Welcome to “How to Start a Startup,” a short series aimed at giving aspiring entrepreneurs a range of views about starting a new team, product, or initiative.
This week, our panel of founders will discuss how they formed a team of co-founders and how they maintain those relationships.
This week in “How to Start a Startup,” @DigitalAsset’s Eric Saraniecki talks with entrepreneurs about choosing co-founders and setting expectations for the relationship.
Michael Shaulov, CEO and Co-founder of Fireblocks:
"For me, I do need a co-founder. I like the fact that someone is balancing me and has the same level and the same stake in the company that I have, that we can sort of argue about ideas."
Do you need a co-founder? Is it critical that you find one or two?
History is full of great entrepreneurs who didn't have a co-founder, while others had two or more. I think it really depends on personality.
For me, I do need a co-founder. I like the fact that someone is balancing me and has the same level and the same stake in the company that I have, that we can sort of argue about ideas. In my previous company, we were two, so it was me and my CTO, Apad. And in Fireblocks, we are three. I think that three is better because you can actually break a tie.
You can find very powerful executives who will feel a strong ownership of a specific domain. But at the end of the day, the power of the co-founder entrepreneur that overrides everyone else’s opinion. And even if you are the VP of Sales — if at some point you disagree with the founders but don't have any co-stake in the company — at some point, you will give up. It's like, "OK, f*** it. It's their company." If you're a co-founder, then unlikely that you will give up that quickly.
It's very personal and it's very particular, in terms of the skill sets that each individual brings to the table. But I think that you should have someone who is fairly focused on the go-to-market. I'm sort of wearing that hat at Fireblocks.
Finding co-founders is actually very difficult. I think that the amount of cases that I've seen that things went sideways within weeks, months, or within the first year, exceed potentially the cases where things actually were stable. Management, culture, and probably the way that decisions are made are probably the biggest reasons why relationships blow up in the first year or so.
How do you think about co-founders? Is the relationship for life, or until it’s time to move on?
I hope that we will not reach a situation where one of us leaves or is let go. I've seen that happen in other companies I was in, and it's a very painful process. Sometimes it's necessary, sometimes there's just no fit, so the question is how do we eliminate that from happening?
If it actually happens, it usually tears out a huge chunk of equity in the company. People are always sorry about that fact. I’ve never heard someone that say, "Oh, yeah, that guy was my co-founder, and for the first year, it was great. But, you know … " (Shrugs.) I’ve been giving him a third of the company for his one year of contribution, whereas I had to work for another 10 years after that!
What issues did you address early on? What kind of culture, business model or exit goals did you discuss?
When we were initially brainstorming Fireblocks, it was me and Idan, my CTO. And then we brought in Pavel as co-founder. That was because I wanted to create a balance between the go-to-market product and R&D.
The dynamic was great in my previous company, but I always felt that the product element was not fully represented in the equation. When you are basically looking at the go-to-market, in many cases you want to optimize for quick wins that will generate immediate results. When you are focusing on R&D, you always want to overengineer things, you want to create stable and beautiful systems. And both of those things are not always aligned with the strategic path of the product, and it was important for me to have those incentives represented by someone who is very strong, very opinionated, and has the same stake in the company as everyone else.
How did you use that balance to build an initial roadmap for Fireblocks?
I think I mentioned before that our product was born from a known customer problem. We started with a real, real basic strawman of an MVP. And we decided to take the whole iterative development to heart: What we did was maybe 25%, 30%, of where we are now. And this was six months ago.
Since then, we've been basically showing that iterative development to some of these early customers, and a lot of times before they were trial customers, they were just individual advisors. The person that put their name to help us as opposed to their company. And they would take a look and say, “Yeah this is good. Show me what it looks like in this context. Let me see it with my data,” and that type of thing.
Ben Milne, Founder and Chairman of Dwolla Inc:
"I think where I went wrong was where a lot of us go wrong finding a co-founder or first team members: You end up hiring your friends"
Did you have any co-founders when you started Dwolla, or people that you would have classified as co-founders?
I tried very hard. I eventually ended up about two years into the project trying to bring in a later stage co-founder, and it just didn't work.
It's probably a function of not being able to sell the idea, but also not really knowing the right structures. Actually, there were two people I wanted to split the company. I tried this twice, offered them half the company to come on. One lost interest and just didn’t show up to meetings — with the bank and stuff like that.
The other person to their credit said, "I don't want half the company, but I do want to get paid hourly." I was just funding that, I said, "OK, I want to make sure you get what you want."
How would you look for a co-founder differently than you did?
I think where I went wrong was where a lot of us go wrong finding a co-founder or first team members: You end up hiring your friends, people who like you, and you like them. They happen to have a little bit of extra time and have a complementary skill set and are interested in similar things, but they're not a carbon copy of you.
The challenge is you end up hiring a lot of people who look and sound like you, as opposed to team members who might bring the most diverse set of opinions and experiences to the table to create the best product. So that experience and being aware of that would change my perspective and has changed how Dwolla specifically does hiring and recruiting and things like that. But it took me a long time to realize.
Arti Arora Raman, founder and CEO of Titaniam:
"You have a problem, you have a solution, but then you have to be excited enough about it to stick it out when it's down"
How did you decide on the shape of your co-founder team?
We have 11 people. Part of the team is full-time. The rest of them are either consulting or doing something else to support the time they spend on the company. We're also doing some of that work in India, which makes it a little bit easier.
