Startups fail for many reasons: Running out of money, no product-market fit, and cofounder drama. Now is the time to protect against drama. I want to set reasonable expectations on both sides and have good conflict resolution mechanisms.
Below is the list of questions I want to address with potential cofounders, somewhat inspired by Dharmesh Shah's list (his list is more generally applicable - mine is more about personalities).
- What's your long term life goal? Some want to be the next Bill Gates, Larry Page, or David Filo. Others want to get rich and retire. How did they come up with their goal? How does this startup fit into that goal? If this fails, would they do another one?
- What kind of company do we want to build? Should it be a 37signals – a profitable thought leader? Or do we want to shoot for the moon and be a Google? Get a clear reading on your cofounder's ambitions and long-term commitment.
- What kind of work environment do we want to create? How are we going to treat employees? Lavish perks like Google? Strict hierarchies like GE? Think about what kind of employees you want to have, how open you want to be with them, and whether you want to hire fresh hotshots or experienced veterans.
- How are we going to split responsibilities? What will we be doing on a daily basis? The best situation is where founders all have clear ownership of one part of the product, or processes like fundraising and bizdev. Make sure you can trust the business guys. Avoid situations where cofounders with similar backgrounds all focus and battle about one part of the puzzle.
- How are we going to resolve conflicts? Is it enough if we have a one-on-one meeting every week where we discuss problems, or do we feel more comfortable with a written mechanism? A friend pointed out the book Under the Radar which described the Red Hat founders' protocol: A founder with a problem could write a one-page memo on letter paper. The others would have to respond in writing within the next 24 hours.
- What are our preferred work patterns? You'll have to be able to stand each other all day. Make sure you understand each other's work styles, hours and quirks.
- Who makes the final decision? I.e., who's the CEO? Multiple founders might want this this position. It seems prestigious but it's hard. Choose wisely.
- How much of the company will each of us own? A conversation that can easily get heated. Equal parts are probably wrong. Cofounders who contribute less to the equation should get less. Yet it's hard to measure contribution. Also, you should vest - agree on the parameters.
Once you get into the details, the list goes on endlessly. Are we going to sign emails "Founder" or "Co-founder"? Do we have full access to each other's calendars? Who's going to authorize payroll? Do we reimburse our cell phone bills? Most of these won't make a difference though.
Let me know if I'm forgetting something. I'd love to hear your thoughts and experiences from similar situations. What results did you get out of these conversations? Any sources of drama I forgot?
P.S.: I recommend keeping Dharmesh's questions and conflict lists bookmarked.