Your business is on the rise and you’ve been soloing it for a while. It’s time to find an employee, or maybe better yet, a co-founder with whom to share responsibilities and your bright future.
Before you start writing up that ad or scouring LinkedIn, there are a few things to figure out: Why hire a co-founder in the first place? When is the best time to hire? What legal aspects are worth noting, and how do you consciously uncouple if it comes to that?
Reasons why founders hire co-founders
There are obvious reasons why you should consider hiring a co-founder: things like finding someone who complements your skillset, takes over certain areas, mitigates the risk for investors and so on. But these are well-known truths, and instead of repeating them, we aimed to find not-so-obvious insights for this post. Here is one:
“In our experience, not many people consider that strength comes in pairs,” says Indrė Kaikaris, co-founder of jobRely. “For instance, ‘10-year project’ has found in over 10 years tracked data in investment performance that solo founders do worse than teams; interestingly, teams of two outperform bigger teams. Also, you should consider your life partner to be your co-founder. Investors nowadays love the idea of a family-run business.”
Another reason that may be obvious but is not mentioned very often is that you can get an employee without paying them a salary. Co-founders may accept equity and a low, or even no, salary for some time.
How to hire a co-founder for your business
Hiring anyone is challenging, especially if it’s your first hire. According to entrepreneur and online marketing expert Neil Patel, traits to look out for in a potential co-founder are:
・Similar vision and values
・Passion or energy
GoStork approached jobRely a while back to help recruit a marketing co-founder. JobRely sourced 135 candidates and executed a campaign that generated tremendously high engagement — 40% responded, and after some chatting and screening questions, 13% agreed to an interview. One of them was signed within three weeks of the project start.
“To recruit the right leadership to your company, you need to first think critically about your unique needs based on your product, stage, and even management style,” says Eran Amir, CEO of GoStork. “This includes considering the type of professional who will help you reach your business goals but will also be a great cultural fit for the type of team you are looking to build.”
Be honest about the job you’re offering because you want the person to stay.
When is the best time to hire a co-founder?
Finding the right moment to hire is obviously important: Hiring too late might result in a weak performance as there’s not enough time to learn; hiring too fast can mean not enough money to share. But the earlier you start the process, the better.
“We suggest to start searching for a co-founder as soon as possible, get involved in active networking and look for the right-minded professionals,” says Kaikaris. “The chances of finding someone are especially good when unemployment is high, like nowadays due to COVID-19 pandemic. There are many people out there who may be a little more flexible than usual. I consider this to be a very favorable hiring opportunity.”
Don’t hire based on emotion or a feeling. If you are feeling stressed out and desperate, it might seem like you need help, but this might also lead to desperate decisions. Don’t rush. Finding the right person takes time, and the right person will take that stress away and make you both money.
There’s no need to romanticize a no-salary approach, which is not a mandatory exchange for equity. The situation might be that you need to get paid so that the work gets done altogether.
There are no strict guidelines on how much founders and co-founders should be paying themselves in salary, but some patterns emerge. Ryan Carey writes in 8,000 Hours: “If they go on to receive angel investment, [they] can pay themselves about $50,000 per year. With venture capital funding, this tends to increase to about US$100,000 per year."
Another study has found that with rounds below $200,000, around half of founders secure a salary. This was noted to increase to 73.1% when the funding round was higher than $200,000. So, the more you raise, the more likely it is that you will be able to draw yourself a salary from the business.
Focus on what a co-founder brings to your business right now. If they are the right person, then what you pay them is relatively meaningless because they will make your business possible.
A less experienced person with no dependents might be willing to put in long hours for no salary and a piece of equity. Meanwhile, a seasoned CTO with a strong background might provide the push that company needs but will probably not agree to no salary or a small amount of equity.
How to fire a co-founder
It’s not uncommon for paths to diverge. But making the decision to split is always difficult. The co-founder is usually the person who was with you the longest and is in it as deep as you are, so it might feel like more than just business.
Firing someone from their job is not the same as firing someone from the company you both built; if the co-founder has an operational role, he/she will no longer fulfill those duties but will not lose his/her stake in the company, which is a separate matter. So, if you have enough votes on the board, you can fire the co-founder from their duties but not from owning shares in the company.
The company has the right to let them keep their equity for some cash, purchase the equity back or buy the co-founder out. If they are pre-cliff, then they have no shares for you to buy. In this case, you can focus instead on paying out a cash severance to reward them for their help in getting the company up and running.
Standard vesting clauses typically last four years and have a one-year “cliff.” This means that if you had 50% equity and leave after two years, you will only retain 25%. The longer you stay, the larger the percentage of your equity that will be vested until you become fully vested in the 48th month (four years).
Vesting protects the co-founders from each other. All in all, the more paperwork you agree on in the beginning, the fewer headaches there will be at the end, and of course, be sure to enlist a professional to help you navigate your specific situation.