Ask HN: What's 'Due Diligence' when vetting co-founders?

I took a look at your profile and website and have some thoughts.

First is that your idea is a very specific and specialized. Your co-founder will likely need to spend lots of time just to fully understand the problem and the business case behind it. Then if they are actually interested in tackling that problem and believe a business can be built, it is difficult, requiring lots of time and specialized technical knowledge. Lots of people want to find companies based around classic consumer web application type offerings. Not saying you won't find someone but just saying that it will be difficult. You may be better off going to conferences to network with the right crowd so to speak to find a founder.

Second is that you are based in Syracuse. Personally at the co-founding stage I would want to be able to meet face to face and work with someone in person. I think a lot of people are the same way. The CoFounders Lab site does all of its search based on proximity (not sure about the others). So I think lots of people don't even see your profile, and even if they do they say I don't want to work with someone in Syracuse. Not knocking Syracuse - I really like it personally - but you need to be in one of the startup hubs in my opinion. It also will be helpful in getting other talent and getting connected in the VC world.

I read about your business proposal on the tech co founder sites. Please don't take this personally but you come across as naive and amateurish.

Hosting is a very easy business to get into, unfortunately it's a very difficult business to make money out of. Why will your business compete effectively with something like AWS - which has such enormous scale and brand recognition?

You mention that you've done some work for some famous people. Have you done any of that recently? If you have some rich contacts and you are good at sales then that could be your ticket. If so, you wouldn't need marketing - just get a basic brand site built in wordpress using a contractor on elance - and your requirement for a co founder goes away!

From your business proposal: "I had a 6 figure inheritance which I blew". Why even say that? You just sound like a failire.

And "I've got somewhere between 4 and 5 k to invest in this new enterprise". Somewhere between 4 and 5 k? That makes me think that you think 1k is a lot of money. That's a problem for someone who should be a company founder.

Your business model is weak. You don't have much money to invest. Unless I'm missing something, you should save your money and try to do something that is in some way innovative so that you can compete.

Maybe I _am_ naive, I'm not educated by any business school, and am just an ambitious guy with a few thousand dollars and a desire to ship.

As for my experience with the previous high-end experience, it's unfortunate that I ended my term with 1 of the companies on not-so-great terms, and I wouldn't feel comfortable contacting them for help with anything, and they wouldn't be able to help anyway except with maybe a part-time day job, which I couldn't get to without relocating anyway, so they're help is a no-go. The other guys would talk to me but they could only do so much- across the country, neither could really help with this venture.

And I don't have a problem mentioning my last venture although it failed because it wasn't any of my doing that caused it to fail- I ended up in the hospital and unable to attend to the startup for a period of time, where it became necessary to sell its assets to cover hospital expenses & rent instead of continuing it to completion. I'm still proud of how far I got with it, I was a year away of being able to support myself with it. And I would have if I hadn't gotten sick.

I kindof do think a grand is alot of money, but I know base don my last startup that it only goes so far in a startup. I do tend to think its possible to get a foot in the door with 5k though. Which is my goal with this project. Right now I only aim to make enough to be able to slowly grow the company, so making enough to save half & reinvest it will make me happy even if its $250/month. I mean, it's only a $4k investment.

Considering that you fell ill, it doesn't seem right to say that you blew it.

There's nothing wrong with being ambitious and only having 5k startup capital, it's just that these don't seem enough to serve the target market you're aiming at.

I would describe 'Big data' to mean the size at which traditional database technology stops being useful in your project. It's usually when the volume of the data is large.

I recently worked on a low end big data project. They had 4 very large, traditional database servers and the workload wasn't suited to that kind of server. They rearchitected, spent a bunch of money and moved to a 20 node hadoop cluster (each node was small - perhaps a few $k each). Because the workload suited hadoop they are now able to scale up easily and to great advantage.

Note that I describe that project as low end. 20 nodes is small in the big data world.

So when you say "I think it's possible to get a foot in the door with 5k", I think that perhaps you don't know enough about your market to make that statement.

Don't do anything further on this project until you've fully validated your business plan. There are some good ideas on how to do that in the other comments here.

So I ought not mention 'big data' until I can be running the ScaleMP phase. In the meantime I'm just a run-of-the-mill dedicated server vendor.

