10 Tips for Co-Founding a Company

(aka avoiding the potential pitfalls of partnerships)

Starting a company is no small feat. While having a co-founder (or co-founders) to help get things get off the ground can be an INCREDIBLE asset, it does increase the number of moving parts involved and the number of things that can go awry if things aren’t aligned. It’s important to really put thought and energy into making sure things start (and hopefully finish) on the right note. Joining forces with a co-founder can be every bit as big of a commitment of as a marriage (and it may be end up being much harder to divorce your business partner).

  1. Is each co-founder actually ready to make the leap? Everyone loves talking about starting a company, not working for the man any more, etc. However, it’s really important to make sure that starting a company is something that everyone involved actually wants to do. And not just the exciting and fun stuff like coming up with a name or designing the logo. It’s about being sure that everyone wants to do the hard work and deal with the restless nights that can come with blazing your own path. While it’s one of the more rewarding journeys you can take in life, it is far from easy or risk-free. It’s important to make sure everyone involved understands what they are getting into and that their interest in starting something from scratch is real and not just hypothetical.
  2. You need to think about vesting schedules. Tom and Jane form a company on Day 1. They decide, because they get along so well and everything has been incredibly smooth so far, that they should be 50/50 partners. On Day 2, Tom decides that starting a new company isn’t for him. It doesn’t matter why. Maybe he gets a promotion at his day job. Maybe he finds out he is going to be a father. The bottom line is that life happens and things can change quickly. The question now becomes: Does Tom own 50% of the company? Does he own 0%? 10%? By putting appropriate vesting schedules in place for each founder’s equity, you can avoid tricky situations down the line and potential “dead equity” in your company.
  3. Who owns how much of the company and why? Figuring out who owns how much of the company can be more black art than science. Sally is contributing $20k in seed money. Bob is contributing his really cool software that is the keystone of the business. Mary is the one actually doing all the hard work (for free, no less) while Sally and Bob still have their day jobs (and salaries). So who gets what? The answer, as always, is “it depends”. Each situation is different. In some cases, the money may be more important than the IP. In some cases, it’s the exact opposite. Sometimes, nothing really matters aside from the sweat equity. It’s really about finding the right balance and capturing the relative importance of each person’s contributions while keeping everyone motivated and aligned. By having a sensible vesting schedule (see #2 above), you can dramatically mitigate some of the issues associated with these kinds of issues.
  4. What are roles and responsibilities going forward? It’s incredibly important that everyone is on the same page and have the same expectations for all involved. Is this expected to be a full time venture for everyone? When will Don quit his day job? Does Jill know that we need her to handle finance and HR for now? Does everyone know what their day to day duties are? It may sound simple, but it’s the everyday blocking and tackling that can make a major difference.
  5. What are the economics for each co-founder? Will there be salaries? Will we work for free until we are profitable? Each co-founder’s situation is different. For some, having stable compensation isn’t important while others will need to worry about paying mortgages and college tuition bills within a few months. Make sure that each co-founder has realistic expectations of what they will make (if anything) during the early days. When projecting when co-founders will be able to take money out of the company, be very A good rule of thumb is that it will likely take twice as long and cost twice as much to make half of what you expect to make.
  6. Who votes on what? In every company, there are little decisions and big decisions. Obviously, you don’t want to have a board meeting every time you take the trash out. However, there are some decisions that are so important that that each co-founder should have a voice in the process. What if we want to change the core business? Or invest $30,000 in a new website? Or sell the company? These are situations where it needs to be clear that one co-founder (unless he/she owns the vast majority of the company) cannot act unilaterally. When it comes to “big picture” items, the team needs to think about what sort of approval is necessary to take action. Does it need to be unanimous? Is 2 out of 3 good enough?
  7. Do you have the same vision for the company? This is simply common sense. If one co-founder has a drastically different vision for the company than the others, things will not be sustainable. Have a clear and explicit discussion about where everyone thinks things should be going before starting to work together. While it may lead to some difficult conversations (especially at a time when everything is flowers and sunshine), it will save everyone time, energy and headaches in the long run.
  8. What are your ideal outcomes for the company? This is a corollary to Number 7. If one co-founder wants to build a lifestyle business that she can hand off to her kids someday and the other wants to build a company that can be sold to Cisco in 2 years, things will fall apart before they can begin. While it’s not a bad thing to want different things out of life and business (different strokes and all that), it probably means you shouldn’t be starting a company together.
  9. Are you compatible and complementary? You don’t have to like each other, but you have to work well together. While you don’t necessarily want someone who is a carbon copy of yourself (in fact, it’s probably a bad idea), you have to be capable of a great working relationship where each co-founder is respected, valued and put in a position to do his or her job well. You are going to be going through a lot together (emotionally, financially, psychologically) so there needs to be a foundation of communication, trust and respect. That doesn’t necessarily mean you’re best friends, but it means you should be great teammates.
  10. GET IT IN WRITING. Honestly, this one could be Number 1-10. No matter how perfect or certain things seem on Day 1, it’s incredibly important to have a written agreement between the co-founders covering the relationship among themselves and with the company. What if a co-founder wants to leave? Or sell his shares? What if a co-founder becomes disabled or passes away? What happens if a co-founder steals from the company? What happens if a co-founder wants to start another company? While it’s easy to believe that these sorts of things will just “sort themselves out”, it’s these kinds of issues are extremely hard to deal with after the fact (think about asking your wife to sign a pre-nup after she serves you with divorce papers). In the beginning, you can pre-emptively avoid turbulence by having a roadmap and the right system of checks and balances in place from Day 1. While there’s no guarantee that things will be smooth no matter what you do, some of the major pitfalls can easily be avoided with a little bit of foresight and planning.

