Business co-founders in tech startups are less valuable than they think
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My advice is to have this conversation with a potential business co-founder as early as possible to avoid wasted time. I could have saved myself months.
Look out for business guys who severely discount your value as a technical founder. Not saying they're all like this, but a really skewed equity split is typically a red flag.
With business idea guys, the tech guy could own 100% of the shares until business founder shows up with paying demand and repeatable and scalable demand.
The technical founder invariably builds and creates value in working software. It's tangible.
If the business / "idea" person over values their share it's likely due to knowing the mismatch to begin with.
Technical co-founders are perfectly capable of learning all aspects of business. Plenty of good books and resources out there at present.
If you assume the technical co-founder doesn't need to sleep or has a magical source of extra time, sure. But in the real world, failing to bring a product or service to market at the appropriate time can be the difference between failure and success. I certainly agree that a technical co-founder's knowledge is harder to replicate in the abstract (OP's story about a co-founder suggesting an 80:20 split is nuts) but trying to be a jack of all trades can leave you a master of none.
It's just that thing - getting the reps in to learn.
Not just a function of time, but picking the things that have a greater chance of helping you grow.
Depending on who you ask, one mark of a CEO is to be a generalist to keep everything moving, guided, supported, looking ahead.
The age of the specialist went away before covid. Now the generalists see patterns and connections between different arenas in similar ways.
It's all about what each of you are bring to the table. It's possible he priced the tech side perfectly AND being the best option available to make you better off.
They know nothing about building technology so are never in the right. This happens often enough that most startup accelerators pre-flag it as criteria to not invest in founders (with an out of balance equity split).
I’ve easily seen more start-ups fail because the technical co-founder got pedantic about something with zero commercial relevance than I have where the non-technical founder rolled over their tech team. Mostly because the latter fail early while the former can sort of look like it’s not a trash fire for a little bit longer.
As you say, the unequal split is a red flag. Not the direction it leans.
Can you think of examples of the opposite? There are a few variables here for technical/business/commercial and fail/succeed so I won’t write them all out, just curious what you have seen to be honest.
It's a broad over-generalization but it's a good rule of thumb. They must have access to demonstrable money and/or power before they're worth an 80/20 split, well above what most random business guys can bring in from even elite universities.
Edit: A decent somewhat recent example is Theranos. No biotech VC would touch them because they do due diligence on the basic scientific viability of their investments, but Holmes and her cofounder were able to bring in huge tech investors from family connection and even get people like Henry Kissinger on their board, who also helped them get more investors. That's the kind of connections that might be worth an uneven split.
https://news.ycombinator.com/item?id=43815768
>Agreed. The tough thing, though, is that it's (generally) a lot easier to spot a bad engineer than a bs "ideas guy".
>>It behooves everyone to be able to spot a narcissist, and that eliminates a huge swath of bad "idea guys" and bad MBAs.
But for random nobodies who think high of themselves, hell no.
If you want an unequitable split, hire an employee. If you can’t (or won’t), you’re not the hot shit you think you are.
When he asked why I thought 50/50 was fair, this pretty much sums up what I said. I'd be happy to take an 80/20 split with an industry insider or celebrity, someone who's guaranteed to attract buzz and attention. But he wasn't that guy.
Even then, I’d argue no. 50/50 to start. Performance-based options that get them to 80 if they deliver on certain things.
flip the negotiating table
But beyond that, a good partner might be one where you can first successfully try to come up with an arrangement that you would each be delighted with at the 50/50 point.
Without any adversarial attitude, what can really work is that kind of baseline, which can be negotiated away from, but also returned to without disdain.
There has to be a sense that each person at the baseline would generously actually be putting in 60% for the foreseeable future and love it because it was still an equal partnership and you were getting 120% accomplished consistently. Ideally you want to build consensus not by trying to limit contributions to keep from putting in too much, nor valuing other contributions for less than they are. When it is 50/50 it's more likely to be harmonious when both partners step up to the plate simultaneously and try to put in more than their fair share when needed, and see the other partner as an over-contributor just like themself.
Like what if somebody thinks they're hot and can raise a million within one year, or less if you have something tech ready to deploy? Or they say they can sell your product through the roof. You could make that a contingency they would be proud to achieve or they would have to understandably not be up to their share. If you came to a tentative agreement like that, that you were both very happy with at 50/50, all you would be doing next is planning to "start your engines" soon.
If the potential partner comes back a couple days later with a $4 million commitment within a month by selling some property or something, and it's for real, you will probably re-negotiate. The contingency would be over in a month then, and you would be flying. This wouldn't be too bad if it was non-adversarial from the get-go. You could end up at something way different that's quite fair anyway.
Remember each engineer is worth a million in the right situation, now with their $4 million it's a 4:1 imbalance, so 80/20 might be easy to migrate toward then so you can still go forward.
It's worth anyone technical's time to build skills in strategy, marketing, finance, etc. The technical co-founder always gets screwed and suffers from a general lack of respect. In my opinion, it's usually unwise to take positions where you're strictly the technical co-founder, or where you're marketed as the same.
This leads to jack-of-all-trades types. Good non-technical folk exist. They’re just not easy to find for obvious reasons (same as good technical founders who can see the forest for the trees).
A good technical founder dilutes their comparative advantage e.g. negotiating with suppliers and prioritising payments ahead of a close.
Obviously good biz guys somewhat mitigate this but finding those is easier said than done.
I’d love to see the data. Most start-ups fail. For any given category of founder, there are therefore more stories of disasters than successes.
Anyone who’s worked as an engineer for awhile knows that ideas are a dime a dozen, they are rarely unique, and are about a millionth of what needs to be done to succeed
EDIT: I say this as an engineer who is putting his notice in tomorrow to found a startup
EDIT EDIT: Thanks guy, this is along the lines I'm thinking. I'll be competing with companies like Asana, Monday.com, and ClickUp. I worked in a consulting environment for two years and these tools could never be adopted despite the org size growing to 1000+ people in my larger team. It was a big pain point and I think I've built a solution that will help big time.
This movie probably caused double or triple digit millions of wasted investments by small business owners when it put the wrong idea in to their head.
Of course a lot of things need to right, beyond that point. I use the patent rule as a guide to make sure that the right people get credit where credit is due, when an idea reaches the market successfully.
