By Dharmesh Shah,

In response to my last article, Daniel Howard had some really good questions (I think Daniel could make a good career out of asking really great questions).

So, in order to dig deeper into the issue of if/when/how to bring in a co-founder, partner or co-conspirator, I thought I”d take a shot at answering some of his questions. As always, remember that these are just one person”s opinion, but it they have a non-zero probability of applying in your situation too.

  1. Is it better to find a like-minded friend or should there by more social distance between you two?

There are some advantages to finding someone that is a like-minded friend to join you in your startup. There is an implicit level of trust that often pre-exists and that saves both parties some amount of time and energy in the short-run. When forging a relationship with a stranger, some percentage of your time will be spent just learning about each other and establishing trust. By picking a “like-minded friend” (i.e. someone with a lower social distance), you avoid this “cost” in the early days. However, I”m going to argue that a greater degree of social distance is actually better in most cases. Running a small software company (I”m drifting away from the term “Micro-ISV”) is a very “personal” thing. There will be many emotionally charged moments. The closer the social distance, the greater the likelihood for a lack of objectivity when it comes down to making really hard decisions. Case in point: I started my first software company with my younger brother as co-founder. I was 25 at the time and he was 18. Though we had a really good run (we jointly ran the company as co-founders for 11 years before we successfully exited in August, 2005) there were some really, really rough patches. The issue was not lack of trust, but there are simply so many decisions and situations where it is impossible to have an objective “right answer” (things like equity, control, responsibility, rewards, etc.) and that more often than not, one or both parties feel they were treated unfairly. When the social distance is very low, this kind of conflict is inevitable. Even when people with high integrity and high emotional IQ are involved. They”re tough situations regardless, but having people that are close to you on the other side makes things much more difficult.

Summary: Make the investment of time to build trust with folks that have at least some minimal social distance. Ironically, you will end up reducing the social distance with anyone that you successfully work with for an extended period of time. And, you”re likely going to want to work with them again. That”s OK (not sure why yet, we can look at this one later).

  1. What are the tradeoffs of trying to clone yourself using a team of 3 or 4 people rather than finding one guy who”s like you?

The obvious trade-off is one of cost. You often can”t afford to have 3 people doing the work. Not in the early stages anyway. So, I”ve found it helpful to actually look for “concentration”. That is, don”t hire a finance person, a marketing persona and a technology person. Find someone that”s reasonably good at two or three of them (and better than you in at least one of them). Specialists are for people with large budgets. If you can afford them, by all means go for it, but if your company size is <=3, its unlikely that you"ll be able to justify hiring someone "just for marketing" or "just for technical support". Another upside to this "personnel concentration" is that there is less vision/information/strategy that is "lost in translation". The odds of your communicating 80% of what"s in your head and what you"re trying to do to one person are modest at best. Trying to do this with two or more people is much, much harder.

  1. What if finding a clone takes a really long time, say years? How do I find a clone? What if I find somebody who seems to have a lot of good skills, but isn”t a clone?

Actually, finding a clone isn”t that hard. What”s really hard is convincing them to join you instead of doing their own thing. By definition, if you”ve truly found a clone, then they have the same entrepreneurial drive you do and likely have several ideas of their own that they want to pursue (or are already pursuing). The best source of clones are: existing software startup founders that are doing things similar to what you are (so, you can basically “join forces”), mentor/advisor types that enjoy the thrill of the startup process (but are looking for something new, taking into account that they probably don”t have the same energy you do) and fanatical users/customers (assuming you have these). In fact, I”m going to back-off of the term “clone” as the ideal target here. A better (and more defendable) way to position this would be to find a “high impact/value in short time-frame” person. If you can”t find someone that can create immediate value, you may need to look for ways to find “funding” so that you can hire people during the ramp-up phase. This is much riskier.

Also remember that “selling” a co-founder is actually much, much harder than selling a customer. Your potential co-founder/partner is taking a much bigger risk than a customer is. And customers are hard enough to convince as it is.

And, to ensure I didn”t hedge the question completely, I will say this: If you find someone with great skills, ask yourself what the likelihood is that they will generate enough “real value” (think dollars, sales, etc.) to overcome the cost of bringing them on board. As a small company, even a world-class marketing person that costs $200,000 a year ” and that you can get for $100,000 because of how charismatic you are, isn”t going to help you (or them), if your market/idea/product/business can”t really sustain them.