Every situation is different and there’s no cookie-cutter to solution to what an “ideal” partnership looks like. There’s no one right answer (and there are plenty of wrong answers), but discussing the nuts and the bolts of the relationship and being transparent/honest with each other about expectations can go a long way. Find great partners and go build great things. Just make sure that you’re working from the same blueprint first.

Ten Practical Tips for Raising Capital

Raising capital is one of the most important, stressful, exciting, anxiety-inducing and (hopefully) thrilling process that a young company can go through.  While every situation is different, understanding the process itself (and avoiding common pitfalls) is incredibly helpful in getting successfully funded.  Having learned plenty from guiding young companies through this process, I wanted to share what I’ve learned and offer as much practical advice as I can (with as little legalese as possible).  It goes without saying that this isn’t intended to be fully comprehensive, but I think the points below have some value for anyone going through the process or who thinks they will be raising capital in the future.  Enjoy.

  1. Choose the right structure for your company.  For many companies, this comes down to the timeless (and dull) “LLC vs. C-Corp” debate.  You’ll see countless opinions on the best approach but, at the end of the day, each situation is unique.  While some (but not all) investors prefer to invest in corporations, the LLC structure has some meaningful benefits as well (especially if there is not an immediate plan to raise capital).  Making a misstep at this stage is rarely fatal, but it may create plenty of headaches and hassles down the line.  Talk to someone who understands your goals, your business and can guide you through the process.
  2. Make sure the company owns its Intellectual Property.  If you farmed out development work, make sure the contract clearly spells out that the company owns the work product.   Same goes for founders, early employees or consultants.  Any important IP must be clearly owned by the company or sirens will go off.
  3. Make sure that your house is in order.  In addition to locking down IP, make sure your cap table is clean, you’ve properly structured the relationship among any co-founders, have appropriate vesting schedules in place and there are no potential red flags.  Look at your company through a potential investor’s eyes and clean up anything that needs cleaning.  In addition to making the overall process smoother, you’ll get bonus points for having your sh*t together.
  4. Know your company, your industry, your business plan and your financials.  If someone is taking out their checkbook, they will want to know that you’ve done your homework.  Be prepared.
  5. Be realistic about how long the process takes and plan accordingly.  If you haven’t started prepping to raise capital yet, don’t count on having investor money in the door next month.  It can take months (or longer) for new companies to raise capital especially if they aren’t located in a startup investor hotbed or lack close investor relationships.   Usually the best answer to “When should I start raising capital?” is “Right now and pretty much don’t ever stop.”  An important corollary to this is that a deal isn’t done until there’s a check in your bank account.
  6. Raising capital can feel like a full time job (and it pretty much is).   While raising capital, someone (i.e. you) still needs to keep the day-to-day business running.  This is no small feat considering the number of meetings, pitches, events and presentations it may take to get to your first term sheet.  It’s important to be mentally and emotionally prepared for this grind; as glamorous as the concept of raising capital may seem from afar, it’s typically far from it.  Get ready to work your ass off.
  7. To the extent possible, only deal with accredited investors (i.e. investors who meet certain net worth requirements).  Dealing with non-accredited investors can create a web of disclosure and compliance issues and your company likely lacks the resources to properly address.  That being said, if the choice is between dealing with non-accredited investors and going out of business, common sense dictates that you may have to take non-accredited money.
  8. Teach yourself the basics of startup investments and term sheets.  While an experienced lawyer or adviser can help guide you through the process, you need to know enough to handle yourself in a one-on-one meeting or negotiation with a potential investor.  There are a lot of great resources out there to help you understand term sheet basics.  Use them to understand the more important economic and control terms.  My favorite resource is Venture Deals:  Be Smarter than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson.  Well worth the time investment.  Knowledge is power.
  9. The only real definition of “Valuation” is “whatever number an investor is willing to pay”.  Projections are great, revenue is better but, at the end of the day, the free market decides how much your company is worth.  Unless there are multiple interested parties, it can be difficult to drive a favorable deal with an investor (especially if the company needs money in the short term).   Like an Ebay auction, the most effective way to get a better deal is to have multiple bidders.
  10. While a startup can’t always be super picky about who it raises money from, it’s still incredibly important to find the right “fit”.  Getting the deal done is only the beginning and you will likely be in bed with your investors for a long time.  Like any good relationship, there needs to be trust, communication and mutual respect (and not just dollars).  The right investor can bring more than their checkbook to the table and serve as a valuable resource for the company.  The wrong investor can be a nightmare regardless of the size of their bank account.  Sometimes you need to trust your gut regardless of the business terms.