A semi-related thought I've had recently:
I've run into a number of non-technical product people that say that they're primary skill is that they have a great "product sensibility" that engineers lack so they need to step in and provide guidance. It's true that many engineer-designed products are terrible, but I'd argue that most engineers have pretty good product sense.
The problem is that engineers have a conflict of interest that leads to them making sub-optimal product decisions. A non-technical product person gets the "luxury" of only thinking "what is the best product for the user?", so they end up with a good design. But an engineer can't help but also factor in "i'm the one that has to build this, so how much extra work am i giving myself?" so they're design will be a compromise of what's good for the user and what can be built easily.
this can have big consequences for how an org should divide work. If somebody has a broad set of responsibilities, they can't help but make tradeoffs (that they might not even be cognizant of) because they're weighing multiple objective functions.
So, when it comes time for figuring out who should be in charge of strategy, it might not just be an issue of "who's better" but more an issue of "who has the least conflict of interest"
I’m guilty of it all the time. What helps is remembering that absolutely nobody gives a shit about the code or the architecture. Nobody. It really doesn’t matter. They just want an awesome product.
(Which isn’t to say none of that matters, because it does. We are engineers and know the consequences of shitty technical decisions… it’s just that you have to pull yourself out of that mode when thinking of what needs to be built)
The programmer on call at wee hours in the morning gives a shit. Good news though, that programmer will not be a problem soon enough. You can hire your way out of this problem after they quit.
If there is no competition, money is nearly free, and you have all the time in the world, sure. If any of those isn't true, you probably want a reasonably well architected codebase so you're not spending 3X the salaries and 3X the time to build things as you would've with a well designed codebase.
> What helps is remembering that absolutely nobody gives a shit about the code or the architecture. Nobody.
We could easily say the same about anything. Nobody cares about the engine in their car either. Except they do, because it affects things like whether they can get from point A to B, which is what they really care about.
Same with code and architecture. It "doesn't matter" but it does, because it takes you from A to B at a particular speed and cost.
Every feature, design decision, and iota of technical debt are money and time. Either that's raised and spent up front, eating at equity, or it is deferred until a point where revenue pays for it, it is redundant due to a pivot, or becomes so essential that new funding is raised (possibly from a pool that doesn't dilute so much value).
Presenting an accurate and fair cost / benefit analysis of these tradeoffs (at least on the technical side) is the main purpose of a technical lead. Non-technical business people can't get that information on their own. They should have a say in the decision if it materially affects the product's launch, but that's the normal give and take.
The PM/Strat component is like a fifth or tenth of the tech work, typically. Every product design decision often has a magnitude more of associated implementation work. The only way i'd go with this setup is if the PM/Strat person if one of these things:
- PM/Strat person already has customers lined up
- PM/Strat person has paying partners lined up
- PM/Strat person has had exits with associated aura
- PM/Strat person puts in upfront $ to compensate the tech person
- PM/Strat person takes a way lower equity
I wonder how many startups have failed because the tech has been too much of a pain in the ass to maintain and the technical staff burns out and leaves, with more and more expensive developers postponing leaving till as late as possible and doing as little as possible
I don't understand why Europe loves MS so much. Teams as far as the eye can see....
What about "what role needs to be done the most at the time?"
>sometimes I'm legitimately better at the strategy half too
Technical people should be eager for more business responsibilities than ever before starting a business.
If it's an "engineering company" ideally you would have two founders each having outstanding technical abilities, and far exceeding anything a non-technical alternative could bring to the table from a business or sales aspect. To begin with if you want to start a business, you need to be the kind of engineer that wants to build sales in some way or another. On the front lines and/or in the background.
And to be real one of you is going to have to go full-time into sales & marketing to pursue some type of cash flow until things get rolling in some way. At least.
Then you can more sensibly consider having the non-tech MBA type come in under the top engineer who has been successfully selling already. And that's the beginning of a chain-of-command where an "engineer" is never hired or fired by anything other than an "engineer". And there's always an engineer (sharp in business, not lacking anything needed) at the top of any non-tech hierarchy by design.
Non-engineering companies where the non-tech-types dominate the hierarchy, can still have decent opportunities for the engineers they hire to work on projects under them. But there may not be as much room for upward movement or appreciation for outstanding skill up and down the line. Might also be more often found involved with financial irregularity, or more commonly non-fair dealing even with some of their own people sometimes.
Steam had a flat-management structure and Engineering driven leadership from its outset. I'm not sure there's many other that can survive the VC landscape where customer focused design is seen as something between over-engineering and altruism.
Sounds a lot like what comes up when you google "Rick Rubin meme"
OTOH, I regularly come across great engineers who seem bad at picking projects, and who don't seem to get any better at this over time.
Selection bias from there being too many avg UI open source tools?
Engineer-designed = low budget = no expertise on UX etc.. but product fulfills their purpose.
I notice that the only truly great open source products all have some kind of benevolent dictator at their helm
People often complain about developer salaries. I wonder how they can justify suits’ salaries
If they're so confident in their value they should just find some money and pay for the development of the product to a freelancer or employee.
imagine the chutzpah
[1] https://www.ycombinator.com/library/5x-how-to-split-equity-a...
I would have been tempted to take the idea, partner with someone else and run hard with it in spite.
I can't stand people with this mindset, and it's fair game if that's the cards they want to play.
We discussed partnering up, and when i mentioned a buy in or 10% equity split (with no buy in) or some combo of the two, he backed off pretty quick.
Turns out he expected something around 40%-50% with no buy in. To me this is just unintelligent? Especially from an MBA.
My dad got his MBA in 1959. When I was younger and considering one (I moved out of day to day tech work a long time ago because I wanted to "fix" the business problems I kept encountering because of their negative impact on the tech work), we reviewed curricula for several programs.
My dad was pretty astounded that in the wake of globalism and technology, they were still teaching the same tired-ass theories that he was taught in the 50's. Note that this conversation wasn't all that long ago in the grand scheme of things.
I get that this is a vulture capital site but all one has to do is look at what is happening in the world (Bain capital et al) and you see that all they are really teaching/practicing is wealth extraction, not wealth building.
Edit: sorry, my dad got his BS in 1959, his MBA in 1962.
