Page and Brin. Jobs and Wozniak. Hewlett and Packard. Famous co-founders, striking stories. What are the pitfalls for co-founders? Where can things go wrong?
Along the bottom here is the aging of the venture. Over at zero on the left is when it is founded and then as it is playing out, as it is aging overtime. As we go higher up on this, this is the stability of the founding team. At founding all the way on the left 100 percent of the founders are still there. And then as the ventures age that's where the founding teams start losing people.
One of these lines is teams that founded with friends. The other line is teams that didn't found with friends. Which do you think is the higher line on here, the friends team, or the non‑friends team? The friends teams, after an initial honeymoon phase that they go through where the two teams are relatively equally stable, the friends teams being less stable significantly from a statistical perspective. And also as we get further down there of the remaining teams this is a very significant difference between them. And to the extent there, that this is an example of where the most common of decisions is one that is most fraught with peril.
This is my data on how often are people co‑founding with friends versus these other profiles. And by far the biggest bar on this chart, 43 percent, is co‑founding with friends. If we add on the family side, add those two bars together that's more than half of the teams. And so it's one of those things to be thinking about. Why do we look to our friends as a source of founders? Why do we go and we head down the path of punting on these issues when they are so dangerous for our most cherished of relationships? The family teams by the way are even more extreme than friends ones in terms of the stability of it.
The most stable of the teams are co‑founding with your prior coworkers. Friends teams, friends and family teams that we combine them, are even less stable than co‑founding with acquaintances, co‑founding with relative strangers. Also think about with our friends, about assumptions we're making. We assume we know them. We assume we trust them. We assume we will be on the same page. All of these other things that go in we're not going to test those assumptions within the team. Versus if we are co‑founding with acquaintances we know we don't know each other. We're going to tee those up. We're going to make sure that we have more of that getting to know you as professional coworkers within that team. And so several things that we are handcuffed by when we are co‑founding with that very common set of possibilities looking at the friends and family as the people that we're going to be co‑founding with.
And one other element that we haven't talked about on the friends side is an assumption that we're making about the skills of our friends. How well do we know our friend and how well that person works? Are they going to be able to scale? Are they going to be up for it? Telling your best friend he's not scaling, he's going to have be demoted, going to be have to be replaced.
Let's get a little bit more granular about some of these challenge that these types of teams face. So the first of those is the likelihood that we're going to discuss the elephants in the room, those conflict‑ridden issues, those tension‑filled things that we are going to have a tendency to punt on. Is that going to differ by these types of teams? For me the key piece of this is the left‑hand side of this slide. This is going to be where the elephants in the room are going to be least likely to be teed up. Second element, the damage if things blow up, if things blow up within the relationship, in the venture, repercussions on the outside. What is this going to look like across these different types of teams. To me the divergence between the two of these is something that I call the playing with fire gap. So the critical thing is when we're dealing with teams at that left end to keep in mind both sides of the playing with fire gap and find ways to reduce that gap, find ways to push up that likelihood of discussing the elephants, push downwards the repercussions on the personal side for if things blow up within the venture.
If we can harness the potential glory of the left side here, to me the left side here is the high variance, what economists call high beta in terms of where it can be. It can either be the most glorious of teams or it can be the most disastrous of teams. And by hopefully going and creating these firewalls, forcing those conversations, reducing the playing with fire gap that's where we can hopefully cut off the bottom end of that distribution so that more of those friends and family teams can see that glory happening.
Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, New Jersey: Princeton University Press, 2012. Chapters 3 and 4.
Blumenthal, Neil. "3 Steps to Co-founding a Company". The Wall Street Journal, July 24, 2013.
Livingston, Jessica. Founders at Work: Stories of Startups’ Early Days. Berkeley, CA: Apress, 2007.
Wasserman, Noam T. "Apple's Core". Harvard Business School Case 809-063, October 2008. (Revised February 2011.)
Wasserman, Noam. "Smartix: Swinging for the Fences". Harvard Business School Case 808-116, January 2008. (Revised December 2012.)
Wasserman, Noam T., and Rachel Gordon. "Playing With Fire at Sittercity (A)". Harvard Business School Case 809-009, January 2009. (Revised December 2009.)
Wasserman, Noam. "Ockham Technologies (A): Building the Team". Harvard Business School Case 812-021, August 2011.
Hirshberg, M. "For Better or for Work: Survival Guide for Entrepreneurs and Their Families", An Inc Original. Chapter 3. 2012.
Questions for You
How well do I know the people that I am founding with? Do I know what they’re like in a social context but not in a business context? What conversations are we having to learn about each other’s visions, working styles, peeves, strengths, weaknesses etc.?
Have I made the “easy” choice to found with someone I already know, at the expense of choosing someone who is very similar to me instead of someone whose strengths compliment mine? How do I know that I will work well with the other members of my team?
What relationships am I risking as I build my team? Are these relationships ones that I can afford to imperil? What conversations am I having with those individuals to limit potential damage to the relationships when there are bumps in the road?
What role interests me? Do I agree with the role that is being assigned to me? Does it align with my strengths? As we grow, how do I envision my role changing?
Questions for Your Team
How well do we co-founders and/or team members know each other’s professional abilities and styles?
How can we learn more about each other and maintain open communication as we head into founding?
What are the things we have a hard time talking about? Can we constructively discuss them now? How will we keep tabs on these issues so that they don’t fester?
Are we clear about our roles? Is there any overlap between people? If so, what are we doing to prevent friction from arising? What are our plans for separating the areas of overlap as we grow?
Is it possible to configure the reporting structures so that friends and family are not reporting to one another?
Do we have a “disaster plan” that acknowledges the worst-case scenarios that could result within our team? Have we designated someone to have the final say in an impasse? Have we had frank conversations about what might happen if one of us isn’t scaling well or has to drop out of the venture?
Tools and Exercises
Evaluate: how are our team members similar?
What assumptions are you making about the skills of your friends?