Every small step brings you closer to your goals.
A question I would ask every first time founder to answer before they start their quest for a co-founder. This post explores the question Are you really looking for a co-founder or just someone to share workload? If it’s actually a co-founder, it further explores the behavioural traits to look for in a co-founder.
Responsibilities we take and decisions we make when starting a business is often like the mixed platters we order at restaurants. There are some items that we are familiar with and absolutely enjoy eating, some that are new and our adventurous side is happy to give it a try. But there are always those few items that are unpalatable to us and we hope that the person we are sharing the platter with savours them. Having worked with many first time founders, what I noticed was that many choose to bring in a co-founder or a business partner to eat up those bits that are indigestible to them without really wanting to share the good bits on the platter. When I work with first time founders or when I discuss a potential business partnership for myself, I always ask this question —
‘Do you want a parent or a nanny for this business you started? If it’s a parent, are you willing to give enough equity so that the person you’re bringing in is intrinsically motivated to toil round the clock and grow your baby for no immediate financial reward? If it’s a nanny, you have their expertise and commitment as far as you keep them extrinsically motivated and the baby is always yours. There’s no such thing as free lunch.’
Novice founders often go with the parent option when they might actually be looking for a nanny. They do not take the time to learn enough about their new business partner or understand their motivations, personality, values, skills, and purpose. They do not really invest time to see how they can merge their individual visions to create a collective one. They look at the short-term benefit of getting the business up and running with close to zero outflow. Most first time founders expect to have nanny who sacrifices immediate financial reward and commits time like a parent. This short-term view often lands up in co-founder conflict, one of the top reasons why businesses fail.
Short-term versus long-term and Halo effect.
Psychologists like Martin Seligman argue that humans are the only primates who are able to plan ahead and view us as ‘homo prospectus’ the forward looking ape. However, in reality, when we encounter a situation to choose between short term versus long term benefit we go with short term benefit. The field of behavioural economics calls this reluctance to make decisions that benefit us long-term as Hyperbolic Discounting
What is Hyperbolic discounting? Hyperbolic discounting refers to the tendency for people to increasingly choose a smaller-sooner reward over a larger-later reward as the delay occurs sooner rather than later in time (Laibson, 1997).
Though Hyperbolic Discounting is often associated with decisions related to purchases, addictions and savings it can be applied to our decisions related to people. Our tendency to take short term view is a at play when we quickly partner with someone for the short term benefit of getting started, sharing workload, keeping costs low and forfeit the long term benefits of building a sustainable, complementary, and successful business partnership. The urgency to just get started rather than to thrive together.
As humans we also take cognitive shortcuts termed as heuristics to arrive at snap judgements or simplify decision making regarding a person especially under conditions of uncertainty (Kahneman, 2003). These shortcuts come to our aid when we choose a team member, life partner or a co-founder. We are unconsciously influenced by a cognitive bias called the Halo effect.
Halo effect is a concept derived from social psychology where the global evaluation of a person sometimes influences people’s perception of that person’s other unrelated attributes. We often might consider a friendly person to have a nice physical appearance, whereas a cold person may be evaluated as less appealing (Nisbett & Wilson, 1977). Let’s consider this bias in the scenario of choosing a business partner. We could be influenced by a person’s high IQ (intelligence quotient) to translate to high EQ (emotional quotient) or good people management which might not be the case but is essential to run a business or we get into a business relationships with a family member or a friend as we perceive them to be trusted and therefore associate other qualities like hardworking, adept, and ethical in business.
Think of a time where you had to choose a partner. It doesn’t have to be a business. Could be for an activity, organising an event or a project. Did you take the time to understand their motivations, values, personality and vision?
What were the mental shortcuts you used to choose that individual? Were you influenced by his/her halo effect?
Finding a co-founder should be your long-term strategy
The frequent analogy made between business partnerships and marriage is striking when it comes to requirements they both need to nurture the relationship to success – Trust, Commitment, Respect, Hard-Work, Understanding, Compatibility, and Shared Passion. When they fail it can both damage us financially and psychologically.
A successful partnership of any kind throws light on the importance of complementary relationships between both parties. This complementary relationship is explored by Masuda (2009) where he demonstrates that the economic performance of the new business founders depends on the existence of the co-founder as well as their managerial works of new businesses. Ergo, the importance of interdependent relationships in managerial works and the choice of co-founder has a direct influence on the economic performance of the individual and in effect the business.
From an evolutionary perspective, the importance of interdependent relationships has been highlighted by many scientists. The same can be adapted to the evolution of a business. Tomasello (2014) explores what is most remarkable about human sociality and its many and diverse forms of cooperation. Human individuals became interdependent with one another in ways that changed not only their social behaviour but also their cognitive processes. A similar interdependence can be associated with founders who put their heads together in acts of shared intentionality to understand and navigate the world of business together. Founders who have trust and share a vision feel commitments and obligations toward one another as they work together.
