Why nobody wants to be your cofounder?
Last week I got an offer from NY-based startup to join their team. The package was good: equity + cash + continuation bonus. It was a deal of my life… Which I politely declined. If you’re a founder who struggles with getting early hires onboard you should definitely read this. It’s not about you not paying the market rate.
You probably think that the most difficult part of a startup journey is to get your hands on VC’s money. If you do — it means that you’re thinking about startups in a totally wrong way and as you’re now you’re probably destined to fail (sorry for the harsh truth). In reality getting VCs onboard is probably the easiest part of all.
Because it basically means closing a sales deal after you have closed about a million of others successfully. You “sell” your startup to investors only after you have sold it with a high level of success to:
· Your cofounders
· Your early hires
· Your early users
· Your paying customers
By the time you actually get to VCs stage you’ve already been through this sales process several times, you know what to focus on, what you strong sides are and wheatear on not your product is actually salable.
So you just lay it out before investors as it is and if you’ve gone successful through all the previous stages — you’re game. Their answer changes from default “no” to default “yes”.
(Well, there are probably some exceptions to this rule, like when you have a school friend who runs a $10bln worth fund and they plead you just to come up with anything at all. Or like you have already bult 2 or 3 successful startups and you don’t need to prove your credibility. Otherwise, we all go through “cofounder-hires-customers” check-list first).
So, basically finding a proper cofounder is the first most important step of your startup journey and failing it — is an good reason to start overthinking your “sales strategy”. You might argue that there’re many solopreneurs who bootsrap their way to successful exit.
This is also true. In this case focus on your early-hires. Anyway, in order to be a company instead of a one-person business you have to hire someone — you can’t wear all the hats, right? How do you deal with this hiring process and what mistakes you’re almost certainly destined to make?
Tech, non-tech and “connected” founders
A little poll that I’ve ran in the Startup support Facebook group shows that about 75% of founders look for a tech cofounder, while only 23% are interested in getting a non-tech person on board. Non-tech roles can actually vary from a “marketing guru” to “UX/UI expert”.
Curiously, less then 2% of founders have actually though of looking for a “connected founder” (this person with a classmate who runs a $10bln fund).
Anyhow, the most common offer to join the team sounds like this: “I’m building a cool product and looking for a cofounder. Come to work with me”. This preamble is usually followed by a lengthy description of the idea or the sage it is on right now. Which is totally wrong and boring, and unreasonable. Nobody is going to buy it if you structure your offer in this way.
Cash vs equity
Partly, because you don’t specify upfront is it a paid for job or you’re offering equity-only deal. Here you’d probably exclaim:
— “I knew that! It all comes down to cash”.
Not exactly. It comes down to your understanding a simple fact: most people have to earn money. And if you don’t offer them a monetary reward you’d better be having some really impressive perks to provide.
Let’s put in the perspective: if it’s a tech cofounder, we’re talking about 10–12 months part-time job (or 7–8 of full-time job). In my experience, building a software product rarely takes less (if it’s not a low- or no-code product that you can probably get in 2–3 months — and that’s exactly why I love no-code so much and use it a lot with my customers).
Do you realistically think that someone would abandon a paid for job as a developer to work with you for a year with 0 pay-check?!
It is more reasonable in this circumstances to go for a part-time deal (like, 15–20 hours a week) and get on your side a talented student or a developer who works 20/h a week for someone else.
But again, why would someone agree to this deal if they can very well find another part-time job and make more money in the process? That’s exactly what you should be focused at: proving your cofounder or an early hire that, though in a short-term perspective they might have to sacrifice their level of living, but in a long-term perspective it’ll pay off and they’d do better by sticking with you.
Yes, you need these people. Now you have to persuade them that they need you even more. How can you possibly do it?
Your first Pitch Deck
That’s where you have to start building your first Pitch Deck. You will be using it to pitch your early hires or/and cofounders. The main purpose of this one is to provide you as a founder enough credibility and show that you actually know what you’re doing.
If you’re a tech person in your team you should provide your credentials (education, work experience), tech stack details and high level pitch of your product (you know, the one they use in Hollywood — like “Aliens = Jaws in Space”).
If you’re looking for a dev to help you out with building a product — get more into technical details. But — most importantly — outline what, when and how you’re going to proceed with your product after it is build.
“I’m an experienced developer (JS, Node, C++) and I’m looking for someone to help me with React and iOS SDK stack. Building a marketplace for professionals. DM me if you’re interested”.
