The following is a excerpt from the book The Startup Funding Book by author, Nicolaj Hoejer Nielsen from the chapter ‘Co-founders Are Your First Investors’.
The first and most important bootstrapping step is getting co-founders on board and getting the right team in place.
You will most likely not be able to pay co-founders properly and they are therefore your first investors. They invest their time but not money and are crucial for attracting investors later.
Why Have Co-founders?
Do I really need co-founders this early on? The answer is ‘yes’ and here is why:
1. Co-founders Add Competencies
If you’re good at building a product, chances are you’re not the world’s greatest salesperson – and vice versa.
Your startup project needs both, and if there’s only you then you are going to fail. You are working to prove that your business is viable and that investors should therefore invest.
In most cases this work involves both building the first version/prototype of your product (to reduce technical risk) and getting the first users/customers/partners on board (to reduce market risk). You need co-founders who complement your core competencies to achieve initial traction.
“Investors believe and invest in the team”
2. Co-founders Add credibility
Even if you’re the type of person who can cover all the bases yourself, it won’t do you much good in relation to investors. Investors believe and invest in the team.
Remember, you don’t build the team simply to secure funding but also to build the longer-term business. If it is only you, chances are investors will say ‘no’.
It is very unlikely that all the distinct skills needed to drive forward a startup are within the same person. Even if I meet one person I believe has all these skills (and I haven’t yet), I will wonder what will happen if they’re run over by a car tomorrow.
I will also be concerned this is a one-man band because they’ve been unable to convince anyone else to join their company. Is something wrong? Don’t they want anyone else in or does no one want to join because of them? Either way, it’s a red flag in the eyes of most professional investors.
Which Co-Founders Do You Need?
One of the most extensive studies into what makes startups successful was done by the researchers at Startup Genome. Data from thousands of (mainly IT) startups was processed in order to determine the common factors that successful startups share.
One of the most important findings was that startups which have a balanced team of both a technical founder and a business founder are far more successful in the long term, compared with startups that have either a technical or business founder.
Balanced founder teams raised on average 30% more money, grew the customer base by 290% more, and were less likely to fail when compared with non balanced teams.
These findings match the experiences of most investors with regards to the set of core team competencies they need to see – product development and sales.
1. Product Development
You need someone who can develop the product. The type and kind of developer you need obviously depends on the specifics of your project. Without such a co-founder (if you don’t have the technical skills yourself), it will be hard both to bootstrap the startup and to convince investors to come in.
A typical example is that of a business-oriented entrepreneur who has an idea for an app but doesn’t have someone with the technical skills needed on board. The entrepreneur is essentially in the process of building a software company without a software developer on the team. Investors will take one look at this and turn away.
“You also need a dedicated salesperson to join your founding team – an extrovert who likes to communicate with the outside world”
Key note: Help! I can’t find a technical co-founder
Finding the right person to fill the position of technical co-founder can be difficult. I often come across startups looking for a developer who wants to become a co-founder but can’t convince anyone to join.
There are several reasons for this: good developers are in short supply, and many of those who could consider joining have worked with people who have promised them a lot but delivered very little. A third reason is that developers tend to not be risk takers. Many of them aren’t entrepreneur material.
For these three reasons you have a lot of business people chasing a few potential technical co-founders and promising them riches. After they have been promised this one or two times they become immune to offers.
If you’re struggling to find a technical co-founder, you should consider outsourcing to show that you, as a business person, are committed to the business and attempting to get some traction. Get an agency to develop the first version of the app, even if the result is much simpler than your grand vision. Do a beta launch and hopefully you will have positive feedback from the first users. Now you have something to show and this will make it easier to convince a technical co-founder (and later investors) to join.
You also need a dedicated salesperson to join your founding team – an extrovert who likes to communicate with the outside world, with customers, partners, vendors and investors. Someone who is good at selling the project and the vision. In startup jargon, they’re sometimes called a ‘product visionary’.
These sales are not only to customers but to all key stakeholders, and that’s why it’s a fulltime job, even if your company’s product has not yet been fully developed.
Think about the differences in competencies needed in small versus large organisations. If you’re working in a big company, all your competencies are there in the organisation and the majority of your stakeholders are internal. If you need a product manager, legal advice or a marketing graphic drawn, all the competencies are found inside the organisation. You still need to convince the other employees to help you realise your goal, but you’re all in the same boat and that tends to make things easier.
In a small startup the internal bubble is much smaller: you and your co-founder(s). When you need funding you need external investors; when you need marketing you need to collaborate with an external marketing company. Every time you need something extra you need to look outside the organisation. Basically, all the important resources are controlled by external stakeholders and you can’t call your boss to have them do as you like. You need to convince them, and in many cases you need to convince them in other ways than paying them huge bucks now (since you’re bootstrapped, your finances are most likely limited).
You need to sell your project and vision to them and make them want to work with you rather than taking a better-paid position elsewhere. This ‘sales job’ quickly turns into a more than full-time dedicated position.
Key note: You need the salesperson now
You need the sales guy from day one to build all the external relationships – you can’t wait until your product is developed and needs to be launched. That’s too late! Investors know that, and generally prefer teams with technical and sales resources present when they invest
ABOUT THE AUTHOR: Nicolaj Hoejer Nielsen is an author, investor, entrepreneur, advisor and speaker based in Denmark. A free preview of the final book is available here. You can order the book from www.startupfundingbook.com.