1 Simple Rule: Don’t Be a Fool, Don’t Rush in

Learn about your venture before adding new team members.

Taking on cofounders is a fundamental decision that will substantially change your role and venture. Before taking on potential cofounders, consider the skills and competencies you need to make your venture successful. Moreover, consider your role and how you want to develop it over time. Based on an accurate understanding of yourself and your venture, develop an idea of your potential cofounders and how they should fit into your plans for your future in your venture.

Reflect on working with family members and close friends.

Many entrepreneurs primarily consider family members and close friends as potential cofounders. These potential cofounders from your network come with many benefits because you will be able to trust them and will get along well. You may also benefit from shared values that can be an excellent basis for your venture. However, before you invite cofounders from your closest circle, ask yourself if you would have invited them to join your team if you were less familiar with them. You need to identify why a specific individual is valuable for your venture and how they can contribute.

Carefully search for cofounders to maximize your overall contributions.

If you realize you cannot contribute all the skills and competencies needed in your venture, think about searching for cofounders who can complement you. You can think about your acquaintances from your current or previous jobs, college or university, and clubs or recreational activities. You may also meet potential cofounders at entrepreneurship events. However, including someone you hardly know in your founding team can be risky. Ideally, you have already had the chance to work with a potential cofounder. If not, consider agreeing on a test project in which you can determine if your working styles match.

Consider the role of stakeholders in the composition of your team.

You will likely have strong preferences about the individuals you want to include in your founding team and about the individuals you do not necessarily want to work with. However, other stakeholders, such as investors, may also want to shape the composition of your team. Investors often want to “professionalize” founding teams, so they may want to involve a professional manager in your team or reduce your or your cofounders’ managerial responsibilities. These situations can be challenging at both a professional and a personal level. Think about and discuss these scenarios before you start to collaborate with investors. An important question for you is do you want to (a) build a bigger pie and get a smaller slice of it (i.e., lose control for personal wealth) or (b) have a larger slice of a smaller pie (i.e., less wealth to maintain personal control).

2 Simple Rule: Make Sure to Invest Time in Setting up Your Founding Team

Do not always prioritize your team’s work over working on your team.

When you start to work together in your founding team, you will likely face high time pressure and be confronted with many urgent tasks. In such a situation, you risk investing all your time in operational tasks and strategic decision-making without devoting sufficient time to setting up your team for successful collaboration. Make sure to find time to discuss your expectations and preferences for your venture and founding team. You can find many resources online, such as questions to ask cofounders.Footnote 1 These resources can help you better understand your cofounders’ ideas and build a solid basis for your collaboration.

Rely on cofounder agreements and contracts to build up your team.

Working together in a newly established entrepreneurial team is challenging because you may not know enough about the other team members and how well you will be able to work together. You can explicitly write down your expectations for each other and your venture to reduce this uncertainty. These cofounder agreements and contracts can guide how you and your cofounders are expected to behave. For example, you can specify how you want to make strategic decisions, what happens if a team member does not meet expectations, and how you want to organize your venture. Many entrepreneurship centers have legal experts who can help you refine these agreements and contracts, customizing them for your precise requirements.

Think carefully about how to split equity among  your team.

There is no easy formula for splitting equity among your founding team. Different cofounders may attach different price tags to different contributions. While you may overvalue your contributions, your cofounders may overvalue theirs. Listen to your cofounders’ perspectives and ensure that yours is heard. For the positive development of your team, you must agree on a split that all members of your founding team consider fair.

Consider dynamic equity splits.

The contributions you and your cofounders make to your venture will only become evident over time. These future-oriented nature of these contributions are even more challenging when deciding on your equity split. However, you do not necessarily have to agree on a fixed split in the early days of your venture. Instead, you can rely on vesting schemes specifying that all team members will need to earn their equity stakes over time, perhaps by achieving specified milestones. These vesting schemes can include so-called cliffs, which define criteria for when founding team members are entitled to harvest their equity stakes, for example, when they have stayed one year in the venture.

3 Simple Rule: If You Want Your Founding Team to Function Well, Nurture It

Work with your teammates’ visions even if they do not match yours.

Sharing a vision with your fellow founding team members can be motivating because a shared vision provides a strong direction for the team. However, sharing a vision can be challenging, especially when other members have different and varied opinions on what the team should be doing and how it should be accomplished. In this case, you may have different perspectives and want to follow different paths to develop your venture. This variety may make you more flexible because you can pursue different opportunities, but you must ensure your team works as a cohesive unit—everyone on the same page—with professionalism. You must deal with the complexity of integrating different perspectives, visions, and activities with high professionalism.

Motivate each other in the team.

Entrepreneurs often assume that founding team members inspire each other and that motivation is contagious in such teams. However, hard work is not always reciprocated in teams—a hard-working team member can also signal to peers that their effort is not needed anymore. If you want to create a climate in which your motivation is contagious, make sure to put your team in focus. Your team members should develop the feeling that all of you sit in the same boat because it is up to all of you to prevent your venture from failing and defend it against harsh competition. It is under such conditions that team members’ effort is most contagious.

Share the exclusive information each team member holds.