Curriculum usually includes things like pricing; applied microeconomics; power & politics (ie how to get the org to do what you want), business ethics, some intro to corporate law, oftentimes electives that are deeper dives on how specific industries are structured.
My wife got an MBA at the same time I was working on founding a startup and they are basically completely disjoint skillsets. If you treat the MBA as training for how to be the hired Director/VP in an established organization and not the person who wills it into existence in the first place, it can be a pretty interesting curriculum.
You would know better than us, but I dont think of 10% as a partnership. Maybe they just thought they were going to get a killer deal.
Not sure if they approached you, or vice versa -- but people often approach with deals like this because they are trying to find suckers who they can dupe. And sadly, they find them.
I've seen a case where a company was started by a very small, relatively inexperienced team, and then had 2 much more experienced "business people" join later. These 2 business people were actually given "founder" credit and equal equity stakes, because it was clear these folks would be integral to the success of the business (and, indeed, in retrospect, they were, and the business became quite successful). I point this out because it's an example were the addition of some later stage business people does deserve large equity stakes. But given the original commenters history (e.g a previous large exit), it doesn't appear that's the case here, so it doesn't look like he needs a partner to begin with.
Regardless, I’m just trying to work on making progress day over day. It’s fun, and a real business, so good problems to have.
I think getting incentives right is the hardest part of business, once you find any initial traction. It’s less sexy but i agree, finding good employees and contractors is the next step from here.
85% margin gives $27k a month or $326k a year before taxes.
Was he going to work on this full time? How does he replace a reasonable salary otherwise?
Of course, I would expect this to be over time (say, linearly over 3 years) and subject to hitting growth targets.
50% margin share would be $163k/yr pre-tax.
He’s could be taking a significant pay cut and only assigns a moderate future value to the stock, eg, 1% of 50M exit and 10% of 5M exit with 50% ownership is only $500k expected value. Amortized across several years of pay cut (eg, 5 years to exit) you’re looking at $100k/yr “bonus” on $160k for effective $260k/yr. (And that’s assuming no dilution events!)
I agree expectations were misaligned so a bad partnership — but the ask doesn’t seem particularly crazy.
I'm going to assume that either A) there is no growth without this partnership, so the startup is maybe worth up to 1M, in which case getting up to 40% over 4 years with work and targets makes sense, or B) the original founder is expecting significant growth even without the partnership, in which case he needs an employee and not a partner (and he should pay him as such).
Yeah, I stopped all contact that same day. That project never got launched.
I've gone to some of these just out of curiosity and it seems like people on the hunt for suckers. Having been thru this myself and seen the drama play out with friends from back in the dot-com days to now --
CO-FOUNDING IS LIKE MARRIAGE You cannot just match to someone. There has to be a low-stakes dating period, an engagement period, and then "marriage". You have to be able to walk away early on w/o extensive entanglement. The best co-founder is someone you've known for a long time in various semi-tense scenarios, where you can evaluate their ethics under pressure. This ideally means having worked together or done many projects together.
The latter turns out to be a much more effective way to build power and influence.
Not in this case as it seems he didn't get the outcome he expected.
I'm constantly approached by "business guy" with deals like this. Here is the truth -- even 50/50 isnt enough because technically, the tech-co-founder is often doing all the upfront work and taking all the upfront risk. The business-co-founder gets a free option to do work (or not) afterwards. All upside and little downside.
IMHO good business co-founders are worth gold and make their worth obvious. They already have POs lined up, they have partnership agreements already in the works, they have VCs willing to invest based on past performance. Perhaps they already tried the business with some overseas teams doing POCs. Perhaps the business co-founder already has exits or a successful business and is willing to pay the tech-co-founder some nominal amount to show skin in the game. Those are all good signs.
If those arent the case, and the "business-co-founder" is sitting back while the other is hard at work coding a prototype -- you dont need a co-founder. Just be the CTO+CEO and hire the "business" work yourself!
In the absolute worst case, i've seen a "business-co-founder" continue to push the definition of MVP more and more and the "tech-co-founder" seeing the sunk-cost of the work they have put in, continues to ever-expand the MVP. Meanwhile the "business-co-founder" gets months or a year of free labour with a free option to participate -- or not.
Sales are important, but are a bit of a crapshoot. You can't consistently sell trash, no matter how good a salesperson you are. The guy was happy to roll the dice, while using your mental energy. Great deal for him, but not so good for you. You risk the burnout, stress and pressure, while he feeds you requirements and deadlines, and essentially becomes your manager.
In my younger days I got a lot of similar proposals, but thankfully could see right through them from day one. Bootstrapping as a solo founder was the harder, but ultimately more rewarding route for me.
80/20 is an insane proposal; 50/50 feels reasonable, but I 100% agree with you that the technical side is way more crucial than the business side, since under $10m in ARR your biggest issue will be making the tech work well enough to attract customers.
Yes, it could be one of the things you bring up on the very first talk you get around this, and it's much easier to do it early than anytime later.
"Hey, this thing you're telling me about, do you want my opinion or are you telling me because you want me to be a part of it?"
(if: want to be part of it) "Nice, have you thought about how much each one of us will get? I always prefer to do equal splits."
If equal splits or very close to that I might do it. If not, the deal would have to be exceptionally good from the start, e.g. "we'll give you 10% of a post Series A company that is already valued at XX million".
I think Sturgeons law applies to co-founders, and if you haven't spoken to at least 20, you are likely talking to the crap ones. Not all crap ones demand excessive compensation, there are other types of crap. But there is a huge difference between the ones that will be good for business and the others.
The ignorance comes from lack of experience and it happens often on both sides.
Engineers think they deserve a big equity package for writing CRUD apps.
“Businesspeople” with no startup experience, never raised money and never worked in sales think they have value.
If both co-founders have no prior startup experience then they both need to put in the same amount of money and split equity 51/49 or 60/40 (while considering dilution).
No once can build a meaningful company alone so you need to have a team and that team must have a servant leader willing to break ties.
It’s only inexperienced people that don’t know / understand this.
The fact that you spent months refining the idea and building out prototypes is irrelevant or even detrimental to your position. In fact it may have represented a delivery anti-pattern depending on how far along you were to realising your value proposition as a product. Engineers to build MVPs are a dime a dozen. Why were you wasting time as an individual contributor when positioning yourself as a (co)-founder? Why would a prospective C-Level Business Strategy Leader see you as anything other than an Engineer with a MVP and no GTM, previous exits aside?