“I’m moving at a slow pace but if you join the team we’ll gain enough velocity to launch beta in 4 month. In the meantime I’ll take a loan in a bank to hire an agency to help us out with go-to-market strategy/ I’ll find a third cofounder to deal with marketing and distribution. With my last product I did it pretty fast and we got first paying customers in 3 weeks after launch.
Next step — we get accepted into YC (plan B — reach out to Mr.MaxWell who is a friend of mine and an Angel investor, he’s already offered $250K check right after launch). My current draft of business plan shows that we can reach $500K in revenue by the end of the year. DM me for more details — please, include you CV or work experience”.
If you’re looking for a marketing/sales person no one expects from you details on the marketing strategy. But as a founder you should provide business plan details, your market size evaluation and you milestones, anyway. Because that’s what a founder should do, tech or non-tech.
You should deal with all these numbers as an entrepreneur because this business is your responsibility.
Granted, if you have no expertise in these areas you can’t build the detailed plan how to develop an online community around your product or how to get 1000 subscribers on the first day of launch (that’s what you’re hiring an expert for), but you should show explicitly that you can handle the business side, not only the tech.
“I’m a tech founder building a password storage for crypto keys. 10 years in crypto. Need a marketing person to handle the launch”.
“I’m a tech founder with 10 years of experience in crypto. I have pinpointed the pain 85% crypto holders have to deal with. All current solutions presume high to medium level of tech literacy. I’m building a solution 70 years old can easily deal with. I evaluate the market to be 25 million users. I have secured a bank loan for $100K to cover my product launch that — if used wisely — might get us to the breakeven point by the end of the year. The goal for 2021 — to launch in September, get first 200 paid customers by November, raise our seed round by February 2022 (aim at $15 mln)”.
Now, put yourself in your cofounder’s/ early-hire shoes. What message are you more likely to be hooked by? The one with unknown perspectives, murky details and unpredictable outcomes? Or the one where you’re offered to partner with someone who clearly has done their homework and knows where to go?
It’s also a question of self-respect: why would you want to partner with someone who clearly don’t respect you enough? If they did — they certainly would not have suggested you to invest your time, energy and skills while offering very average level of expertise in return.
If you see that you’re invited to deal with a person who offers you a similar or even higher level of expertise in their own field you’re more inclined to show some trust, therefore, drop your expectations of a pay rate.
Founders terms sheet
Next step — to actually structure the deal. Honestly, I’ve been working with several hundreds of founders so far and have yet to see a person who’s managed to find a cofounder for a no-cash deal.
If it’s not your closest college friend who is inspired by the same idea as you are and has totally same vision — I’d say your chances of finding a person who agrees to work for $0 paycheck are slim to none.
You have to secure at least something. It can be as small as 10% of a market rate but offering nothing at all will probably get you nowhere. If you’ve managed to do it — please, reach out to me with your story, I’d really love to hear it.
I have described in details how to draw terms sheet in one of my previous articles.
The main idea here is to offer a small rate and compensate it with other benefits represented by deferred cash (continuous bonus can be an option) and equity.
With the equity you have to be 200% truthful and provide any information your cofounder might ask for. It is tricky to deal with pre-revenue company evaluation (you can read in details how to tackle it, here), but you have to come up with one anyway.
Understandably, you might want to inflate company evaluation as a way to drop your offered rate even lower (because offering 50% of a company with $2 mln valuation is not the same as offering 50% of a company with $200,000 valuation) — and most of founders actually do just that.
Downside of this approach: if a person you’re getting aboard is smart enough to figure out your strategy they will turn you down in a blink of an eye.
If you’re Ok with this risk of losing a smart person and getting a cheap work instead — go for it. If you’re reaching out to someone you really value as an expert and believe this person will make a difference — better level up with them from the very beginning.
Other examples of perks you might offer to get a quality work in exchange for a very low pay rate — education or publicity. If you’re an expert in something — offer to train a person you want to get on board. If you have a big list of followers, offer a chance to get access to your social circle (might be valuable for someone in marketing).
That’s what comes to mind, but if you think more about it you’d probably come up with other creative ideas.
Again, my general advice: every time you’re ready to offer a perk put yourself in your cofounder’s shoes. Would you personally go for it? Would you agree to lose a part of your pay check in exchange for this specific benefit.
If it sounds lame to your own ears — your counterpart will probably won’t be that impressed, too. Build your relationship on trust and mutual respect showing this attitude in every action you take. And finding a cofounder will turn from a unsolvable puzzle to a walk in the park.