or the equivalent in shares) is that it can be easy to generate resentment or bad blood if it becomes public that one or more Founders may be holding much more equity than the others - especially if there is a perception that one or another is putting in way more effort, or came up with the killer idea in the first place.

I have always made it a policy that all true co-founders should pretty much be holding the same amount of equity to avoid a cataclysmic fall out when you least expect it. If two or more of you put in 5 years of hard grind, giving up sleep and precious time with family, and you suddenly find that one partner is holding 89% while the other has only 20%, there is a good chance that there will eventually be a falling out. Be fair, but reasonable.

In Conclusion

Repeated surveys of VCs and other investors consistently state that the number one decision to invest in a start-up is by and large the quality of the Founder(s) and the team around them, followed by the idea second.

This is because seasoned investors know that a ‘good’ idea with a GREAT team has a much better chance of succeeding than a GREAT idea with a so/so Founder and weak team.

So, take your time to find the right people. Ask colleagues or friends, or even former professors, if they can recommend good potential co-founders. You may even see someone in the trade press who is trying to launch a similar company to yours. There is no harm in calling them up and seeing if together you could achieve a better result. Sometimes 2 + 2 can equal 5.

An interim measure might be to consider having a couple of strong names on an ‘Advisory Board’, who aren’t actual co-founders, but bring a wealth of experience and contacts to the business. And their resumes often carry weight with investors - especially if the Founder is straight out of college.

Don’t be afraid to ask senior people if they’re interested in joining your Advisory Board (or becoming a co-founder). Sometimes the attraction of being involved with a new technology or helping to build an exciting company from the ground up is enticing enough for a successful businessperson to overlook the lack of upfront cash. Chances are they can afford their own better quality biscuits if it’s really an issue.

Last Thoughts

There is an old saying often heard from successful entrepreneurs and that’s this -

‘I worry if it turns out I’m the smartest person in the room...’

What this means is that if YOU ARE the smartest person in the room, it will always fall to you to come up with the solution, or approve of a decision, or okay some new change in technology or operations - and that’s a scary thought!

As smart as you may be, you always want to surround yourself with people who are smarter than you. That way you can be assured that every business decision is a ‘good call’....even if they don’t all like chilli fries or playing ‘Call of Duty’.

Good Luck!