This is a common scenario for those who frame themselves as 'Technical Founders' - they end up being perceived as a cost-centre incapable of realising any sort of a GTM strategy, and as such are equity-weighted accordingly.
I guarantee you this was his rationale.
There are a lot of business and tech guys and most of all of them are pretty clueless when you randomly meet them in "gatherings".
But a valuable business co-founder brings extensive domain expertise, a network of people, sales skills, management skills, and fund-raising talent.
There's little point in arguing who is "more" valuable -- the business side or the tech side. They're both critical to have.
For some reason, this post equates the "business side" to the person with the "idea". But that's a strawman. Having an idea doesn't make you a "business" co-founder. Being a business cofounder means having a experience and talent on the business side of things. And a good business co-founder generally doesn't have a lot of trouble finding good tech people, because that's one of those business skills that they're good at...
However, for non-technical folks that are on the market, the distribution is worse. Only the top 10% ~ 15% actually have sufficient abilities to pull it off. The remaining fall into the archetype I wrote about here.
The caliber for what's in the market is skewed thus the technical person has to be a whole lot more picky than the other way around to avoid ending up with a dead weight.
[*]: This excludes specialized skills like Deep Learning or chemical bio-engineering, etc...
For stuff like this I recommend the book, May Contain Lies by Alex Edmans, he does a fantastic job explaining how most of the time we seek data to confirm our hypotheses, instead of seeking a hypotheses that confirms our data.
1. Pitch to and recruit team
2. Find potential customers
3. Build product
4. Sell product
5. Improve product
6. Scale sales
1. Success is very little on the idea, almost entirely on the execution
2. Execution has both a technical side and a business side, and can fail from a poor execution either way.
How this applies to your target audience:
You have an idea for a business? Nice -- that's almost worthless (1). You can't influence execution on the technical side, so you need to bring execution from the business side (2).
I like the numbers -- "a waitlist of 1000 people or LOI from 20 businesses" gives a better idea what kind of execution a non-technical co-founder should be capable of.
It can mean management skillset.
It can mean people-networking and sales skillset.
For an early-stage startup, the former doesn't bring much value (management value literally scales with employee count) while the latter absolutely does.
And that's where I took issue with your post -- that you are lumping all these people as "business co-founders".
That's false. To call yourself a business co-founder, you need to have the same kind of business and management chops as a technical co-founder has technical chops.
Your post seems to be complaining about co-founders who are just idea people who don't have any business skills at all. It's misleading to call them "business co-founders". You should call them "idea co-founders" or something.
A valuable technical cofounder brings the skills to literally create what you're trying to sell. Otherwise, have fun selling dust. Or networking to sell nothing.
The "0 to 1" here isn't "no management to management" it's "not having a product built to having a product built".
You’re saying that there’s no point in having the skills to actually do something (building a product), unless you have someone derivative skills as well (all the business things you state).
That really comes off as trying to justify the business cofounder. I can build independently. You can’t build a team (which I can do), market (which I can do), sell (which I can do), or refine (which I can do) independently.
>> You’re saying that there’s no point in having the skills to actually do something (building a product), unless you have someone derivative skills as well (all the business things you state).
yes, with the proviso that the "someone" might include yourself.
>> You can’t build a team (which I can do), market (which I can do), sell (which I can do), or refine (which I can do) independently.
If you can do those things, then great, you have the "someone" you need.
But, it's fair to say that most techies do not have those necessary skills. As evidence see the endless stream of question in the "Ask" section of HN trying to get advice on those activities after the product is built.
So the point is not "There's no need for a business founder". The point is that to have a business all the bases must be covered, and you need as many people as you need to cover those bases. Sometimes it's 1. Sometimes it's 2. Sometimes it's 5.
The most common successes have 2 or 3 founders, but that don't make the other numbers impossible, it's just a trend. Which makes sense - the more hats you wear, then less time you have to devote to each of them.
One can have 3 technical cofounders but the paperwork still needs to be done and someone has to do it.
Everyone on the tech side has this experience. “I just need you to build the software”
Either I have a talent for the business aspect or I am just a tech guy with a lot of luck, but I invest time into my products not marketing and still get what I want.
I'd argue that you need both guys. But that both guys can be the same person. It's just uncommon that they are the same person. If you have both sets of skills, then you can do it alone.
A tech guy, with little to no business acumen will fail just as easily as a business guy with no technical acumen.
Whatever labels those individuals have isn't generalizable enough to form into "thou shalt"s.
And as the article put it
>> equal partners who trust and respect each other deeply
is probably the key.
Is everyone bringing valuable skills to the table (that others aren't) and does everyone respect and value what their co-founders / counterparts are doing?
Yep.
I tried doing startups with a few ideas. I can easily code all day. But then, when it comes to doing all the secondary stuff, like filing paperwork for an LLC, marketing, networking, and so on, that stuff was "painful" to me, as it took some of the fun out of the whole making things work.
You could have a good idea, but without a strategy to let people know about it, even if you build it, it may never get used.
I've found across industries that the technical guys typically have more domain expertise given equal time spent in that industry with way too many examples to throw in here down to entire factories being known better from just about every angle (bar the nuts and bolts) by a single senior tech guy than the actual owners and sub domain mangers. Just because he and many other technical guys in the other examples had to understand the problems in depth to develop for them and abstract them away for the managers, accountants, ppl running the machines, etc
The sales skills can matter a lot especially for b2b but it's not a given that these (along other people skills) aren't possessed by the dev. I tagged along trough a ton of the studies of my girlfriend as she studied international business management... and as far as practically useful stuff goes it honestly didn't go that far beyond what we got taught in our company management course when studying compsci.(other than things like statistics with spss and the like which they seemed to almost collectively suck at.) All it gave me was a sense of wonder at the amount of buzzwords and cargoculting in that sphere outside of the usefull stuff.
Don't get me wrong. There's technical guys that are bad at these 'people skills' and/or have no sense of popular aesthetics that makes their ads entirely ineffective or can't manage themselves so even your mentioned "management skills" would be usefull in a 2 people team, etc.
