- Hey, there Dan Martell here.
Serial entrepreneur, investor and creator SAAS Academy.
In this episode I'm gonna share with you
how to find the elusive co-founder
to help you build your dreams
so that you don't make the wrong decision.
How to figure out the equity split,
one of the most expensive equity dilution decisions
you're gonna make is a co-founder
and how to make that decision right
and be sure to stay then where I'm gonna share with you
how to get access to my Dream 100 framework.
This is how identified 100 people over the next years
that are gonna allow you to succeed
at anything you decide to do, like finding a co-founder.
Let's get into it.
(upbeat music)
So I wanna share a story of my buddy Marcel
and I don't think he would mind that I share with you.
It's just such a fascinating example of exactly
what I'm teaching.
I've had co-founders for every one of my companies.
Flowtown I had Ethan, Spheric I had a whole team.
There was Corey, Adam and Andrew
and many other you know, like I've always felt
like teams really will help you hold yourself accountable
and live to a bigger standard
and for a lot of SAAS companies out there,
if you have a non-technical founder,
having a technical founder could be
an incredibly important decision.
So you know Marcel started a company called Parakito
and he had a technical person working with him.
That person didn't work out and kind of a few other people
that wrote some code, didn't work out.
Eventually decided I need a technical co-founder
and he went on the hunt
and I'm gonna share with you in this episode
how he assessed it because I'm an advisor to his company,
how he assessed it and eventually ended up recruiting Ben
who's his co-founder and CTO.
Ben is amazing, but trust me,
there was months of process and heavy lifting and hard work
that Marcel had to go through to eventually find it
where now they iterate and push product
and get customers in a revenue generating way
faster than he ever did prior trying to work
with outside developers, et cetera.
Now it's not for everybody,
but if you want a co-founder,
here's a way to think about it.
Number one, shared problem.
I believe that if you're gonna have somebody else solve
a problem that you're passionate about,
a market opportunity that you see,
that it's important that that person
also feels the opportunity.
They see it.
They maybe have experience from their current job
that's in that area.
So one of the things
that I like to do is find people writing code
on existing open source projects.
That's a really good way to find people
that are relevant to my idea.
I'll go look on Product Hunter other sites
that launch kind of little micro apps
and see if anybody's working on something similar to mine.
Sometimes a technical person,
it's just them and they have this app
and they don't really wanna drive it bigger,
but they might join your team.
Maybe you can grab their product and kind of fold it into it
or you can go on to these online forums
and find out if there's people in your kind of like
these forums that have technical experience
that write code.
The other way that I love doing it is finding developers
that work at companies
that technically might be a competitor.
That's one of my favourite strategies
and I'm not gonna tell you how Marcel did it
because it's his story to share,
but if you think about it,
if I'm building a timesheet software,
if I go find an existing timesheet software company
and I go find their developers
and I reach out asking for advice
'cause that's my strategy,
I know they have experience in the domain,
the problem that I'm trying to solve
because they work at that company and for me to say hey,
I think there's a better, faster way to do that,
they'll probably go yeah I totally agree
and I hate working on this code
that's bloated and frustrating
and it takes forever to build anything
in this big, bureaucratic company,
I would love to join you.
That shared problem is a big idea
and is a great filter to use.
Number two is face to face.
Now before we had COVID you could do it you know,
and I would go to code camp, startup weekends,
you know accelerators, but going in person
'cause technical people they're very,
it takes a lot to gain their trust okay,
and if you just cold email me,
trust me it's not gonna work.
You need to literally get them on a call,
talk to them, understand what motivates them,
get excited about what they're doing
because a lot of technical founders
or potential you know, co-founders,
they know that all the heavy lifting is done up front
and if you're just the business person,
you get to just sit there and tell them what to do
and they get to spend you know,
10 to 12 hours a day writing the code.
So they're a little weary of anybody at first.
So you wanna go in there seeking advice, build trust,
build some kind of rapport and then eventually ask them
to like maybe collaborate with you on a small project
and you start to get them in,
but the face-to-face today is replaced with Zoom meeting.
So if you can't do it in person
which you probably can't right now,
do it on a meeting, but the face-to-face,
video for a co-founder trying to get somebody bought
into your vision is so important.
Trust me, you're not gonna do it on chat,
you're not gonna do it on email.
There needs to be some eye to eye contact
with the individual to get them bought in to see your vision
to eventually get them to say yes.
Number three, quantify commitment.
So the big thing for me is in the early days,
you need to, if you're thinking about splitting up equity,
you got to figure out who's gonna do what.
If you're working part-time and still staying
at your primary job or you have this service-based business
and you wanna build this other SAAS out of your agency,
you need to quantify the amount of time.
You also need to quantify the amount of money.
Maybe you've put you know, 25,000 aside
and you're willing to take that money,
invest it in this new software and your technical co-founder
or business co-founder,
regardless of which side they sit on,
they're gonna be spending all their time,
but put no money into it.
At the end of the day, you need to understand
how to quantify their commitment
so that everybody is on the same page.
