How to pick a co-CEO for your startup that will help you grow your business and not leave you feeling like you're in a bad marriage
- Cofounders sharing the responsibilities and ownership equity at their startups are extraordinarily common, especially when each partner brings a unique skillset.
- Co-CEOs have successfully led several major publicly traded firms, but most tend to move away from the dual arrangement as the company matures.
- Venture investor Mark Suster of Upfront Ventures cautions founders to think very carefully about whether an even split is good for their startups.
- Here are three things Suster says founders should keep in mind when deciding whether coleadership and coownership is right for their business.
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One of the first questions that first-time founders have to tackle is how to divide the responsibilities and ownership equity of their startup.
Cofounders sharing the top job at their startups is quite common, but there are fewer examples among major firms.
Venture investor Mark Suster is particularly critical of what he calls the “cofounder mythology,” which suggests that founders should have equal ownership and leadership roles in their startup.
“It feels like heresy to even question it. It’s a sacred cow, for sure,” he said in a past blog post.
Suster is a two-time founder who sold both his companies — the latest one to Salesforce, where he served a stint as the VP of product management. He is now managing partner at Upfront Ventures, the largest VC firm in LA.
Suster cautions anyone considering shared leadership to discuss up front the details of how they will divide responsibilities, resolve conflicts, and handle questions over funding, risk, performance, and exit strategies.
“I meet far more second or third time entrepreneurs who wouldn’t do a 50/50 (or 33/33/33) partnership ever again than you would imagine,” he wrote. “I am one of them.”
Still, there are several examples of successful co-CEOs at startups and large firms alike. Here are three things Suster said founders should keep in mind when deciding whether coleadership is right for their business.
Matching complimentary skills makes sense
There are times when a 50-50 partnership seems obvious.
“Either you’re not technical and you think you need a technical cofounder or vice-versa,” Suster said.
That explains why so many tech startups have dual founders: one has the programming chops, while the other has the business acumen.
For Jenna Kerner and Jane Fisher, the cofounders and co-CEOs of the direct-to-consumer bra startup of Harper Wilde, that division of responsibility fell along their different strengths in of marketing and operations.
Fisher and Kerner told Business Insider that the road hasn’t been easy, comparing the business relationship to a marriage.
Their union has proved successful so far.
Since launching Harper Wilde in 2017, the startup secured $2 million in seed funding in 2018, closed a $3 million round of funding a year later, and Fisher told Yahoo Finance sales grew 300% for 2019.
Harper Wilde is far from the first company to have two CEOs. Other direct-to-consumer startups, Harry’s and Warby Parker, as well as candy company Sugarfina, have seen tremendous growth led by their cofounders sharing the top post.
Matching personalities and appetite for risk is difficult
The fast-paced early days of a startup can make a lot of things feel temporary, but co-equal partnership in the founding of a company can become a long-term relationship.
Even if you’re fortunate enough to have someone with whom you see eye-to-eye at the beginning, it’s very natural for people to change as time goes on.
“You often have very limited perspective on whether this person will continue to be a great partner two years down the line, four years down the line, eight years down the line,” Suster said.
“One person gets more risk averse, the other has more risk appetite,” he continued. “One person loses the passion for what you do. Or you have disagreements about strategy, recruiting, funding, etc.”
It’s important to remember that although the initial startup phase is challenging, the hardest work still lies ahead.
Suster makes an exception for folks who have already gone through challenging times with you: “There are some people you trust like family. I have about two of those,” he said.
Shared ownership is a major commitment
When it comes to dividing ownership of the company, an even split is just one of many options. The rights and responsibilities that come with even splits may not be appropriate for your business, or truly in the best interests of the members of your team.
If you want to get the most upside from a cofounder arrangement and minimize the downside, Suster suggests offering an equity stake of up to 40% that kicks in gradually over several years. He also outlines a sort of founders’ “prenuptial” agreement to make sure expectations are understood by all involved.
More important than a matching share of ownership, is how you treat your partner.
“Truly treat them like a cofounder,” Suster said. “Give them access to all confidential information. Involve them in fund raising, hiring, strategy, etc. Publicly call them a cofounder.”
However, if (or when) a major disagreement comes up, one person will have the seniority to make a tough decision.
Ownership tends to get more diluted as your company gets larger, so there will probably be less to decide in terms of equity, but arguably more to worry about in terms of management.
Besides, when you have a board of directors, you’ll likely have a bit less of a say in the matter.
Most co-led companies experience criticism for their leadership structures, and in the case of Whole Foods and Deutsche Bank, company shares jumped immediately after appointing a sole CEO.
Like many other aspects of launching a business, the key is to plan ahead and be ready adapt to changing circumstances.