But if a technical guy is somewhat naturally competent on these fronts... or where they're lacking they could have a technical cofounder that completes them and they both keep eachother accountable... Well then i'd put my money on them rather than a technical/mba cofounder couple.
I've bootstrapped and sold two startups, first time with 5 (!) equal cofounders and second time with 3. I've learned a lot along the way, obviously some of that through mistakes of my own. Have my cofounders been perfect? Heck no -- one lacks the same level of drive, the other is less trustworthy (always multiple irons in the fire kinda guy). But we all have strengths, are all generally better off together, and have the combined skill set to run super lean. Even if you think you can do some things better alone, you can never do it all, and that grind will take quite a toll.
Related: over the years the topic of going into business with some of my best friends has come up, and I always say I would never do that. Running a fast-moving, high stakes business with multiple founders involves a lot of tough conversations and occasional relationship strain. My business partners are business partners first, friends second, and I think that's important to consider if you really value a friendship.
For those reasons, the best business cofounders in my experience, are former salespeople (for b2b startups), demand generation marketers (for b2c), and product managers.
In reality there are four critical skillsets (outside fundraising) for a new tech venture: Operations, Sales, Product, and Engineering.
I've seen plenty of startups with a heavy focus on product and engineering flail about because they suck at operations, product, or sales. The harsh truth is your CEO better be excellent at one of Operations, Sales, or Product, and your CTO better be excellent at one of Sales, Product, or Engineering. And if your CEO isn't competent at operations, you're going to need someone who is. Dealing with HR, accountants, investor relations, lawyers, contracts, HR, and all that stuff is a big job that's hard to completely outsource.
Overall, if your founding team isn't at least competent in all four areas, you've got a gap that will be difficult to fill unless one of the founding team is willing to step up and learn that area fast. Sales (or marketing, for consumer apps) might be the exception, because in my experience everyone on the founding team will wind up needing to learn it early on.
When it’s just a couple founders in an apartment, there are really just two key skillsets you need or want: sales, and then engineering for a tech-heavy startup or operations for a tech-lite startup. Product is a distraction at that point: the product will emerge as you talk to and acquire more customers. It’s very helpful if the sales cofounder has a keen product sense so they can scale up the company as it grows, and it’s helpful if the eng/ops cofounder is pretty fluent in the other competency. But buttoning down operations at a company whose primary product is software is usually a waste at the founder stage; things change so often that anything you systematize becomes obsolete. And great software for a company whose primary product is an app or website that requests some manual, physical work is also often a waste.
As the company grows past a few dozen, then you need to get the missing core competencies that you mention.
Especially on the operations side, I think engineers underestimate the amount of stuff there is to do. Have a distributed team? Welcome to state taxation hell. Have some pilots? You're going to have to deal with a lot of NDAs, cooperation agreements, onerous contracting requirements, building trust by connecting advisors (but not using them too much), etc. Mess up your banking and miss payroll? Your best employees will leave. Fail at reference checks during hiring and hire someone who results in a sexual harassment allegation? Your investors will have your head.
I think you're also misunderstanding what I mean by the product skillset. There are plenty of founders out there who can write amazing backend code, but couldn't deliver a usable product to their customers if their life depended on it. Sometimes that's ok, but most of the time being able to deliver a useful product can work even if your backend engineering is lacking -- not so the other way around. Ideally your technical co-founder can do both, but sometimes, especially when all the founders are engineers, a product-oriented CEO and an engineering-oriented CTO can work really well.
While sales is important, it really should be all the founders learning it, and good investors will go through great pains to help, either by sending founders to "sales school", recommending specialized advisors, or even pitching in themselves, using their connections to get you in the door at "big logos". In my experience, having a founder whose primary skill is sales can either be a positive or negative, depending on what else they bring to the table. If they bring nothing else, it's usually a negative.
It's the early-founder stage, where you're still proving out an idea and verifying that people will use it and likely will have to pivot several times, that I think sales + engineering (or ops if technology is not your core competency) is key. The advantage of having a really good engineer over a product person is that a really good engineer can "hit the high notes" and deliver a product that most ordinary people assume is impossible.
For one example, the article says that some of the best value that a business co-founder can contribute is disproportionately building the relationships. But those relationships can be more connected to the business cofounder themself, than to the company.
It's a bit different for the technical co-founder, since your perceptible contribution is usually IP expressed in in artifacts like code that is owned by the company, and can't legally be taken with you.
There's also the perception of the value of that IP: much like a novice programmer might think that most of the value is in their own software/knowhow/grind/brilliance, the novice business person might think most of the value is in their own ideas/leadership/network/hustle/brilliance.
The business person might also perceive the technical contribution as being commodity skills, and ones that can increasingly be done by "AI" robo-plagiarism for $20.
So, if the business person is, say, having second thoughts about the 50/50 split, they can make a backroom deal with investors to cut out the technical cofounder, or bring their new relationships with investors and/or customers with them to a different (or 'different') startup.
Obviously, one defense is for the technical co-founder to somehow be a superhumanly valuable non-commodity, and to make sure that the business co-founder understands that.
But, realistically, doesn't the technical co-founder probably need a lot of trust in their character and commitment of the business co-founder? Maybe even more than vice versa?
(Source: Was one. Many people were trying to fund you, sometimes without you even asking. And you couldn't go to a student party without some Sloan or HBS student zeroing in on you, and wanting to talk with you.)
This can be a legal agreement or built in protections via copyright law.
Same as any author who produces work that others can profit off of in perpetuity, don't sign your built in protections away.
All the code IP protections mean, in this regard, is that the technical cofounder has less value comparably tied to them personally.
The other subtle thing I take issue with on this is: What relationships, exactly? Most of the time I've seen this surface as a few early customers you might not have otherwise gotten, which is great and necessary, but IME that well runs dry pretty quick, and those customers oftentimes don't stick as well as ones that were found on merit. A better relationship with vendors? Again, weird, merit should trump that personal relationship.
If you're building a business that relies on a small number of very high value contracts, I think I could see a world where having a foot in the door on those high value customers is worthy of elevating the body that foot is attached to toward Founder. That isn't, generally, how most software companies sell software though.
- Have ability to gain hard-to-obtain relationships in the beginning
- Have ability to grow the pace at which you gain those over time
It the beginning it will give you the money to play the game long enough (ie: customers and angel investors). In the short term it help tremendously in deal-making, fundraising, enterprise sales, hiring superstar employee. In the long term, you can broker insane deals like OpenAI convincing Microsoft to invest $10B and bet their AI future on you or get acquired.