A lot of the issues come from you know,
just a misalignment of expectations
of how you're gonna show up, what are you responsible for
and you know, money and time.
If you wanna read a great book
on figuring out the equity split based on quantifying,
'cause real cash money is worth more than somebody's time
because time can generate income,
but then you got to pay taxes, et cetera.
If somebody's gonna give you $25,000 of after tax dollars,
it's worth a lot more than somebody's
kind of in-kind hours or bill rate.
So read the book Slicing Pie.
Mike Moyer is a friend of mine.
He wrote an incredible book on this specific issue.
It's a short read, it's clear, it's concise.
Slicing Pie, I'll link it up below in the description,
be sure to click that, get your copy, it is awesome
and the big idea is you got to quantify the commitments
up front so you don't miss align.
Number four, make it long-term.
One of the biggest mistakes
that founding teams make
especially with people they're not sure
if they're gonna work out with
is they start allocating equity up front
without any performance, right.
The way I think about it is we wanna make sure
that we plan for success.
What does this, like because most people will
just plan not to lose.
You wanna plan for success.
if this works out
and it's 100 million a year revenue business
and you're the CEO and this person's gone,
how's that gonna make you feel
if you give them half the business.
So what most people do with people they bring on their team
and they give equity to is they'll do vesting.
So vesting means that you know,
typically it's a four-year vesting with a one-year cliff.
Meaning for the first year,
you might compensate them through money,
pay their consulting fees, give them a salary,
but if they don't stick around
for the first year or whatever,
if you said I'm gonna give you 10% of my business,
that first quarter of it doesn't get allocated.
After the first year, it hits the cliff
and you allocate that and then there's a monthly vest
after that over a four-year period.
That is how it's done in Silicon Valley,
that is how it's done with most companies
because truthfully, if somebody's not around for four years,
like the thing you start with in the beginning is not
what you end up building at the end.
So think about long term when you're bringing on co-founders
and plan for that success.
Number five, avoid fails.
Now there's three core areas of misalignment
that I see when people bring on co-founders.
Number one is the skills.
You start working together
and you realise this person isn't good enough
to execute the product that we're trying to build.
So make sure that you test the skills up front
and you verify that they have the skills.
Number two is drive.
If you're the CEO, if you're the founder.
If you're watching this, you're probably the person
that is driven to build something.
You wanna create something out of thin air.
You wanna essentially you know move your life forward
and if you have that drive
and your co-founder doesn't have that,
at some point you're gonna have resentment
and the way that shows up is just
not as responsive as you, right.
So you'll be like super responsive, engaged,
wanna do meetings, you wanna talk strategy
and they're like yeah,
I'm busy with the family, blah, blah, blah.
So drive is a big one.
And then third is temperament.
I've seen a lot of co-founder issues,
'cause I coach a tonne of SAASs founders,
and usually it's some aspect of the personality
that creates friction and frustration
amongst the team members.
When you grow and all of a sudden you have 70 team members,
okay and your co-founders leading a team of 25, 35 people
and they don't have the leadership temperament,
you're gonna create scenarios
where the people are gonna quit,
they're not gonna feel inspired,
not gonna feel motivated.
They're hiring B or C players
and you're not gonna get what you need
out of that person.
So you know, and I ran into this
where one of my clients that I was coaching had a co-founder
and that person you know,
after a lot of discussion found out
they just didn't wanna manage a team,
they wanna be a sole contributor.
So switch the role, they're a sole contributor,
they're not leading a team anymore,
everything was fixed, but it took years of friction
and frustration for them to get to that point
because the temperament was misaligned.
So just understand when you bring in a co-founder,
you wanna make sure you're aligned with their skills
for what you need, the drive that they have
towards this project and also the temperament
to make sure that they can manage people
because that's the role of founders, right.
We're not here to just write code.
We're here to essentially lead and maintain vision
and push our dreams forward.
So how do you find a co-founder and manage the equity split?
Here are some ideas.
Number one, you have to find a shared problem.
You wanna find somebody that understands the problem,
and number two face to face or video, face to face,
but you wanna get some face time.
Number three, quantify the commitment
so everybody's on the same page and plan for success.
Four, make it long-term.
Understand that there's vesting involved
so people don't get allocated a third of your business
and run off and then you have that third of the business
not being able to allocate to other team members
and number five, avoid fails around skills,
drive and temperament.
As I mentioned the beginning of this episode,
I wanna share with you
my free exclusive resource called the Dream 100.
Essentially it's the 100 people.
You wanna do some research,
you wanna figure out who are the peers,
the mentors and the advisors
that you're gonna need to crush your goals.
Click the link below to watch that training.
It's absolutely free and it is literally
how I've been able to in different industries
successfully start and scale my companies
to eventual exits.
It's a spreadsheet I create.
I'm gonna teach you exactly how to recruit those people
and identify them and think about where the gaps are
in your knowledge so that you can run faster.
So click the link, download that.
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be sure to smash the like button,
leave a comment and let me know
what was your biggest takeaway from this episode
and as per usual, I wanna challenge you
to live a bigger life and a bigger business
and I'll see you next Monday.