​At the end of the day, the complicated process boils down to a few simple principles.  Be prepared.  Do your homework.  Work your ass off.  Have your sh*t together.  Surround yourself with the right people including advisers and investors you trust.  Make big things happen.

Best of luck.

 

Ice Bucket Challenges, Robin Williams and Taking Care of Each Other

I went to sleep thinking about the Ice Bucket Challenge and woke up thinking about Robin Williams, the way we sometimes do a great job of taking care of each other and the way we sometimes fall short.

To be clear, this isn’t a criticism of the Ice Bucket Challenge (which is 3000% amazing and I will be doing it tomorrow) or Social Media (which does do a lot of great things).  It’s simply a realization that sometimes there are harder issues that we sometimes let fall through the cracks because they are a little harder to face.

I thought about Robin Williams and about what his last few months, weeks, days and hours must have been like.  I thought about the tough relationship we have mental health and how it can sometimes be such a complex and challenging subject, that it’s easier to avoid altogether.

It’s a bit easier to hide these days.  It’s easier to project an ideal life between Instagram photos of brunches and sunsets.  It’s become a little too easy to feel like an engaged friend by hitting the “like” button.  It makes it a little easier to avoid life’s tougher moments and difficult conversations.

The stats on mental health, depression, suicide, etc. are alarming even before taking into consideration that these incidents are likely drastically underreported because of the stigma that surrounds them.

The truth is that we all have tough + challenging moments that we are scared to share with others for fear of feeling weak or vulnerable.  I’d even argue that if you haven’t ever felt moments of crippling self-doubt or insecurity, you haven’t been pushing yourself hard enough or getting the most out of life.    There’s a reason why they say choosing to be an entrepreneur is like voluntarily signing up to be manic-depressive.  The fact is that those tougher moments aren’t any more a sign of weakness or inadequacy than a broken leg or sinus infection is.  They’re a sign of strength and what makes us, as a species, perfectly flawed and wonderfully vulnerable.

It’s tough opening up when things aren’t great.  It can be even harder to reach out to a friend and offer help when you think he or she might be struggling.  We can make a video of ourselves drenched and freezing without feeling too exposed, but those tougher moment takes a courage and strength that we may only have on our best days.   But at the end of the day, we owe it to the one we care about and the ones we love to be open and vulnerable with each when it matters most.

Don’t be afraid to ask for help.  Don’t be afraid to offer.  Let’s take great care of each other.

4 Years in the Wild (Thank You All)

Today marks the 4th anniversary of my leaving the corporate world and my existence as a W-2 in the rearviewmirror forever.   It feels like that time has gone by in a blink of an eye.

I’ve learned more about business than any MBA program could have taught me.  I’ve learned more about life than any philosophy course could have given me.  I’m incredibly proud that the practice has gone from a kid typing away on a laptop in the basement at 3am to a grown man that can go toe to toe with the bigger firms in the region and not give up an inch.  My first “business plan” was a scrap of paper that just said “Do great shit” on it (and probably happened after a round or two of tequila).  Although it’s grown up a little bit, I’m proud that my practice has kept the same courage and fighting spirit.

Most of all, I feel grateful.

Grateful for all the clients who took a chance on me and let me a part of their success.

Grateful for all the colleagues and great people in Philly that took the time to help me when they had nothing to be gained from it.  I will always remember that.