PS: Microsoft is now backtracking out of that situation, but Altman convincing them to get in bed in the first place is very impressive.
If you get a list of all the startups that got acquired or IPO in the last 10 years, you will find it's extremely rare the technical co-founder is still around. The staying rate for CEO is like 99% while the staying rate for CTO is more like 50% (making up numbers here but this is directionally right).
With enough scale, a great CTO can be hired for the right salary. The way I answer this for myself is two-fold:
1. I've vowed I will never be the second chair guy because I don't wanna get pushed out.
2. It's important to up-skill yourself so you can contribute more value than a glorified engineering manager by driving vision, being a headhunter of superstar engineers, among others high-value skills
You can only look at past actions. Even the self-proclaimed "most ethical" people change the moment there is money on the table and their hired professionals are telling them to take as much of it as they can get away with.
The incentive from the CEOs perspective to remove a contender as well as claw back the equity is huge. Early stage the CTO is the most critical, but after real traction they can be replaced far easier than most want to admit.
My advice for technical founders is to always place themselves first, from a legal and organizational perspective. For a technical founder with social skills, a non technical founder brings very little value relative to their vesting in the early stage.
If the technical founder can be replaced so easily, how does it follow that the non-technical founder is less valuable?
Getting the product to some level of completion is a monumental lift
Because at that point, you can raise VC cash and hire for the job instead. The idea has been vetted. You can theoretically even rebuild the entire codebase from scratch just looking at the existing app. The CTO should maintain equal voting rights for as long as possible
If you know about more to read about that, it'd be interesting
Of course, the person building something from a vague idea to life wields magical power, but the other aspects of business are more so important.
As an engineer myself, I can see 500 ways I can improve things at my employer’s business, but while I have a technical vision, the non-technical founders of the business has broader picture and what I may wish to spend time optimizing might just be a pocket change issue not worth solving.
We technical folks undermine the mountain of difficulties of marketing and sales as well as interacting with people to convince them to part with their money. Of course, I have seen a fair share of over confident wanna-be founder who would just be next trillionaire if someone would build the 10000th Airbnb clone but for pets so they could sell it and give 5% equity to the builder because their idea was the main thing, but in broad sense of things, tech is just a means to an end for a successful business and simply building is not the 100% of execution step.
Having a tech founder that can't talk to customers or a business person that doesn't understand what the company makes or sells is not a great recipe for success. That's two people that probably can't even talk to each other. That's not a team.
I've learned the hard way that being a CTO means I need to talk to customers and it's one of the more important things I do. There's nobody more qualified in the company to explain what we do and how we do it than me. I don't initiate the meetings and I don't close the deals but having access to me is an important part of the process. It reassures the other side that we are bona-fide, can actually solve their problem, and they'll often do the same and bring in operational people on their side in follow up meetings. Once you have direct lines of communication like that, it becomes a lot easier to close the deal.
Also, being exposed to that means I learn what customers need, want and expect. No ivory tower is going to produce that kind of insight. It allows me to adapt to what is needed rather than me trying to imaging what it is they might need based on whatever filtered down version I might get from a business person. There is no substitute for first hand information.
And that works both ways. Business people without a connection to the product aren't very useful. They'll try to sell stuff that isn't there and they'll undersell stuff they don't even know is there. I've seen both happen. If you sell something that isn't there, you set up a deal for failure. You are misrepresenting the product and that's going to cause disappointment. If you don't sell what's there, you shoot yourself in the foot. Especially if it's something the customer would have liked to have. But business people are great for validating product ideas and trying to imagine how the business side would work early on is a good idea.
Investors always encourage it because it reduces their risk... One of you can be fired and they still have the backup. But when it is all on you there is no passing the buck.
Source: solo bootstrapped founder of a company earning $1,200,000 a month for the last sixteen years.
The reason is reduces their risk isn’t firing 1 cofounder, it’s that “When you want to go fast, go alone, when you go far, go together”. Building a business is tough. Most early stage startups fail because the founders simply burn out and give up. Having a buddy you can lean on helps. It also makes it easier to realize when you’re digging down the wrong hole and need to change strategy.
Then you want an employer/employee relationship, not a cofounder relationship. I would run, not walk, from a company with a founder arrangement where some subset got "the lion's share" for reasons like this.
If you’re going to de-value the role of somebody who can do what you can’t, be prepared to get called out on it or brushed aside without explanation because you blew it. Harsh but true. I know this because I worked sales support with technical people and not technical people in high stakes business relationships.
This is why startups don’t hire people like me because they don’t value what I do and frankly I’m okay with this mutually dismissive relationship. This forum is a frequent reminder of why so many startups are unsuccessful.
- the ability to execute
- having drive, focus and flexibility to adapt
- being able to manage a team and keep it focused, motivated and on track
In a perfect team the business founder has a very good understanding of the tech side and the technical founder a good understanding of the business and marketing side. Product is nothing without sales and sales nothing without product. Despite this being obvious I have seen several companies fail on this.
Last not least it depends on the product. The more complex the tech is the higher the share of the technical partner should be and vice versa the more specialist business domain knowledge is needed, the higher the business partner's shares are.
How do we define what execution looks like?
As a general rule we must be wary of “business cofounders” who sell pontification as execution.
If they don't have that, walk away, this person has no value.
I have seen people who would not be able to set up and manage a hot dog stand and yet they were trying to run a business with 50 employees. The only result was burning money like there was no tomorrow.
- Previous exits
- Previous successful business
- Bringing 1-3 potential buyers to the table who can define what is needed and what they would pay, ideally clear "if X then i pay Y"
And even still, sometimes things get built and never turn into a real business precisely because of this hubris. And 99.9% of the time, the ones that DO grow over time would have grown much much faster if "the business guy" had been there all along.
They are much more "I give the ideas and I want to keep 90% equity and you shut up and listen to me because I'm the CEO" guys.
And a good business person is worth their fair share of equity in a SU environment
The reason, I tend to think, why business-focused co-founders might be less valuable than tech-focused co-founders in a tech company is, in my experience, that all founders surface their own biases in how their companies are designed based on the comfortable experiences of their past; and you need those biases to lean toward the tech in tech companies, because tech can automate anything per the previous paragraph.