Identify the right partner. Build complementary relationships
Let’s take an example of a designer. Let’s call her Amy. Amy designs jewellery. Her immediate network thinks her designs are unique and they frequently place orders for some bespoke pieces. Amy begins to believe there’s demand for her product. Her immediate social circle confirms her belief and encourages her to move further. Amy starts her first ecommerce business. She registers her brand, creates a Shopify store, starts an Instagram account and shares stories about her design philosophy. She then reaches out to her journalist friend Josh to help with PR. Launch day arrives, sales are good, and Amy is superbly excited. Her dream of building a successful business seems to be on track. She looks to increase production capacity and invests in inventory.
Amy is now waiting and waiting and waiting but sees no spike in traffic and no conversions on her site. It’s been 7 months and sales are negligible, she is very stressed and is down € 30,000. What Amy failed to consider was the problem that arises with Group Think.
Groupthink is the name given to a theory or model that was extensively developed by Irving Janis (1972) to describe faulty decision making that can occur in groups as a result of forces that bring a group together (group cohesion). The people whom she shared her business idea with and who initially bought her products were primarily her immediate network of friends and family members who are freelance designers, artists, cafe owners or writers. They were not from the ecommerce industry, they were not a true representative of her target audience i.e. customers who frequently purchase expensive jewellery, and they had no skin in the game. However they all shared a similar way of thinking, preferences, were exposed to similar experiences and were overly optimistic for Amy. If Amy considered to bring in a co-founder or an expert with experience in ecommerce she would be more realistic in setting her goals and would invest in building an audience through brand storytelling.
Michael Fertik, a seasoned entrepreneur and bestselling author has a great piece in the Harvard Business Review on How to Pick a Co-Founder. It’s a good starting point as he lists important things to consider to identify the right business partner.
Entrepreneurship research primarily has been driven by economics, psychology, and sociology. Mainstream entrepreneurship was associated with economic and strategy theories (Kirchhoff 1991). However, modern day entrepreneurship throws light on the importance of behavioural science and acknowledging the importance of a psychological perspective because “entrepreneurship is fundamentally personal” (Baum et al. 2007).
Humans are neither completely rational nor completely irrational (Ubel, 2012) and this clouds our decision making process as founders while identifying the right business partner. When you are looking to find the right co-founder, consider behavioural traits in the other individual that would create a complementary, sustainable, and solid founding team that helps you grow your business and yourselves as individuals.
1. Practical intelligence with open mindedness is a good combo
Specific experience and expertise may lead to superior performance however it could make a person fall into ‘mental ruts’ leading to cognitive entrenchment, stereotyped thinking, and discounting of new information. A person who is street smart and open minded responds to change in the market and is fast and flexible. Start on a mini project or a trial period to gauge if your potential partner encourages experimenting, testing, and revising solutions/decisions to continuously improve it.
2. Be aware of over confidence or optimism
Over-confidence and optimism is necessary to initiate entrepreneurial action but it’s a cognitive bias that can also lead entrepreneurs to make strategic mistakes and pursue unrealistic goals. If you are the person wearing rose coloured glasses look for someone who is cautious, checks for blind spots, challenges you and flags the down side of decisions. This way you also avoid groupthink. One way of doing it is by asking them to do a critical analysis of your business idea.
3. What’s motivating them
Take the time to understand the motivational factors like individual goals, vision, ambition, entrepreneurial passion, personal initiatives and most importantly values. One way could be to ask them to create a draft of the partnership agreement and a budget/cash flow for the business. This is not an exercise to evaluate their legal or accounting skills but to give you insights into what motivates them, the way they think and work and their vision for the company.
Aronson E. (1980).The social animal. New York: Palgrave Macmillan.
Baum JR, Frese M, Baron RA, eds.( 2007). The Psychology of Entrepreneurship. Mahwah, NJ: Erlbaum
Janis, Irving L. (1972). Victims of Groupthink; a Psychological Study of Foreign-policy Decisions and Fiascoes. Boston: Houghton, Mifflin.
Kahneman D, Tversky A. (1979). Prospect theory: an analysis of decision under risk. Econometrica 47(2):263–92
Kahneman, D. (2003). Maps of bounded rationality: Psychology for behavioral economics. The American Economic Review, 93, 1449-1475.
Kirchhoff BA. (1991). Entrepreneurship’s contribution to economics. Entrepr. Theory Pract. 16(2):93–112
Laibson, D. (1997). Golden eggs and hyperbolic discounting. Quarterly Journal of Economics, 112, 443-477.
Nisbett, R., & Wilson, T. D. (1977). The Halo Effect: Evidence for unconscious alteration of judgments. Journal of Personality and Social Psychology, 35, 250-256.
Peter, A. Ubel. (2012). Critical Decisions: How You and Your Doctor Can Make the Right Medical Choices
Tatsuyoshi, Masuda. (2009). Contribution of the co-founder to new business performance. International Journal of Business and Globalisation, Vol. 3, Issue 4, pp. 435-456
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