When you only focus on your information, you may make low-quality decisions because your individual information can be misleading. In your discussions, you need to make sure all information from all members of the founding team is accessible to the team. However, the exclusive information possessed by individual team members is often largely ignored in discussions because teams tend to focus on what they already know. Thus, try to make exclusive and potentially valuable information more salient by highlighting the new insights you gain in team meetings. Call out members with unique information and share this information with the team. If others do the same, then your founding team can make creative and/or superior decisions. Reflect jointly on how these new insights shape your perspectives on the decisions you need to make. Note the triggers that encouraged team members to reveal their unique information.

Take time to reflect jointly on your teamwork and your decision-making process.

While it is essential to get work done and to make decisions in your founding team, you should, as a team, take some time to reflect on how you work together and how you make decisions. When your team reviews how you work together, you can adapt your team processes and goals. This adaptation can help you improve your teamwork and better use the information available to your team. Moreover, team reflection is constructive in unpredictable environments because it can help you make essential modifications in the face of change. The end of a project is an ideal time to reflect on the decision-making and teamwork on that project to understand what went well, what went poorly, and what could have been done better. However, such reflection does not have to occur only at the end of a project and can be effectively engaged as a pause in an ongoing decision-making process.

4 Simple Rule: Make Sure Your Team Can Manage Team Issues

Introduce clear rules for your communication, ideally before you experience team issues.

Your journey as a team can become burdensome. Sometimes, you are unsatisfied with your teammates’ performance, and they will be unhappy with yours. Think about ways to give each other constructive feedback that helps each team member grow from difficult situations and collectively improve your team. Explaining your concerns is helpful; blaming is not. It is most effective if you try to develop some ideas about how you could behave in a similar situation in the future. You have to learn to work and communicate with each other.

Learn that not all conflict is dysfunctional.

Conflict in your founding team is unavoidable. However, some of this conflict has the potential to advance your venture. Distinguish between relationship conflict, which refers to tensions between people and clashes of personalities, and task conflict, which refers to disagreements on viewpoints or procedures. While relationship conflict can harm your venture (through the destruction of personal relationships), task conflict can improve your team’s decision quality and benefit your venture (by raising diverse perspectives and information). Allow your team to have such task conflict, but if you realize it’s getting too intense, take a break and calm down to avoid transitioning from task conflict to relationship conflict. Keep conflict focused on work, not people.

Reduce the negative effect of dysfunctional conflict.

Sometimes, dysfunctional relationship conflict may occur in the busy daily grind of your venture. While you might be annoyed or hurt by a cofounder’s behavior, think about the situation your cofounder is in. For example, they might have shown more aggressive behavior because of the pressure or high workload they are experiencing. Indeed, searching for explanations for your cofounders’ behavior will help you be less affected by conflict. Keep emotions in balance; avoid overidentifying with them or escalating negative emotions into a bigger problem than necessary.

Think about your role in conflict.

It is often easy to blame your cofounders for conflict, but this will not help you or your team progress. Think about your role in conflict and reflect on your biases. Situations can be interpreted differently depending on people’s perspectives. Try to take your cofounders’ perspectives explicitly; you may also reach out to others who can make your cofounders’ perspectives more accessible. Thinking about conflict from several perspectives may help you cope with it better and resolve the underlying problem.

5 Simple Rule: Your Team May Not Stay Together, but a Breakup Doesn’t Have to Be a Disaster

Think about founding team breakups before they happen.

We have already highlighted the benefits of contracts for setting up a team. Contracts can also protect you and your venture when a cofounder wants to leave the venture. Speak about potential exit scenarios before any team member has started to think about an exit. What will you do if a team member comes across a more attractive opportunity? What will you do if you think that one team member is underperforming? Do you want to agree on specific buyout terms? While there are no easy and general answers to questions like these, thinking about them in advance can help avoid a complete disaster.

Founding team breakups can be painful. Get external help.

Founding team breakups are highly emotional. Your feelings and your cofounders’ feelings are probably hurt. In these troubled situations, staying professional and making rational decisions about your venture are hard. Try to find somebody who can take a more neutral perspective on the situation to provide an external view. This external view can help you to distance yourself from the emotions arising from the exit and distinguish between venture-related and personal challenges. Also, consider involving a mediator or a coach in the negotiations with your cofounders. An impartial professional may reduce useless fights that drain your energy without resulting in any solution.

Prevent reputational damage by agreeing on an exit story.

A hostile founding team breakup can damage the reputation of your team members, your venture, and current stakeholders. Investors may be reluctant to invest in your venture or your future projects when they are skeptical about team stability. To prevent this reputational damage, it can be helpful to develop an exit story that all cofounders can agree about. In this story, you present plausible reasons for the team breakup, reducing reputational damage for all concerned. Sharing a consistent story with all your stakeholders can prevent or at least reduce reputational damage compared to a hostile breakup where all parties wash their dirty laundry in public.

Use a breakup in your founding team to make you stronger.

While a team member exit can be challenging, successfully dealing with the exit can have positive consequences for your venture. When you digest the exit, you need to rethink your venture. It would be best to deal with the outflow of resources and the specific skills and competencies the exiting cofounder contributed. Moreover, it would be best to redistribute the responsibilities among the remaining founding team members. In this process, you may be able to set up your venture in a way that is more resilient to future changes in the founding team and to better react to unforeseen changes in the venture environment. Also, if you start a new venture, this experience can help you craft useful contracts with your cofounders and even build a venture that depends less on the individual cofounders.