#3: How to work with your co-founder

Welcome to How to Be a Founder, where we'll explore the challenges behind early-stage company building, and I hope support some founders along the way. I'm Matt Clifford, co-founder of Entrepreneur First, and I'm here with my co-founder and now co-author, Alice Bentinck.

Alice, hello.

Hello, Matt. Together, we've worked with thousands of founders to build companies now worth over $10 billion. Over this podcast, and with our newly released book, How to Be a Founder, out now, please do go and buy a copy, we'll be sharing with you the insights and knowledge we've learned while working with real-life early-stage founders on their questions. You can think of us as your startup agony aunt and, um, uncle.

So, sit back, get listening, and we'll try and answer your burning questions on how to be a founder.

Following on from last week, where we discussed how to choose your co-founder, this week's topic Our next topic is on how to work with your co-founder. Again, from our experience, we think this is a pretty big deal, especially because we don't think finding your co-founder is a one-and-done kind of scenario.

Exactly. So, not only do you have to proactively build a relationship, there's actually a lot you need to be doing to ensure that your partnership is as productive as it can be, including sometimes, as we've discussed before, breaking up. That's one way that you improve the relationship. And I think that's a big part of what we've learned, really, particularly If we were to say, what are the things that we've learned that are most non-intuitive? I think this idea of testing the relationship and seeing it as something where you're trying to front-load failure, if there is failure, is so important.

The EF process is now so obvious to us, this whole idea that you're constantly testing different co-founders to choose the right one for you. But actually, the bit that we haven't yet gone into in depth, although we do cover it in the book, How to Be a Founder, is that process of extricating yourself from a team and this kind of breakup process. One of the things we should probably touch on slightly is that it's a very emotional process. Now, one of the key parts of Entrepreneur First is trying to remove a lot of the emotion from breaking up with someone, but there's still a degree of rejection. And I think that that is often something that is very hard, particularly for individuals who used to be very high-performing throughout their life, to accept and take. Matt, how have you seen founders positively process that breakup conversation?

Well, I think you do sort of have to buy into the framework. There are lots of things about EF and more generally about starting a company, but I think particularly in the EF context, that really are counterintuitive. They really are non-obvious. And sometimes I like to say that one of the most valuable things that EF provides is not all the obvious stuff like the money and the— or even the people, although I think the people are super valuable. It's a little bubble of Of norms that are really different from the outside world. So one of the things we push so hard with incoming cohorts is you are now in an environment where you will celebrate breaking up with your co-founder. And it's not in some weird, like, cultish, let's pretend this isn't painful, let's pretend we don't have any emotions. It's saying the reason you will celebrate is that you've learned something about the right kind of co-founder for you, and you're able to share that learning with the group as the hot. By the group, I mean like the cohort as a whole, and actually free up that person that you otherwise would've worked with for someone else to co-found with. And so I do think that at EF, we've crafted very carefully, like, what are the norms that we want this community to have? I think if people are working outside EF, one of the key ways to do it is to think really hard upfront about what you're getting into and talk about it. I think misaligned expectations, like we say we're going to work together, I think that means that we've committed, you think that we're just Trying it out for a week sounds so basic, but it's amazing how often you encounter that. And and so I think just the power of norms, the power of verbalizing and kind of making explicit expectations so important.

I I couldn't agree more. It feels like this is the bit that people skirt away from, but it's it's unbelievably simple. That expectation management and being explicit about the testing process. So if one of you is going into this co-founder relationship in test mode, and the other person doesn't realize that. They are being tested, it can lead to very awkward conversations. So why be in test mode? As we talked about in the previous episode, you need to be in test mode so that you can understand how productive you are together. And if you are productive together, it's a great indicator it might be a strong co-founding partnership. And if you aren't, it's a very strong indicator that you should probably break up. Now, it's super important that you have that conversation up front, that you are in test mode, and that you set a period of time where you agree on something that you will achieve, a target, or or testing a hypothesis. But then you come together, and you have that difficult conversation where you say, that was a test. What did we both observe? What worked well? What didn't work well? And one of the things I love about this process is, if it does work out, you're building a feedback culture and a feedback norm from day one with your co-founder that I think can often help remove a lot of the issues that co-founders see later down the line. One of the things that I would think it's worth sort of bringing up as well is that often people don't want to break up with someone because, it feels mean or rude, as in, you know, if I turn around to you, Matt, and say, oh, I don't want to be your co-founder anymore, that feels a bit sort of—

It certainly would now, Alice, I have to say.

10 years in, it might not be a good idea. But Dr. Gina Golan, who's our in-house psychologist, she often talks about this idea of, it's either win-win or lose-lose. There's nothing in the middle. So, actually, By me avoiding that awkward conversation with my co-founder, it's terrible for the co-founder as well, as it's just prolonging and drawing out the inevitable. So actually, the kind thing to do is to sit down and have that conversation as quickly as possible, and recognise the opportunity cost for both of you of being in the wrong team.

