What we’re talking about
In the early days of your small business adventure, it’s likely you’ll muck in with your co-founder(s) and just get on with doing whatever needs to get done. But at some point – and the sooner the better – you need to formalize roles and responsibilities. Who’ll focus on developing the product? Who’ll deal with the financial side of the business? Who’ll go out and find prospective clients? That applies even if you think there’s a natural division of labour – or you fall into the generalist ‘everyone doing everything’ approach.
Apportioning responsibility – and setting your company’s decision-making structures – will likely involve compromise. Normally, each founder will be allocated a senior role on top of ‘co-founder’. This might be in the C-suite (eg, chief executive officer, chief operations officer or chief marketing officer), or it might be something more informal – like business director, general manager or marketing lead. Deciding which title each person takes, and what duties they’ll have within this, is a critical part of any successful co-founder relationship.
Why it’s important
Basic logic dictates that if you don’t properly outline people’s roles and responsibilities, all kinds of problems will come up. People might take on too many tasks, there’ll be overlap and wasted time, plus lack of accountability if things don’t get done – or if entire areas, from finance to sales, are lagging. You’ll make decisions at a much slower pace than a small business can afford. Plus, investors and other major external players are less likely to take you seriously without formal role allocation.
Likewise, unfairness (whether real or perceived) breeds resentment, which can ruin co-founder relationships and entire businesses. A study by investment company Fuel Ventures showed that 43% of co-founders end up splitting up because of internal conflict; in 92% of these cases, it came down to a specific disagreement on a decision after a period of unrest. Setting down expectations at the start, and referring back to them if it feels like they’ve been forgotten, is essential in mitigating this.
Things to note
There’s often a link with equity. You’ll want to get the decisions you make about responsibilities written up into a binding founders’ agreement. Generally, this agreement will also detail how you are going to divide financial ownership of your business. Many see the two as closely related: the shares you get should reflect your contribution – which might lead to an uneven split. But there is another side to the argument – that there’s no way you can determine who will contribute the most throughout the business’ lifecycle right at the start.
Not all co-founders are created equal. Going for a 50:50 or 33:33:33 split in both responsibilities and equity is the most common approach, but you’ll probably still need to appoint a CEO – or, if that title is a bit formal for your business, someone who takes care of where it’s all going. Whether or not this person does more per se, they will have the final say in strategy and decision-making. They will also be the press and pitching face of your company. Because of this, it’s often the position that most people squabble over. Your business’ CEO might have the most experience, the clearest vision, the rights to the idea, or the most time to spare. But they’ll need exceptional leadership and people skills.
Change, but with caution. It’s possible each co-founder’s roles and responsibilities will shift over time. If and when your business starts to grow, you’ll be taking on new staff with specific expertise and the day-to-day needs of your business will be different. Don’t just chop and change at random, though, as this defeats the point of setting boundaries. In your founders’ agreement, you should stipulate how often you’ll reassess co-founding responsibilities – perhaps yearly, or every six months. Outside of these intervals, keep communicating but stick to what’s been arranged.
How to divide responsibility as co-founders
1. Figure out what needs doing. Outline your business’ broad organizational structure, featuring the main responsibility areas. That might include: strategy and development, operations, finance and sales and marketing. Depending on what your business does, you may also have roles such as product development, customer service and writing code.
2. Size up each co-founder’s background. Think about all your, and your co-founder(s), prior experience and motivations for starting the business. You might consider who came up with the idea, who’s experienced in which field, who’s invested the most money and who’s able to commit full time. Answering these questions will help you shape who is most suited to look after the different areas.
3. Size up each co-founder’s skill set. You should allocate responsibilities based first and foremost on who will carry them out most efficiently. Have each co-founder carry out a personal strengths and weaknesses analysis, including both hard and soft skills. Detail prior experience, past success and any contacts you have in each field. Then do a strengths and weaknesses analysis for each other. You’ll end up with a holistic view of who brings what to the table. It should go without saying, but honesty is key here.
4. Decide who will do what, when. This is about assigning responsibility in the most efficient way for your company, and most enjoyable way for each co-founder. Don’t try to formulate job titles yet; just focus on job descriptions. Band areas that need overseeing into units that fit together – and that work with each co-founder’s background and skills. For instance, if you’re a team of two, one person might focus on getting products manufactured and sent out on time, and the other might focus on the grand plan: pitching for finance, hiring and research.
5. Deal with clashes. The separation of roles is often quite natural, but it’s at this point that conflict might emerge. Have open and frank conversations, and look to make compromises where possible. Don’t try to postpone tough conversations; those issues aren’t going anywhere and could seriously affect what you’re building. Consider the option of outsourcing work that neither wants or is skilled to do. If you find it impossible to solve a core responsibility-related dilemma, you’ll struggle working together at all.
6. Allocate titles. All negotiations over and done with, assign titles to each co-founder. These might be C-suite or more industry-specific, like editor-in-chief, creative director or product director.
7. Define metrics for success. Revisit the detailed list of responsibilities you came up with at the start. Reach a group decision on how you’ll measure success for each responsibility, and confirm who will be held accountable for what. Metrics might include revenue, sales numbers, investors onboarded, the competence of new hires or PR output. Predetermine a means of tracking progress, and meet regularly to assess how everyone’s getting on. Publish the list of roles and responsibilities where everyone can see it, in case you run into ambiguity.
8. Draw up your founders’ agreement. Get all this down in writing, via a legally binding founders’ agreement, as soon as possible. As mentioned, this sometimes involves equity division – which is a question for another guide. Include titles and responsibilities and go into detail on time and financial commitment, which tasks take precedence over which, how decisions will be made, and what is beyond each person’s remit.
• Prioritize each co-founder’s skills and aptitude above all else when considering who should take care of what.
• Don’t avoid divvying up roles and responsibilities just because it’s a difficult conversation. Get hesitations out in the open sooner rather than later.
• Divide and structure responsibilities and decision-making powers in a way that means things can get done quickly, but that listens to and values alternative perspectives.
Perspective. Kevin Hale, a partner at seed investment firm Y Combinator, talks all things co-founder relationships in this video. Apportioning responsibilities should, he reckons, optimize team strengths and contribute to a healthy working environment.
Example. Startups.com shares an example from someone who got it wrong, but came out the other side with some good advice. Meghdad Abbaszadegan co-founded social club Feel Free but struggled with conflict, primarily due to not getting a founders’ agreement – detailing responsibilities – in place.
Tool. SeedLegals, a UK-based legal platform, has created a free founders’ agreement template for early-stage companies to put in place.