Is it better to start a company with someone you know well (friends, classmates, family members) or with strangers?
In my next post, I’ll return to “Rich versus King” and show some data, results, and charts that shed light on the phenomenon. For this post, though, I want to take a brief detour to explore a different issue. (At the same time, the issue is related to scenario #1 in the “Rich versus King” post. Or maybe I’m just seeing R-vs.-K tradeoffs everywhere I look these days!)
On Wednesday night, I moderated a Founders panel for the Boston chapter of TiE. Co-founder lessons ended up being a hot topic of discussion among the panelists. The topic is related to an upcoming research project of mine (see below), so I figured the timing was good to start getting some input on the project here, with the TiE discussion providing additional input and impetus.
As was the case for all four of the panelists, people often find co-founders among their friends and co-workers. For instance, in my “Ockham” case, the three co-founders worked together at a sales consulting firm before deciding to start Ockham Technologies together. (Even more extreme, in three other cases we teach, spouses worked together to either found, or take over and run, ventures.) Broadly speaking, we can call this the “founding with friends” situation.
In contrast, in our “Zipcar” case (and for at least one of the TiE panelists), the founders had never worked together or even interacted on a sustained/substantive level. (Call this the “founding with strangers” situation.) At Wednesday’s panel, the TiE panelist (who has founded multiple ventures) argued that his all-business relationship with a “relative stranger” co-founder was more effective than his friendship-based relationships with other co-founders, specifically because their relationship was “all business.”
Merging his comments with my own observations about the issue, reasons to “found with strangers” include:
- A more diverse set of perspectives than if the founders have similar backgrounds. This might lead to richer discussions about business model options, strategic decisions, etc. In a related vein, it might yield a more diverse set of contacts, rather than having the overlapping networks that co-workers, friends, and families often have.
- Clearer motivations (the core element highlighted by the TiE panelist during the discussion, and one echoed by two panelists after it). Emotion doesn’t cloud or slow down business decisions, in contrast to Founder-CEOs who might be hesitant to do what’s right for the company if it means their best friend will be fired. (Or, in the extreme, the “fire my husband?!” scenario.)
Reasons to be hesitant about founding with strangers often include:
- You still have to figure out each other‘s strengths and weaknesses (“are we still missing important skills?”), working styles (“he’s a morning person, I’m the midnight type”), values (“wait — we can’t both be King!”), etc., on top of having to do everything else that goes into starting a venture.
- You’re trying to build cohesiveness and trust at the same time as you’re wrangling over equity splits and what roles you’ll play. (Returning to the cases above, the Zipcar/strangers and Ockham/friends founders seemed to diverge markedly regarding this.)
I’d love to hear about your experiences (observations, stories — if sensitive, feel free to strip out any identifying info) with the pros and cons of each situation. How does founding with strangers or friends affect:
- The team’s ability to work together to solve tough early issues?
- The Founder-CEO’s ability to make objective decisions about staffing?
- The team’s ability to split the initial equity effectively between the co-founders?
- The team’s stability over time, and the company’s overall ability to grow?
- Other key aspects of the business?
Most important, why does it have this effect?
(There’s an immediate, practical use for this: Your input will help me refine or augment some co-founder questions I added last year to my annual start-up surveys. Once I have this year’s survey data, I should be able to make some definitive statements about how founder relationships affect their ventures … to be featured in a blog post here, of course. So if you’ve been wondering about any other aspect of this issue, highlight it in your comment(s) and I’ll try to get data about it!)