Honestly I find it awkward and unnatural to search for a co-founder. It's comparable to searching for a wife. Well...you kind of need a girlfriend first. Put another way, hire a web developer, which honestly it doesn't even look like you need yet, grow a relationship with that person(s) and work them into a co-founding position if the opportunity presents itself. From reading the info you've posted I'm really confused as to why you need a co-founding web developer so bad that you've yet to put anything on the web. That may be deterring people away.

I haven't put anything on the web because I don't have a web dev. I certainly would like to have something up on the web, but I can't afford to at this stage of the game. I can barely afford the server #1 I need to get off the ground renting. I don't know if that means I need access to more capital but I like to think I can do this without more than $5k.

If I had a web developer onboard with me, I envision there being a permission marketing campaign collecting email addresses of interested parties & delivering relevant content to them in anticipated doses to keep them interested. Being that we only have so many servers to rent & are just starting I would like to see a waiting list implemented, too.

I can do some stuff in plain text on the website, but I think its better off not drawing customers to it while it looks that way because they'll think it looks unprofessional.

> I haven't put anything on the web because I don't have a web dev.

Well you certainly don't need to be a web dev to get a site up and running[1,2,3,4]. To me it seems you're still in the customer discovery phase. How many interviews with clients have you had? 50? 150? I'd be willing to guess that you've still got a lot of work to do before you go looking for a web dev/technical co-founder. Without a thoroughly validated market I doubt anyone worth your time is going to bite. Here's what I would do. It'll help you validate your hypothesis and attract co-founding candidates:

+ Interview 50 customers per week. No exceptions.

+ Build out a business model canvas and test each assumption against customer interaction.

+ Learn some basic web development. This will show a potential co-founder that you're invested. You need to hustle and show them that.

1.) http://launchrock.co/

2.) http://wordpress.org/

3.) http://www.weebly.com/

4.) http://www.squarespace.com/

I wouldn't know where to begin to find the right customers to interview right now. At the moment I'm having second thoughts as to whether I can rightfully market myself to big data customers with just 1 server, no matter how fast it is. Apparently I need at least 20 servers to run small big data workloads, I have a bit to learn obviously.

I could try a Google AdWords campaign to ask some questions in a poll maybe, but that's all that comes to mind when I think of getting customer opinions- I'm really at a loss in that respect.

Use wix.com[1], learn to code[2]. In your description you say you have set up an OpenStack install at home, HTML/CSS is a walk in the park compared to that. Use launchrock[3] or mailchimp[4] to collect e-mails.

"big data" really means big - as in millions of dollars big, tera/petabyte scale. Not going to happen with $5k. You will suffer to get anything close to AWS prices[5]. You could brand the service as "fat" servers or something similar until you can really tackle that kind of scale.

And, honestly, you should omit the thing about meeting Calvin Klein and DJs, it doesn't leave a good impression. Tell us what you have to offer as a founder, and get to work on a business plan with real cost figures.

[1] http://wix.com

[2] http://www.codecademy.com/courses/html-one-o-one

[3] http://launchrock.co

[4] http://mailchimp.com

[5] http://blog.aggregateknowledge.com/2013/05/16/aws-redshift-h...

Ok, feedback well received, thank you.

'I don't want to partner up with the wrong person.'

This runs both ways. You need to prove to all your potential cofounders that you're the right person to partner with too. They will want to know that you're qualified and interested

Do your ads explain exactly what skills you bring to the startup? Can you show any validation? Have you already found people who would be willing to pay for your idea once it's built?

You haven't mentioned exactly what your idea is (and keep in mind it will probably/definitely change as your startup grows) but if it's possible to start finding customers with a solution that requires little or no technology then absolutely do that. In other words, try to find a way to run it yourself.

This will either prove your idea has merit, and will make it easier built a team around, or it will let you weed out any gaps in your business model until it does. It's better to find problems before everything is complicated by having two personalities to manage.

Clearly you will want to validate their skill set - this may mean acting like an employer about to recruit a new employee before offering to partner.

You might also need to check that their history will not be a problem when you come to raise finance. Are they an undischarged bankrupt for instance (in the UK - are they disqualified from acting as a company director).

Then it is all down to - can you work with this person? Plus, is this person likely to represent the business well in their selected role?