I've worked with half the team before, and the other half were brought in by the group together. But everybody that's here is vetted and known to somebody else.
There's good reason for that, considering the type of risks that we are asking these guys to take. There's not a lot of people who would sign up for that without knowing the group. We didn't have a policy, but we kind of self-selected that way.
What specifically do you look for in a co-founder?
You want to make sure that they have the passion. You have a problem, you have a solution, but then you have to be excited enough about it to stick it out when it's down. I think for that same reason, you need to surround yourself with people that you can lean on a bit so you can motivate each other.
Daniel Chait, CEO and Co-founder of Greenhouse:
"You need to understand each other's financial situations. You need to understand each other's family situations. You need to understand each other's tolerance for risk"
How did you decide on the shape of your co-founder team?
I decided I can control two things: what I'm working on and who I'm working with. Everything else is kind of out of my control.
With Greenhouse, John, he and I went to college together. So we were friends since back in the mid-’90s, and then when he moved back to New York in the mid-2000s.
In every case, I've known the people for years.
Do you start with an idea for a startup, then find co-founders? Or do you work with co-founders to identify a winning idea?
I think of it as co-founder first, then idea. I don't know if it's lifelong, but it's definitely a decade. If you don't think of it in terms of decades, you're not thinking about it right.
And if you're not aligned on that level with your co-founders it will cause bad problems. You need to understand each other's financial situations. You need to understand each other's family situations. You need to understand each other's tolerance for risk. You need to know each other on that level and in such a real way because if not, you'll very quickly realize that you want or need different things out of the business and each other.
You're much better off finding those when the stakes are lower and the possibilities are endless than once you've gone down a path where you've really got way fewer choices. It's not to say that your situation in your life can't change, because it can, but just that like in a marriage or in any other long-term relationship, those changes have to happen in concert with each other. There's some give and take and there's got to be a single vision there.
Marwan Forzley, Co-founder and CEO of Veem:
"There are long-term commitments, and at the same time there needs to be an understanding that things are going to move many times"
How did you decide on the shape of your co-founder team?
My co-founder for Veem was someone I worked with for the first time, but I pulled from other startups I’ve worked with in the past. So when we first started, Veem was sort of a mix of people from different startups.
Picking co-founders, you find somebody who can complement you on what you don't have. In the case of Veem, I'm more business, and my co-founder was quite technical.
In other cases, it's more like people that you have chemistry with. You have a joint belief in a product or an idea. That's another form of finding founders. But you generally want someone to work with you that can fill gaps, especially in early stages, because so many things need to be done. You need people who can fill gaps really quickly.
How do you think about co-founders? Is the relationship for life, or until it’s time to move on?
It's a combination of both, actually. There are long-term commitments, and at the same time there needs to be an understanding that things are going to move many times. When things evolve so fast, where you start may not be of interest to either party over time.
So you just have to be real about this: Do your best to work together for the long term. But things change a lot, and along the way it might not be that long term. So you need to have that discussion up front.
What do you need from those first discussions with co-founders?
I think it depends on what stage you're in when you really start and when you're at that very, very first phase. A lot of it is all about getting first customers. I mean that's the only call you actually should have.
Everything else is irrelevant. Business models, exits, marketing, all that is irrelevant at that stage. All you need to do is get customers to take what you've built or what you're building and try that out and tell you that, "I think you solved my problem." And then assess the first thing. And the second thing is if you can get feedback from the customer on what are they willing to pay for it.
Other than that, a lot of it is irrelevant.
Nimrod Lehavi, Co-founder and CEO of Simplex:
"Aside from the fact that the company exists at all, the thing that I'm most proud of is the culture. It's really an amazing culture"
How did you decide on the shape of your co-founder team?
I needed co-founders from PayPal who knew exactly how to handle transactions, and I just went and got them.
I was persuasive. I had two guys there, exactly the two positions that I needed. One in the analytics side, one in the tech side, both of them worked there for six years. Exactly what we needed in order to construct it. And I just convinced the shit out of them.
I hadn't met them before. Someone who worked at PayPal told me what he thinks I'll need. What type of positions and I just hit them up. Israel is a small place and the tech ecosystem is small, so you can get connections to pretty much anyone.
How do you think about co-founders? Is the relationship for life, or until it’s time to move on?
I wanted something for the very long run. I keep saying it’s like world domination. I mean it, I'm not joking. It's like it should grow to that. It sometimes gets on the nerves of others; certain board members for instance, don't share the conviction. But even though at a certain time you become a minority shareholder, it's still my company. I know where it's going. People make fun of me saying that I live three years in the future, in where I perceive the company.
Did you guys sit down and have some early conversations about roles, company culture, business model was going to be, or exit goals? How thorough were you at the very beginning?
Not at all! I think at the beginning, we mostly wanted to see if we're getting along: If we like who we are and like each other, the company culture should work fine. It did, very well. Aside from the fact that the company exists at all, the thing that I'm most proud of is the culture. It's really an amazing culture. And even now with everybody working from home, there are still like a bunch of silly Zoom calls, drinking together, cooking together, and doing yoga together. So it's really working very well.
What’s ahead
In the weeks ahead, we’ll explore these high-level topics:
- Early funding strategy
- Hiring first few employees
- Life beyond the first few months
Each post will comprise a short set of questions about a specific topic. Our participants will offer their own views and we encourage you to add your voice to the discussion.
Do you have your own questions for Digital Asset’s panel of entrepreneurs? Please write to us at community@daml.com.
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