The Power of Co-founder Dynamics

Why the dynamics between co-founders can make or break a startup

Author

Richard Hadler
October 15, 2023

We scour Europe for the top 1% of Start-ups led by epic Founders, giving them access to our world-class investor & partner network to scale their ventures to heady heights.

The Power of Co-founder Dynamics

It’s no secret that starting a business is an exhilarating and challenging journey. One crucial, but often overlooked, factor that profoundly impacts the success of a startup is the co-founder dynamic. Choosing the wrong right-hand has the potential to kill your business before it’s even begun. Entrepreneurs should put as much emphasis on finding the right co-founder as they would on finding the right life partner.

Co-founder dynamics have the power to shape a company's culture, decision-making processes, and overall trajectory. Co-founding teams are often seen as a “safer” option from an investor standpoint (there’s a reason that less than 10% of YC startups are run by solo-founders). Conversely, 65% of startups fail due to founder conflict.

This demonstrates the vital importance entrepreneurs should place on finding the right co-founder. Contrary to the belief of many early stage founders, It’s about far more than just complementary skill sets to make this dynamic work in the long term.

Over the past two weeks, we've conducted extensive due diligence on 20 co-founding teams through our partnership with Entrepreneur First. It has been fascinating to witness the evolution of working relationships and collaboration among individuals who came together to embark to build a new venture from scratch.

All of the budding young entrepreneurs in the latest cohort joined forces without knowing each other six months prior. Within 3 weeks of being thrust into the program, the co-founding teams are on a crash course to understand how they live, learn, and lead together. Their ability to navigate this journey is essential for their chances of success in the cutthroat world of startups.

Many founding teams often overlook the most basic principles and sometimes ignore glaring red flags in their pursuit of startup stardom. Here are a few key aspects we've observed to help Founders & Investors inform their decision making based on the dynamics of the founding team.

1) Complementary Skills and Expertise

Co-founders should have different skills and expertise, which can really help a startup. When co-founders have different skills, they can divide up the work and use each other's strengths to handle different parts of the business. But having different skills can also highlight differences in backgrounds, behaviours, and general outlook on life.

So, it's really important for co-founding teams to agree "ways of working" and preferred ways to communicate right from the start.

In my previous experience running companies, I used to call people out when I noticed they had "Happy Ears." Basically, "Happy Ears" means that someone hears what they want to hear in a conversation with a coworker or client, instead of what was actually said. This can also happen with entrepreneurs. Finding a co-founder can be tough, so it's important to always check if you're seeing complementary skills or if it's just "Happy Ears."

Of course, time is a big factor in figuring this out, but talking about preferred communication styles and even doing psychometric tests can help you understand someone's underlying traits better.

2) Emergent Properties

The very best founding teams not only have complimentary skills and expertise, but their coming together produces qualities that are greater than the sum of their individual parts. These emergent properties have the power to significantly improve outcomes. Conversely, if mismatched, they have the power to drastically derail the efficacy of the system.

This collaborative synergy fosters innovation, resilience and a heightened ability to capitalise on new opportunities. The interplay of these factors then becomes the cornerstone of the venture’s sustained growth and their ability to convey a sense of manufactured inevitability surrounding the success of their venture.

3) Shared Vision and Goals

Having a clear vision and goals that align is super important for any startup to be successful. As an investor, you can easily pick up on signs of misalignment during early conversations. Co-founders need to be on the same page right from the beginning, understanding the company's mission, values, and long-term objectives.

When co-founders are in sync, it sets a strong foundation for decision-making and strategic planning. They can work together towards a common goal, making choices that reflect the startup's vision. This shared vision will also help them handle disagreements or conflicts in the future.

Here at Founders Capital, we see a shared vision among co-founders as one of the most crucial things we look for in early-stage businesses. We truly believe that companies with a clear purpose and unity attract employees, investors, and customers.

4) Trust and Collaboration

Trust is a fundamental element in any working relationship, and it becomes even more critical in the context of co-founder dynamics - if there isn’t that underlying level of trust with your business partner you’re almost doomed for failure.

Co-founders need to trust each other's judgment, abilities, and commitment to the venture. Trust fosters open communication, transparency, and collaboration. When co-founders trust each other, they can freely express their opinions, challenge ideas, and make collective decisions without fear of judgment or conflict. This trust is essential during challenging times when tough decisions need to be made, and it helps build resilience.

When co-founders have a strong working relationship built on trust and a shared vision, they are more likely to weather the challenges and stay committed to the venture in the long run. They can provide mutual support during tough times and celebrate successes together, fostering a positive startup culture.

5) Conflict Resolution and Decision Making

Founders Capital members have started more than 200+ businesses and invested in over 1,000, so it's no surprise that startups often face lots of challenges and uncertainties.

In my experience, resolving conflicts effectively and having clear decision-making processes are important for navigating these obstacles, especially in the early days.

When investing in early stage opportunities, perfection isn't the goal. But it's important to have a good dynamic between co-founders that encourages open and constructive discussions. Conflicts should be dealt with directly and resolved through effective communication and compromise. Co-founders should be able to respectfully challenge each other's ideas and make decisions that benefit the startup as a whole.

The best early stage startups we've seen have these frameworks in place right from the start and usually have strong, unbiased advisors that founding teams can turn to for fair advice. It's surprising how many early stage founders overlook this setup or think it'll slow them down.

The Bottom line…

Complementary skills, shared vision, trust, effective conflict resolution, and long-term commitment are essential elements that co-founders should prioritise from day one.

Getting the dynamics right from the beginning sets a solid foundation for the startup's growth and paves the way for a collaborative, productive, and successful entrepreneurial journey. Plus it will enable the founding team to garner more traction with investors and customers more quickly. Everyone wins.

Until next week!

Cheers,

Rich & the Founders Capital team

We are running 4 live deals with Entrepreneur First - if you haven’t already, you can check them out here. If you are interested in investing please respond to this email or register your interest using this link.