Having looked at superspeedyservers.com I'm left thinking mainly two things, which I put down in short here:

The business side may be lacking some things. For example: There are many competitors in this space. What is the added value to a customer? The stated goal ('serve the big data market ... process big data workloads') seems ill defined. Leaving the business side for a moment. How well is the technical side thought through? Which technical problems would these servers solve? I thought the problems would be lying in people's (sometimes mediocre or badly-suited) software stack or algorithms.

Note that though I am a software engineer, I'm not an expert on any kind of large-scale systems, nor am I a founder of anything.

I can quickly tell you why you've had 0 luck finding a co-founder.

My background: I am both a web hosting industry veteran, with a successful high-end hosting company under my belt (see http://www.erica.biz/2009/the-end-of-an-era/ for my story)...and my current co-founder and I also did a presentation at SXSW this year on "How to Find the Perfect Co-Founder."

You've made 2 classic mistakes here:

1) You haven't started building the business without your co-founder.

There is absolutely 0 reason why you need a developer co-founder to build what is essentially a high-end hosting company. Put up a WordPress site, set up a Stripe account, collect payment (3 months in advance for new customers will help you buy the server) and you're in business. This is EXACTLY what I did when I started my hosting company. There are many options available to lease high-end hardware (I'm not talking about leasing hosting; I'm talking about leasing the hardware and colocating it) and there's no reason for you to not build and prove out this business.

2) You are looking for a co-founder and not a particular skill set. When my co-founder of my current startup and I met in June 2010, I wasn't looking for a co-founder; I was looking for a developer. We worked together for several months and I paid him to develop the site and back-end for our customers. We signed our first customers and only then did I offer him a co-founder position with equity. But I paid him the entire time.

Can't afford to pay someone? See my first piece of advice. You don't need anyone else. When I built my hosting company in 2001, I had just started to learn how to write code. I taught myself PHP, wrote my own shopping cart, set up an integration with Payflow Link (now owned by Paypal), and I was in business. You need to do the same thing here.

The bottom line is that no one wants equity in an idea. You have to prove the model. Things like WordPress themes and Stripe make it easy to do so, so anyone even remotely technical who doesn't do that doesn't appear to be serious about the business. (I'm not making a judgment call here, but that is the perception when you don't even have a simple website with products for sale and a checkout process before looking for a co-founder.)

On top of that, the hosting industry is exceedingly difficult (I've written about it on my blog at http://erica.biz extensively) and you're really going to have to prove that you have something awesome and different to succeed in that business.

Think you've got it? Here's the challenge: Get a site up with a checkout process in the next 24 hours. When the first order comes in, put that server on a credit card and deliver to the customer. Then repeat 100x more in the next 6-12 months. You may find you don't need a co-founder, or you may find your business idea was wrong. Either way, you won't be banging your head against the wall saying things like "I can't move forward without a co-founder!"--you will have taken control of your business and moved forward to prove the idea with the skills you have right now.

I don't have a credit card, but in the next 90 days, I expect to have access to enough funds to buy server #1. I'll get on a way to sell it in advance.

I had an idea to market a special where I would sell an annual deal on the server for 25-33% off which wouldn't make much money for that year, but would provide enough capital up front to buy another server & expand right off the bat, so I wanted the website to feature that special.

I also wanted the website to feature a permission marketing campaign & collect email addresses of interested parties to go onto a waiting list since our initial server capacity is limited, but I guess I can achieve the same thing with a facebook page with people 'Liking' us & adding our announcements to their news feeds. I saw an interesting social commerce app that allowed for one-click facebook purchasing, that would make the storefront part easy & free of up-front capital.

Thanks again for your reply.

> I'll get on a way to sell it in advance.

Awesome. Really glad to hear you're ready to take the initiative.

> where I would sell an annual deal on the server for 25-33% off

You may not get people to commit to a year up front if you're brand new, but 3 months in advance can be pretty effective and still pay for most of the server.

> I also wanted the website to feature a permission marketing campaign & collect email addresses of interested parties

Okay, this is easy. I've used both Mailchimp and Aweber and like them both; I'd recommend Mailchimp in your case since it has a free plan for you to start with. It is easy...literally copy and paste. You will be surprised how simple it is to integrate this.

> I guess I can achieve the same thing with a facebook page with people 'Liking' us & adding our announcements to their news feeds.

