Reflections on founder teams: what I learned from starting two startups
Disclaimer: All views are heavily biased by experiences in Germany and Switzerland.
I like to compare founding a company together with someone to marriage. Founders have a very close relationship and endure highs and lows together. Like in a romantic relationship or marriage, a "divorce" is costly and painful. You should feel very comfortable being around them for a significant part of your time (12+ hours per day) for many years. If you aren't confident about "marrying" your co-founder(s) they probably aren't the right fit. When humans work together so closely, there will be personal issues from time to time. If that happens, like in a marriage, founders have committed to staying together and sorting things out.
How many founders does a startup need?
From my experience, fewer founders are generally better and at least two are necessary. The ancient Romans had a system of two consuls reigning together, which parallels the need for two key roles in a founder team. Two founders can always help each other, balance each other in decision-making and challenge each other, which most people will find very helpful when starting a company. In addition, a single person rarely has all the skills needed in a founder team. Ultimately, a startup needs someone who can build a product and someone who can sell it. These two roles may be taken by more than two people. However, fewer founders are better: Moving fast and improving product and business model quickly based on feedback is crucial before achieving product-market fit. To maintain quick iteration cycles, it is essential to minimize communication overhead. Unfortunately, a linear increase in team members leads to an exponential rise in communication overhead. Thus, small founder teams of a few (ideally two) generalists who can build and sell are ideal. In addition, the founders should work from the same location to enable quick iterations on strategy and decision-making.
The fundamental roles of the "builder" and the "seller"
The builder should have a deep technical understanding of the relevant domain (usually software, but possibly hardware). It's important to also build from the users' perspective, not only the technology itself. Many technical founders who found companies straight out of university struggle with this, including myself: Developing a technical product requires very different skills than acing an exam or writing a paper for a PhD. The best builders are those who have a good intuition for what the users want - rather than falling in love with a technology or framework. In most cases, the users or paying customers don't care at all which framework or programming language a product was built with.
The seller's role is much more outside-facing, and I like to compare it to a missionary: This person should be able to convince customers, investors, employees and the public of the product or service that the startup is offering. Therefore, the person should be very open, charismatic, and empathetic. At the very beginning, most founders are nobodies, and the company is fragile and unknown. It is mostly the seller's job to convince everyone of the founders' trustworthiness. From my personal experience, the educational background of that role is secondary but an excellent seller is equally important as the builder.
In some niches, an additional skill set might be neccesary in the founder team. For instance, at Ocumeda, a telemedicine and AI company, we had two medical doctors in our founding team. In fact, they had the idea of Ocumeda and because of their special experience in telemedicine and ophthalmology, Ocumeda would not have been possible without them. The more dimensions of complexity a startup has to deal with, the more likely it is that more experts in addition to the builder and seller are needed in the founder team. Compared to, for example, b2b SAAS or e-commerce, we have to deal with a lot of legal/regulatory and medical questions that could not be answered well without that special expertise of an ophthalmologist.
What about an "operations" role? Many startups consist of three founders with one being the "operations" person. This often works well, however, I think it is not strictly needed, and in many cases, the benefits of a smaller team outweigh the convenience of having a person taking care exclusively of operations: At the beginning, the builder and the seller can both take care of operations topics such as finance, legal, governance and customer support. After the pre-seed phase or in the case of a bootstrapped startup after finding the first paying customers, the operations role can be filled by one of the first hires (who should be incentivized with stock options, but that's a different topic).
A good equity split among founders
On purpose, I wrote "good" in the headline instead of "fair", because "fair" is mostly subjective. A good equity split maximizes the chances for a future success of a company, though.
I've come across two misconceptions about equity splits many times already: The first misconception is attributing equity based on "who had the idea." In most cases, the original idea is modified over and over again until product market fit is reached. Therefore, most value comes from excellent execution, not just an idea. The equity split should reflect who has how much contribution to that execution. If you are still not convinced of that concept, watch this lecture by John Doerr, who is often quoted with "ideas are cheap, execution is everything".
The second misconception is an overvaluation of the work done before officially incorporating the company. Especially in university spin-offs, academic co-founders overestimate the value of their research and underestimate the translation of that research into a product and business. If you are interested in deeper information on that delicate topic, I recommend this guide on university spin-offs in Germany by Orrick. In the guide they provide five thoughts on how to allocate equity that I cannot put any better:
- An even split can be a fair outcome, it is not a law of nature.
- The equity split is about maximizing future chances of success and recognizing what founders will bring to the table going forward, not rewarding past performance.
- Having had an idea per se is not a valid argument to claim the lion’s share. Neither is the “N times more” argument” (more contacts, more papers published, more months already spent on the project).
- If in doubt, full-timers should receive more.
- Someone holding less than 10% is not a “founder” – be aware how outsiders will interpret such an allocation to someonewho is supposed to be “core”. First hour employees should usually get ESOP or VSOP allocations instead of real shares.
The cap table should reflect long-term motivation, personal risk, and contribution to executing the idea, optimizing incentives for the long-term commitment of the team.
How do you know if your potential co-founder is the right person?
How do you know that you are in love? How do you know that you had a good first date? Similar to knowing you're in love or having a good first date, the connection with a co-founder is a close personal relationship that is hard to quantify. If it feels right, you'll know, and if something feels off, it's probably better to find someone else.
The success of a startup hinges not just on the strength of its product or market but on the synergy between its founders. Assembling the right founder team is akin to selecting a life partner, requiring deep trust, mutual respect and long-term commitment.