I've seen this surface subtly: "Yeah, Stripe integration to take money makes sense, but its just not a priority right now. Sales can handle invoicing." (it never becomes a priority because once you give DepartmentX that responsibility they'll fight to defend their turf).
I've also seen it surface less subtly: A VC-backed software startup with mid-eight figures of funding, all the investors thought the company was selling software, but it turns out the salespeople were never trained on that, and were instead told to only sell white-glove services, using the software, from another department. "Bigger contracts" etc. Engineering leadership was oblivious to this happening for at least two quarters, because who knows, users were still signing up, "sales handles the invoicing", they weren't tracking the right things, maybe some layer of intentional deception. Chicken & egg "the software doesn't sell" "you weren't even trying to sell it". Engineers are expensive -> Engineering layoffs. They're now a zombified services company, who took on 70 mil in venture capital to sell software, with zero full-time software engineers. The CEO's professional work history? Selling services of this exact kind for some provider for twenty years. They took rocket fuel to start a bonfire, and it blew up the block.
The business side is the difference between side project and successful venture.
In my ideal world basically everyone is like this and the walls between "idea guy" and "tech guy" are knocked down. I've heard a lot of folks get cynical about sharp technical types who get hired by big 3 mgmt consultancies, but ime they're often great places to find those who are both technically sharp and can make a killer deck.
I also discovered that one of the thing business people bring to a company are connections, especially if they have already worked in a vertical, and few people want to talk to a bright kid about their problems.
But I do agree with the overall sentiment that these ex-McKinsey “business co-founders” often lack the most valuable skills. I’d even go as far as saying they are generally quite bad “idea guys”, in the sense that they are more Winklevoss than Zuckerberg.
I even have a sneaking suspicion that Europe is so far behind the US in the startup game partly because the “ex-McKinsey guy on top” anti-pattern is the social norm here.
I walked away.
I have been a "business co-founder" for many years. I learned to program at a professional level 5 years ago. Today, i spend most of my time as a "tech-co-founder".
Now that I am on the tech side (and argubaly, product development side), my value is through the roof. Here is what I mean:
- The business co-founder types will convince you that "selling" the product is the main thing. They are right. But sales starts with WHAT you build. That is, with product development. What you decided to build and what you are able to build is very much a part of the marketing. - Selling a well positioned product (where position starts during product development) is much easier that 'force-raming' your product to people who do not want it. 'force-raming' is the main marketing skill most people have. - Ideas mean absolutely nothing. - Marketing is important but it's not hard to learn the important parts. In fact, I can give it to you right now: (1) start your marketing at product dev time. Decide which specific problem you will solve, then solve it, (2) Find a community to share your finished MVP to them. Don't just spam the community, join it for a while, make friends, chat, add to the conversation and (3) refine the early product with the early users from said community. Then supercharge marketing with some ads (FB or Google).
^^ this is the 0-1000 user plan. And developers can do this without a "business co-founder"
The value of one founder to another lies in complementary skills and perspectives engaging start-up issues in a productive way, which usually means deep levels of mutual understanding and trust -- which can be antithetical to business relationships and personal comfort. So: hard.
The CEO/COO split reflects the difficulty of scaling this.
Is the solution to talk early? Maybe, or maybe that interferes with trust-building. The key thing I believe (here and elsewhere) is to avoid projecting what you want or fear into what you have. If it's important to success, validate it. For that, it helps to have people willing and able to be honest and truthful, particularly about unknown unknowns -- even if it is otherwise their mandate and mission to project confidence and gain trust.
In this case, it depends on what the crux of your business is. Sometimes the crux is building world-class technology. Sometimes the crux is customer acquisition.
If the crux of your business is customer acquisition, then an exceptional business co-founder will actually be the most important ingredient to long-term success.
This is one of the biggest weaknesses I've noticed in YC's mantra. In most industries, just building something people want doesn't lead to success - you have to excel at customer acquisition also. And, in these industries, as you business matures, you realize that customer acquisition, at scale, is actually the hardest problem to solve.
- Be great at customer acquisition (or at least as the original article says, bring in a "customer waitlist")
- Have or bring in actual funding
If the business co-founder can't even bring one of these two things to the table, there is no justification whatsoever for them to hold a meaningful share of the startup's ownership.
The best part of the article: > [...] you should demonstrate it in one of two ways that are relevant to your venture:
> Generate a big waitlist (> 1,000) for B2C play > Get > 20 businesses to sign an LOI for B2B play
Ideas are cheap.
This is the business MVP worth spending 50% equity on and worth investing your time to build the tech prototype.
My best tip to handle business guys pestering you with ideas is to say "Great idea, bring me some clients and I will build the solution, then we can revenue share".
I usually never hear from them after this.
I can relate to that. I am creating a small product and more than the salary, I want to escape 9-5 because I want to exercise product and technical agency that I do not have in my current job, and going from that to not have an increased level of agency working for someone, especially for a co-founder.
Finding a good niche and refining a concept to find market fit isn't easy. As a tech guy, it's often not clear where the business value is.
I recently implemented a feature for which I didn't see the full value initially. Once it was done, my co-founder said something like "This feature will make our target audience's eyes pop out of their heads." I can actually see it now but it wasn't clear to me before, yet it was always crystal clear to him as he himself fits within the target market.
Anyway we'll see where this goes, there are a lot of factors at play but in any case, it's nice to have that degree of certainty that yes, we're addressing a genuine need.
If your co-founder isn't within the target market then you're basically just guessing what users want and that's a bad approach.
Sometimes it's more complicated than that though, and that's when you need social networks. For exampls, I've built solutions in pure tech (dev tools) but it's very different. Dev tools is a weird market because it's heavily monopolized by big tech and the target audience (developers) have little say over what tools they get to use on the job. So the fact that I'm in the target market doesn't actually add much value there. Even if the target audience loves something, it doesn't necessarily translate to sales. You have to have experience with developer tools from both a corporate and non-corporate perspective to understand that.
We added sales (later HR, sigh) and it was (eventually) transformative.
My point is that you can have the greatest technical team and lack of sales and shitty toxic culture will mean no growth/stagnation/running out of cash.