Grateful for all the friends and family that supported me along the way and never tried to talk any common sense into me.  For those that picked up the phone at 2am when I need to talk things through.  For those who gave me the confidence and strength to keep moving along the road less traveled when it seemed too steep and rocky to travel myself.  I can’t thank you enough; you all have my heart.

Most of all, I’m grateful every day for the opportunity to help others take that same journey.  It’s far from simple, easy or certain, but it’s a journey of great beauty, self-discovery and reward.  Nothing makes me happier than getting to watch others do great things.

Thank you all.

Here’s to many more years of doing great things, breaking the rules and rocking Wu-Tang socks to board meetings.

Rawesquire is forever.

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3 Things I've Learned

I’m far from an expert but I’ve been through the fire of starting my own business from scratch and came out (relatively) unscathed on the other side.  I’m convinced that the only reason that this happened is all the incredible help I’ve gotten along the way.  There were clients who were willing to take a chance on me when my “practice” was just me running around with a laptop and equal parts ambition and determination.  There were mentors who took time out of their busy days and lives to meet for breakfast and pass along the lessons that they learned along their path.  They were friends and family who (thankfully) never tried to talk any sense into me and were supportive every step of the way.  The least I could do is pass along what I’ve been lucky enough to learn by osmosis.


1.  Being “busy” is not being productive and it’s very easy to confuse efforts with results.  When you’re starting a business, it’s easy to find yourself working ALOT.  But it also becomes very easy to confuse being “really busy” with actually getting shit done.  Sometimes the most insidious form of laziness is being “busy”.  Being busy can be an opiate of sorts.  It gives your mind something tangible to focus on and takes your thoughts away from the big picture uncertainty that comes with starting a business.  I remember spending about 8 hours worrying about the format for my blog.  Was it important? Maybe. Kinda.  Could I have spent those 8 hours actually growing my business (or, you know, actually writing blog posts or getting clients)? Absolutely.  But those sorts of things are hard and scary.  So I opted to fill my plate with something that was easy but didn’t really accomplish anything helpful.  I’ve learned to be more honest with myself about what I do with my time in the course of a day.  It’s a general habit of entrepreneurs to boast about the crazy hours they work; I would argue that it’s much more impressive to get a lot of work done in a shorter amount of time.  It took a LONG time for that to sink in for me (especially in a profession that bills by the hour).

2.  Relationships are about QUALITY and not QUANTITY.   Being connected to 1000 people on LinkedIn or having 5,000 friends on Facebook means very little if you don’t have that core of people you can call at 2am and know they will pick up the phone for you every time.  A fellow esquire that I have a tremendous of admiration and respect for told me over lunch (and apologies to him if I’m butchering by paraphrasing): “If you have 10 people in your corner who are fighting for you and truly invested in your success, you’ll be very successful.”  I thought about that a lot.  It sounds simple but it didn’t really strike me until later how rare and powerful it is to have those people rooting for you.  I’ve come to think of it as “You’re better off having 10 advocates, than a 1,000 acquaintances.”  Everyone knows a dozen lawyers, accountants, financial planners, salesmen, designers, social media experts, etc.  It’s easy for people to accumulate acquaintances, but how many advocates do you have?  Those relationships are hard work.  They take time.  They take energy. They take giving without expecting anything in return.  But your advocates will be more valuable to you than all the networking happy hours, business card swaps and social events you could ever attend.  Find your advocates and cherish them.

3.  Expect to succeed and, more importantly, be prepared for it.  Just when my practice was starting to get busy (and I was still working my tail off networking day and night), an experienced entrepreneur and I were discussing building a practice and how people he knew did a great job of building a lot of business but then got too busy to return phone calls, deal with customer issues, etc. and the product suffered.  It wasn’t his intent, but it scared the shit out of me.  I stopped marketing immediately and disappeared for about 3 months.  I spent that time focusing on my current clients and building an infrastructure that I knew would allow me to handle more clients and get much busier when the time was right.  Those 3 months saved my practice.  The takeaway is that whenever you build something (whether a service, a product or a company) you just can’t build just for today; you have to build something that will still be viable and work once things really get off the ground.  Bottom line is that if you’re not expecting success (and planning for it), you probably won’t achieve it.  Spend time from Day 1 planning ahead and investing in the things you’ll need to build something long term.

There are a 1,000 other things I’ve learned along the way and even what I’m written here is a gross oversimplication.  But those three things are what have been most valuable to me.  What it boils down to is simply “Value your time and energy.  Value your relationships, clients and mentors.  Value your vision, your values and your future.”  Do those three things well and everything else should come a little bit easier.