As you start transforming your idea into a profitable business with your co-founder(s), it is worthwhile to discuss certain issues to make your working relationship easier and for there to be certainty on how to go about issues when things become hazy.
Issues to hush out include:
1. Role and responsibility of each founder
Starting a company involves completion of a lot of tasks; which force the founders to dip into different roles so as to ensure they are completed in a timely manner. The demand to accomplish fast all ‘startup-like’ obligations may result in confusion between the founders as to who holds the responsibility for the achievement of a certain goal. This confusion more often than not leads to a disagreements, which may lead to a breakup. To avoid such an eventuality, the prudent thing to do would be to discuss and agree on the significant role each founder will play.
2. Decision making
Many decisions have to be made at the start and, presumably, they have to be made very fast. This being the case, and keeping in mind that you will not always automatically be in agreement, it’s important to decide on how collective decisions will be made. This of course may be determined by voting, for example.
3. Ownership and money contributions
Ownership in the business is important as this determines profit and loss sharing. As founders, it’s best to determine what percentage each gets; bearing out the reasons for such and under what conditions. This discussion can also involve a discussion as to whether the company is open to outside investment and the percentage as owners you may be willing to give up to investors in the future.
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4. Exit plan
It’s always prudent, despite the optimism to see your business succeed, to discuss what happens when the business becomes unsustainable. Questions to be asked should include: How will the company assets be split out? What is the exit package for an existing founder? or Are you, as the founders, open to buy-outs?
5. Business structure
There are various ways to structure your business/idea to make it legally recognizable-also as founders you must discuss this for reasons of tax, ability to get permits to conduct certain kinds of activities, liability and 3rd party investments.
6. Conflict resolution
Not every decision you have to make as founders will be reached without differences in opinion. In fact there is always a possibility that before you reach a decision arguments may ensue and escalate to a point that you may need an external party to intervene. Therefore, as founders, you need to consider what options you will take should these moments come. Options of course, include appointment of a mediator or arbitrator and least desirable litigation.
Once you make a decision on how to go about all the above, you are basically good to go, put a handshake on it and it’s a done deal but for future reference and certainty you should is putting it down on paper, on literary a napkin or a in a formal agreement such as in a Founder’s collaboration Agreement that you can find over here.
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