You can also be (this is probably the default state) a pure MBA-play where you are a "sales driven organization" that has shitty product and shitty technical culture.
You can rarely have a successful business (unless you are large enough!) without some degree of both. So stating that "business cofounders" or "technical cofounders" are less valuable/overrated reads like low effort click bait that resonates with really inexperienced "professionals".
An accountant maybe doesn’t add much, but a business major who deeply understands a customers need can be more valuable than any engineer.
You can still derive advantage from specialization even if one party has an absolute advantage in both activities.
1000%. I'm a solo tech founder and raised $3M. There isn't a day where I wished I didn't have a business or growth person with me on this journey. The tech pieces are easy.
Unfortunately nobody cared, including the original customers I was talking to, and so I spent my days stapling flyers to polls and talking to parents trying to learn what their actual problems were. Every small startup I've been a part of looked like this. Companies live and die over whether they can find market fit, not whether the product could be built.
There’s lots of solutions in the market for problems I have, but most are above the cost I’m willing to pay for. As long as you have a large enough market willing to pay you can sustain it but often the solutions are just too costly in general to be sustainable.
And that critical part of bringing a useful solution at a cost the market will bear to sustain is the hard engineering part. I find problems people have daily that I can think of solutions to, but they’re often going to be too costly to be of any value to create a solution for and I often find them too unique for scaling to help any. I work in research environments, so YMMV.
In the past I worked with an ideas person, but their ideas were often quickly discounted by some basic engineering thoughts about how reasonable solutions could be built. If you have an engineering background and ideas, you can often iterate through viable ideas much faster, quickly discounting unviable ideas vs the other way around (having to do a lot of practical homework to explore practicality of an idea is more time costly).
There is absolutely domain value in understanding unique problems and seeing opportunity, no doubt, but viable solutions need to exist. If you think you’re the first person who saw and identified an opportunity, it’s a great time to look and ask around because chances are you’re often not the first to market. Often solutions or businesses don’t exist for the very point I raise: people couldn’t find cost effective solutions to make it worth pursuing.
Or as Henry Ford said, "if I'd asked people what they wanted, they would have told me unlimited clean energy, teleportation, immortality, and affordable housing."
The places I've seen with actual success involved at least one founder capable of both, and that therefore had the taste to to realize when people coming up with ideas and taking meetings were just not meeting the high bar required. Because having ideas that don't work is easy, and so is having meetings that don't get you close to making sales. It looks like work is being done, but, if anything, it's making sure the company is spending time building the wrong things.
I'd much rather work with business aware developers, who are interested in knowing more about the business, than with total business specialists. Finding business-only people that have interest in learning how things would get done, and therefore have any idea of how difficult their ideas are to implement, is in my experience way too hard, as the barrier of peering into code is way too high.
For example, business ideas in the form of: "Use {X} to solve {Problem that literally can NOT be solved with X}"
So in theory it makes more sense to team up with someone with that skillset than partner with another engineer but then one of you has to give up on the thing you're good at to do founding sales which you may-or-may-not be inclined to do.
The opening image incorrectly refers to Erlich Bachman from Silicon Valley as "Erik."
OP goes on to claim:
>Paul Graham wrote in 2008 that Sam Altman was the best fundraiser he’s ever seen in his 30+ years in the valley. Sam was just 23 years old at that time!
That's not what the linked article says. That post has a single paragraph about Sam Altman that says he's good at fundraising but never says he's the best pg has ever seen[0]:
>Sam Altman has it. You could parachute him into an island full of cannibals and come back in 5 years and he'd be the king. If you're Sam Altman, you don't have to be profitable to convey to investors that you'll succeed with or without them. (He wasn't, and he did.) Not everyone has Sam's deal-making ability. I myself don't. But if you don't, you can let the numbers speak for you.
Also, Graham was 43 when he wrote that essay, so he hadn't spent 30 years in Silicon Valley. Viaweb was based in Cambridge and Graham lived in Cambridge at the start of YC. I don't think Graham even moved to Silicon Valley until 2009, five months after the post OP claimed was based on his 30 year tenure there.[1]
These errors are either due to AI hallucinations or lazy writing.
I think the better article on this topic is Jeff Atwood's "Cultivate Teams Not Ideas."[2]
[0] https://www.paulgraham.com/fundraising.html
[1] https://web.archive.org/web/20170306095108/http://old.ycombi...
[2] https://blog.codinghorror.com/cultivate-teams-not-ideas/
The eating human flesh part rings true.
The traits and failures you are describing could be attributed to anyone including an engineer.
A good business person moves mountains while keeping builders free to build.
Require both.
Technical is important, but just saying that it is easier for the business side to toot their horn.
For example if you want to sell to X market, hire a person from those companies, that isn't rocket science.
Technology doesn't stop scaling in complexity the larger you get, or the business hits a ceiling on what it can hit in revenue and growth.
It's cool if b-school teaches other wise :)
Both the business founder and technical founder has to grow.
Which one can learn to scale to the moon easier?
I wish all my friends well on any side of co-founding.
The thing that doesn't work is trying to grift someone else's hard work and leverage them.
Builders build.. sellers sell.
Learn to deliver and ship consistently or someone will.
Something like over 90% of startup founders get replaced as CEO if it grows faster than they can.
The double whammy, is that with the powers of ChatGPT on their side, they honestly thought they figured out the big architecture problems and were very unhappy at me pushing back at their design decisions. They wanted me to validate their ideas, not ask what the core user scenarios were (to figure out what tech was needed for an MVP)
Unless they are carrying a number (funding, sales, users etc.) they aren't even doing "business"
If you aren’t strong in marketing or design, it’d be ideal if your cofounder was … etc.
But if the business side can't sell or raise money then they're worth;ess
Though I had to roll my eyes at the “inventing AGI” part.
Also it’s Steve Glass not Steve Grass and when a word ends in an s sound you don’t have to add another s after the ‘ when making it possessive. So it would be “Steve Glass’ idea” instead of “Steve Glass’s idea”
Rough pre rev valuation!
Every engineer +$500k
Every MBA -$1m.
> In reality, it should flipped! The technical person is the one who breathes life into an idea and should get the lion’s share.... The riches are in the execution. The work done.
Labor is what makes capital useful. Otherwise it's just a pile of money sitting there.