This will work; for me, conversions have been much stronger from my email list than from Twitter/FB. Again, Mailchimp makes this easy. Facebook also makes this pretty easy.

> I saw an interesting social commerce app that allowed for one-click facebook purchasing, that would make the storefront part easy & free of up-front capital.

Use Stripe. Again, copy-and-paste simple. Mailchimp + Stripe + a shared hosting account + a WordPress install + a theme and you've got everything you need to sell your first server. Best of luck!

Thank you for the timely advice. I'm actually a technical person teaching myself SEO and marketing and working on something vaguely related to the hosting industry.

I've found myself needing to do the opposite, stop focusing on the technical aspects of things and putting up a Wordpress site for the content marketing side of things.

I've got a few targeted pages up already with Mailchimp forms to gather interest and validate the idea.

I've actually got some code already written but have found that the advice to gauge customer interest first is spot on and have refocused my efforts on that. Once I've identified what aspect of the full business model customers are actually interested in based on the Mailchimp group that gathers signup, I'll focus on that subset for the private beta.)

If anybody is interested the site is lanceject.com.

Yes, thanks.

So what I've done today was I brought this spreadsheet I have that details the plans for 'Server #1' with all its parts & where I'm going to source them all so that I can afford to build the server, down to a friend's computer shop who is an A+ certified builder so that I have a second set of eyes on my plans- just to be sure that what I have worked out isn't going to present me with any surprises once I get all my parts together to build the server.

I would hate to get all my money spent on the server parts & have customers having paid for a specific product & then not be able to deliver that product just as it was advertised because of some unforeseen surprise that came up once I got all the server parts together ready to be assembled.

So before I go & put up links for people to be able to pay for a quoted system, I want to be absolutely sure that this is the system that I can build with my $4k. No surprises once I get my parts together.

And that's what I've accomplished this morning, I'm still working on the rest of what everyone's written. I'll be working off of this post for a few days it appears.

Thanks to everyone who's replied.

I have hosting, but it's static hosting only- no server-side apps on the backend, it's with Fastmail & it comes with my email service, so I want to use that for the site. It limits me to a static only site, but I'm okay with that.

I like Ribbon for payment processing https://www.ribbon.co because it works on any website, especially my static site. It's expensive, but the user experience it provides is worth it to me, I like that there aren't any hoops for customers to jump through to check out, its as simple as I'd like my own checkout experience to be. To me that's high-end & matches the image I have for the company to project.

I'll look into both Mailchimp & Aweber & see which I like. Thanks again for all the valuable info. I appreciate that you've taken the time to post such a detailed reply for me.

In order to find a good cofounder, you may need to not need a cofounder. When considering people I'd like to work with, the most appealing ones are those who will be able to do everything without me.

Your business model may not viable.

I've thought about this lately, and think that a trial period would be best, with both parties clear that it is a trial period for each other.

Certainly better than just jumping in. I think launching a tiny project with someone (something that just takes a few days) is probably a good way to test the waters.

Agreed, I'll consider that for sure. Thanks.

I thought about a trial period, as it would be a good way to test & see if we're a good fit in terms of philosophies & approaches to different things.

But then I wondered about what would happen if I ended up deciding I didn't want to work with this person anymore- how would I compensate them for what their contribution was up until the point that I decided to pull the plug on the relationship? How would they know I wasn't just working them to get some contribution out of them with the intent of dumping them in the first place. I certainly wouldn't want any ill-will at the end of our working together, so I'd want a fair way of parting ways somehow, and I couldn't afford to pay for their work until later when the company makes money.

So that solution doesn't seem do-able anymore.

But I know the act of finding a good co-founder is akin to marriage

would you marry someone who responded to an ad on some website?

In the interests of Science and defense of this method, I did in fact meet my first wife this way. The problem was that I was simply never around (war, you know), not necessarily that it wasn't a good match.

Yes, but that was only the starting point of years of vetting. 9 years and 3 kids later, I'd say it worked well.

A minor nit about your ad copy is that you have misspelled Calvin Klein. I would encourage you to remove this whole sentence since it is irrelevant to the business of building a high-end hosting service. Hope this doesn't come across as negative, I'm just trying to help.

Be sure to ask those that have at one point communicated with you, why they lost interest.