Who is a Co-founder?
In this context, a co-founder is someone who has no part in the initial business idea formulation; that is brought into a start-up to provide needed technical or business building know how. This person is often highly skilled, possessing a skill set the entrepreneur/founder does not have but that the business needs to succeed, and in most cases his/her wages are beyond the capacity of the start-up to pay sustainably. To attract them, and in return for significantly reduced pay or no pay, they are offered substantial equity stake in the start-up.
The 'Co-founder' in the Nigerian Business Environment.
The co-founder as described above is one hire that Nigerian entrepreneurs and start-ups hardly ever make. Anecdotal evidence suggests that a large percentage of Nigerian entrepreneurs are reluctant to dilute their equity, even when it is evident that doing so would catalyze the economic success of their business.
While most sole entrepreneurs in Nigeria claim that the reason they have not taken on a co-founder is that they have not found the right person or that the individuals they hire with the intent to later transit to co-founder, turn out to be incompetent and or untrustworthy, the truth is more profound and rooted in the national attitudes to sharing ownership and contractual relationships.
We see enough instances of cases where a suitable candidate for a co-founder is available but the founder/entrepreneur would expect the person to work on as an employee with only vague, non-binding promises of a future share in the business. What generally happens is that the person moves on to better opportunities and the business loses its opportunity for growth and success. Most Nigerian start-up founders are averse to sharing ownership of their business and profits; unwilling to relinquish total control over the business and even when those are not obstacles, do not pursue the hiring of a co-founder with strategic intent.
What an analysis of Nigerian start-ups that successfully hire a co-founder show is that where there is the desire and deliberation finding the right co-founder is eminently possible
Of course our attitudes are not helped by the fact that Nigeria still scores low in the rule of law and contract enforcement hence discouraging hope for honest adjudication by the court in the event of ownership disputes.
How do you know you need a Co-founder?
The rationale for bringing in a co-founder is simple - it is good practice to find a genuine peer that can challenge and support in equal measure. That being said, having a co-founder is not a prerequisite for business success. Making the decision that you need one is entirely dependent on you and the particular business situation. But there are some pointers that indicate when it might be time to bring in a co-founder:
- When you have limited technical skill;
- When you recognize you do not have the required managerial/business building competence;
- When you expect rapid growth;
- When it is a requirement to obtain funding.
So when should you hire a Co-founder?
As soon as you reach the realization that you need a co-founder
Let's imagine you have a great business idea and you have determined that you do not possess all the necessary skill set to bring the idea to market; that is to develop the idea into a real business. You have accessed the options available to you in order to bring in the complementary skills you feel the business need:
- Hire a co-founder
- Hire an employee
- Contract it out
And you have decided to go with hiring a co-founder. But you do not know if this is the right time. Should you wait until you have vetted the business idea, drawn up a business plan, obtained funding, developed a minimum viable product, or made your first sale?
It depends on the particular needs of the business and you the entrepreneur; there is really no right time to bring in a co-founder. You can bring in a co-founder at any stage of a business life cycle; but the right time to start searching for a co-founder is immediately you realize you need a co-founder. Finding the right co-founder is like finding a spouse - you, more often than not, cannot control the where and when. So to improve your chances of finding one, you will need to immediately map out the qualities you desire in co-founder and then begin actively and deliberately searching, starting first with your social network.
Generally, the earlier you hire a co-founder the more equity you would probably need to give up to attract the person. But this should not be a reason to resist the need to bring in a co-founder. If the business needs require you to bring in a co-founder at the idea vetting stage, then do so. Most entrepreneurs forget or are blind to the fact that 60% of N10 million is always more than 100% of N1 million. If bringing in a co-founder will accelerate growth and profitability, then not doing so is bad business.
Tips to Hiring a Co-founder
- The competence you are looking for in a partner
- The character traits that would best fit yours
- What value he/she would bring to the business
- How much equity you are willing to surrender
2. Reach out to your contacts and network as its always easier to work with someone you already know or is recommended by someone you trust.
3. Interview or have a chat with potential candidates. Take your time, do not expect to conclude the process in the first day. Most importantly ensure he/she is a good fit - that you can work with them.
4. Legalize the new relationship. Get a good lawyer to ensure you and your business are protected as much as possible by a good contract.
- The best advice - be as generous as possible. You want your co-founder to be properly incentivised to see the business to success.
- Concentrate on value not percentage. The value the prospective co-founder will bring and the potential value the business could achieve. You could give out 5% of your business and still feel you over paid; conversely you could give 50% and the co-founder still feel short-changed. What matters is the eventual value of the business when it is time to cash in. If the business is worth N100,000 after 5 years of work and investments, then it does not matter what percentage anyone holds. If it grows in value to a billion Naira, then even 5% would be worth a lot.
For most sole entrepreneurs hiring a co-founder will be their first, and often only, opportunity to find a true, trusted partner that can run parts of the business without the need for regular check-ins or the entire business when they are indisposed. As such, the decision if and when to hire a co-founder should be approached with all diligence.