Who should you start a company with?

WHO? The decision to team up with co-founders or to start a venture alone (solo entrepreneur) is one of the most important to take. If you decide to found your company with other people, who should you consider having on board? Not only are these questions crucial, but they are also one of the earliest to decide upon, which makes it sometimes difficult to act on. The wrong decision could lead to business failure. Indeed, starting a company requires entrepreneurs to secure many resources: human capital (skills, competencies, etc.), social capital (networks, connections, etc.), and financial capital (money).

Founding a start-up solo presents many advantages. The main one is perhaps the fact that solo-entrepreneurs keep control over their project. Deciding to found solo means greater power in terms of decision making. This fits individuals who are very control-oriented, i.e. people looking for independence or autonomy for example. Another pro of founding alone is to keep things simple and avoid coordination problems, the struggles of team communication, and other role and rewards dilemmas. Finally, the last advantage worth mentioning here is the higher reward of a solo entrepreneur. Having fewer co-founders, or none is a synonym of a bigger equity stake. Hence, a successful company will generate greater financial gains for its founder.

However, going solo when you shouldn't increase the risk of failure. Founding a venture requires many skills, abilities, and resources. Entrepreneurs who want to stay alone have more chances to lack the ability to cover all aspects of their projects.

Even though founding a venture solo has some undeniable advantages, there are also many reasons to look for co-founders and form a team. The main reason, and a valid one, to look for co-founders is the lack of certain resources. As mentioned above, starting a venture requires many different resources that could be divided into three categories: human capital, social capital, and financial capital. An entrepreneur who is lacking means in one of these aspects should consider teaming up with others in order to cover what is missing. Another reason to find co-founders is the support that teammates can provide throughout the entrepreneurial process. In terms of psychological well-being, opting for an entrepreneurial career can be demanding. Having co-founders who share your vision and support you could definitely make a difference during tough times.

However, adding co-founders to the equation also means giving up rewards (equity shares) and implies communication and coordination nodes. Conflicts and divergent interests may arise in the future as well.

Hence, the decision to found solo or to take co-founders on board is dictated by your personal style, expectations, and skills, as well as the type of company you're trying to build. That being said, if you decide to go for the founding team and are looking for people to join you on your entrepreneurial journey, who should you consider? Should you team up with one of your relatives or find a stranger with particular skills?

Homogeneity vs heterogeneity

Individuals tend to associate with people who are similar to them. This phenomenon is called homophily. Hence, teams tend to be homogenous if individuals don't make a conscious effort to find "different" people. This idea is consistent with founding teams. Often, co-founders are similar in terms of skills, background, etc.

Homogeneity presents several advantages. The main one may be the speed. When similar individuals collaborate, they are more likely to develop efficient working relationships faster because they share a certain background, a vision, the same goals, etc. Hence, homogeneity can spare time and resources to develop a working team because individuals understand each other. Moreover, similar people are often easier and quicker to find and involve. If you look around you, your friends, family, and other acquaintances are often alike you (personality, background, interests, goals, etc.). Individuals with familiar attributes also enhance the team/company identity and can provide comfort because you share common ground with your co-founders. Indeed, collaborating with similar individuals tends to be easier because of compatible working styles.

Even though heterogeneous teams require a longer learning phase, more difficult communication and coordination and the risk of seeing internal conflicts arise within the team, they have considerable long-term benefits. Teams with a broader range of backgrounds, skills, etc. are more likely to build more value for the venture. Indeed, heterogeneous teams secure more resources (in terms of human, social, and financial capital). The tendency to have overlapping skills is, hence, greatly reduced in diverse teams. This represents a crucial advantage over homogenous founding teams. This diversity has also an impact on creativity and flexibility. In other words, variety often increases the start-up's value in the long term.

Friends vs strangers

Founding a team with friends could be tempting. It guarantees that individuals share certain values, common ground, and interests to some extent, in addition to being easier to get along with in early phases. However, the entrepreneurial setting is very different from personal relationships. Therefore, entrepreneurs should really think twice about getting a relative or a friend on board as a co-founder. Not only are the previous personal relationships likely to affect the performance of the team but also the risk is higher. In case of failure, both the venture and the relationship will most likely suffer.

Regardless of what you as an entrepreneur conclude, you should be aware of the risks related to founding a venture solo and the potential pitfalls of teaming up with co-founders. In other words, this decision is not an easy one and should be seen as a dilemma. There is no right or wrong answer and there is no such thing as the best solution. Every path has its own advantages and risks. Keep that in mind: decisions should be done by design and not by default.  

Best,

Team Spark

References

Wasserman, N. (2012). The Founder’s Dilemma: Anticipating and Avoiding the Pitfalls, United States of America: Princeton University Press.