  1. What if someone wants to be an employee ” and not a partner?

If someone wants to be an employee, and you can afford to pay them, then this is often the best (and simplest) solution. This is how I ran my first company. In essence, instead of assuming (and forcing) some degree of risk on the early team, I bore the risk myself. I hired programmers that wanted to program, project managers that wanted to manage projects, etc. Not everyone wants to play the high risk game of stock/options ownership in software startups. In fact, very few people even really understand it or appreciate the risks. I think its na??ve and impractical to assume that everyone is driven by the same risk tolerance you are. What I do now is this: If the individual wants to be an employee, get paid “fair market value” and have very little equity ” fine. As long as they”re the right fit and going to bring value. If the individual wants to work for near-zero salary but have a bunch of equity ” great. As long as they”re the right fit, can bring value and the shared risk is not going to distort their decision-making. A common counter-argument is that employees will not “treat the company as their own” unless they have skin in the game. Though this has some truth to it, I would posit that the truly right people are incapable of consciously making bad decisions that are only in their self-interest ” and not the interests of the company.

  1. What if you (the founder) are impossible to get along with? How can you know if you”re impossible? Should you care if you”re impossible? What can be done (for both you and the other person) to make it more likely to work out?

I”m going to argue that if you”re impossible to work with, you will end up having a high probability of failure for one simple reason: You”ll end up paying a “premium” to get people to work with you or you”ll find only mediocre people that are desperate enough to work with you because they have no better options. In this case, your best bet (as a founder) is to likely go work for a much larger company OR raise venture capital for your brilliant idea to so you can afford to pay the premium. So, yes, you should definitely care if you”re impossible (though oddly, many people that are impossible to work with, don”t realize that they are). As for what can be done? If you”re on the receiving end (i.e. the one trying to live with a person impossible to work with), I”d suggest that you quickly find a way to move on. Life is short. I try to resist platitudes, but in this case, I think its appropriate and a good note to close on.

Dharmesh Shah is a serial software entrepreneur. He”s currently working on his third Micro ISV, which is building a hosted software platform for VSBs (very small businesses). When Dharmesh is not writing code or running software companies, he”s a graduate student at MIT in Cambridge, MA.


  1. I’ll second point #1, don’t choose a friend if the friendship is very important to you. Even if things go well, there’s a pretty good chance your relationship will become all about the work. If they don’t go well, you probably won’t see them quite the same way again.

  2. Why the insistence on finding a clone? A clone will only make you faster at getting the things done that you like, but you won’t have any gain on the play for the things that are difficult, painful, or even invisible to you. And you’ll have someone to support your whining about those things, rather than someone who simply prefers to get out and sell. Or write code, whichever half of the line you’re on.
    If it even CROSSES your mind that you might be hard to work for, you may well be. Ask your wife, or a former co-worker. If you have neither, or none will talk to you, then that’s another signal. If you think you’ve only ever worked with fools and dullards, umm… a clue.

  3. This article seems to naturally flow towards the question: “What’s the difference between a partner and an employee?” If Dharmesh was so inclined, that’d be an interesting article, too. Is it being a generalist versus being a specialist? Or is it more to do with entrepreneurial spirit? Experience? Timing? Does it have something to do with how they’re paid?
    What about 3+ partners/founders? Is there a practical limit? Oh, oh, I’d really like to hear Dharmesh’s comments about Allen Morgan on the “Forgotten Founder” and the number of co-founders a company should have. Here’s the links:
    Of course, we haven’t touched equity and compensation issues for the first partner or employee. 50-50? Shares versus percentages? Legal agreements, informal written agreements, verbal agreements or wait until later (don’t laugh: that’s how Adobe did it)?
    If we are getting tired of partners/founders, employees themselves are interesting. They seem to be the other side of the coin from partners/founders.

  4. Excellent food for thought, and a great topic for another article.
    As fate would have it, I wrote a small paper for one of my MIT classes on the isssue of compensation within early-stage startups (i.e. how should the founders decide how to allocate equity, salary, etc.). Will take some of the hilights from that and include it as well.
    Stay tuned…

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