Of all the decisions involved in your startup, picking the right co-founder is arguably the most important and can impact your business the most. That's why you've probably heard so many horror stories about the entrepreneur who settled on the wrong person.
However, there are also the numerous success stories, including Hewlett-Packard, Procter & Gamble, and Ben & Jerry's. So how can you make sure you aren't working with a co-founder who's going to sink the startup? You can start by keeping an eye out for the following red flags.
1. Asking for Too Much Money
In the early stages of a startup, money should be put toward investing in the company, not fattening the wallets of the co-founders. In fact, 73 percent of startup founders make $50,000 or less per year. While that may be below marketplace for, say, a talented engineer, it's essential in creating the business. And most founders are aware of this. What good is a luxury car going to do if you don't have the money to research or build your product?
But what if your co-founder is asking for a salary that is more than originally intended? That could be a serious problem. (It was even a question asked on Quora.) If your co-founder is more concerned about her salary instead of getting the startup off the ground, then the two of you aren't on the same page.
Remember, you need your limited resources to get the business up and running. If you and your co-founder can't agree on that, then maybe it's time to part ways before it's too late.
2. Tons of Equity With No Vesting Period
One of the worst scenarios a startup can face is having a co-founder split after just one year. If that co-founder owns half the company, he's taking it with him out the door.
To prevent this from happening, you and your co-founder need to create vesting restrictions. This means if he leaves, he won't walk away with half of the company. Instead, the co-founder will receive his share of the business over time. Typically, the vesting terms for founders are four-year vesting, one-year cliff, for everyone.
Even if you don't divide the company into a 50-50 split, you and your co-founder must agree on vesting terms, along with how the shares of the company are divided. Agreeing on these terms will prevent your co-founder from leaving early. If he isn't in agreement, then you may want to begin to question his commitment.
3. Not Committed to the Venture
Speaking of commitment, you also need to have a co-founder who is in it for the long run. Even if your co-founder agrees to a vesting option, that doesn't mean she is 100 percent committed to the business. Will she stand beside you when you hit rough patches? Will she pick you up when you feel like a failure?
Starting your own business is hard work. There will be days when you question whether it was the right decision. There will be days when investors reject your plan--Pandora's Tim Westergren was turned down 350 times, for example. During these times, would you rather have a co-founder who is willing to persevere? Or someone who is more than willing to throw in the towel?
4. Disagreements Get Personal
Disagreements are bound to happen. In fact, research has found that "65 percent of high-potential startups fail as a result of conflict among co-founders." It could be caused by anything from the name of the company to the color of the logo to how equity has been divided between co-founders. The real problems, however, occur once these disagreements get too personal.
If you aren't able to discuss the situation and come to an understanding, then that's another red flag. While tempers are going to flare, you and your co-founder have to be able to talk it out, because things aren't going to get any easier. If your personalities aren't clicking and you're fighting all the time, it may be time to dissolve this partnership.
5. Doesn't Complement Your Skills and Talents
We all have different skills and talents. And that's one of the greatest advantages to having a co-founder. He brings something completely different to the table. Whether it's because he's a stronger manager, marketer, or technician than you are, it's these complementary skills and talents that can make a startup successful. Microsoft had Bill Gates and Steve Ballmer. Apple had Steve Jobs and Steve Wozniak. Google had Sergey Brin and Larry Page. If your co-founder isn't complementing your skills and making the company better as a whole, it's time to find a different co-founder.
Picking the right co-founder can be really hard and take months, if not years. Choose wisely! I recommend reading the book Slicing Pie by Mike Moyer, which talks a lot about finding and compensating the right partner.