And one of the hard things about this, which I think we should acknowledge, is that even relatively smooth startup stories are real rollercoasters. And of course, in the moment, The breakup, of course, is one of the low points. I think what we're arguing is not like, oh, it turns out that in the moment the breakup is really wonderful because you realise you're learning and you realise you're moving on. It's that when you zoom out, it will turn out that that was an important part of the process. I know when we were doing the research for the book, we looked into some of the quite painful breakups that have happened at EF over the years and what happened to them. I think it is really striking to me that often, in the moment, it feels like there's just no way forward. You know, ugh, I want to work on this thing, they want to work on a different thing. Like, we're now— we're so stuck. And then you zoom out, and you realize just that they were both going on completely different, often very successful journeys that just weren't aligned. And I think it's— It's hard because it is real, the pain of kind of realizing you're working with the wrong person. But you've almost got to try and kind of keep the long-term perspective that you have to plan to succeed. And if you succeed, it's going to take years and years and years. So you definitely don't want to be with the wrong person for years and years and years. I guess it's easy for us to say, but it's very powerful when I think you look at the kind of experience we've seen as a whole.

It's probably worth touching on what I imagine will be a concern in terms of practicality for a lot of people is that we often see people stay in the wrong team where they acknowledge and know that it's it's the wrong team, because they're worried about the idea, and they're worried that by either breaking up with their co-founder, or not working with their co-founder anymore, they won't be able to keep the idea. This, again, is something that you should be explicit with your co-founder upfront. At EF, we don't believe in ownership of ideas. It's not that one of you owns the idea and gets to keep it if you break up. We've had a number of companies that, maybe a couple of weeks into the idea development, they feel really, really attached to the idea, and They feel so excited about it, they've decided to break up. It leads to a very, very difficult and emotional, and often angry conversation, if you then have to decide who gets to keep the idea and who has to lose the idea. As you may know from our previous episode, we really believe that the idea is a product of the co-founder and a product of that relationship. And actually, we have a bunch of examples at EF where Co-founders break up, they both keep the idea, but because of who they are, and because of who they then co-found with, the ideas end up progressing in totally, totally different directions. So, have that conversation upfront with your co-founder about, you're in a testing phase. If you break up, the idea will still be owned by both of you, but you'll take it in different directions, just because of who you are.

But if you don't have that conversation upfront, I find often the idea ownership bit becomes So, we know that once you've identified someone that you want to trial a co-founding partnership with, that's really just the start of the journey, and the real work has just begun. As you start to build your startup, you'll also be building a dynamic with your co-founder. You're going to be making big decisions about what you want your business to look like, and you're going to be continuing to test the waters with them. test each other. That's a very normal and natural part of the process. So, today's guest will soon be starting a co-founder search of her own, and she's here today to talk to us about how she should approach working with a potential co-founder. So, Leonie, welcome and hello.

Hello, thanks very much for having me today, Matt.

Thank you for joining us. Just a heads up for listeners, I've got my newborn baby on my chest, so if you can hear any snuffles, that's what it is.

Would you maybe just kick off by introducing yourself, telling us a little bit about what you're building and how Alice and I can help today?

Sure. So, my name is Leonie. I hold a master's degree in management, technology, and economics from ETH Zurich. And I spent most of my professional career in the insurance industry, focusing on natural catastrophe and climate risks. And I held, like, different roles there, technical roles, commercial roles, in a big corporate, in a small startup. And I really liked my jobs. But at some point, I realized, Hey, I somehow want to have more from the world. I want to have a bigger impact. And I realized, hey, the way to do this is to found my own company. So I quit my job and I'm now really looking forward to joining EF in Berlin this cohort. One of the things I really look forward to most is actually to get to know a great co-founder and like build a great collaboration. So yeah, great to have the chance to chat with you about that today. So I had like my first introductory calls now with future cohort members. And what I found really funny about it is it feels like speed dating, right? You speak to a lot of different strangers, basically. And that approach is very different. So basically, you won't found your company with like your best friend or a colleague you've worked with for a long time, but really with more or less someone you just met. So I wonder a bit, like, what have you seen are the opportunities and maybe also the challenges of this approach for your collaboration?

I think this is, this is the whole ballgame in a way. I think your question gets to the heart of the challenge, both generally of finding a co-founder, and also in the entrepreneur-first context. I think the key thing to remember is what you're not doing is running some big optimization problem. There's always someone in every EF cohort that comes in and they have a spreadsheet of everyone's name in the cohort, and then they have all these columns for all the things they're looking for in the co-founder. They want to try and meet everyone and give them a score on everything, and at the end, they're going to sort by some weighted average of them, and, oh, that's their co-founder. You cannot find a co-founder like this. You cannot even, I would say, go what you might call breadth-first and search across everyone. I think the paradox, but in our experience, the most successful method for finding a co-founder, is to treat every encounter as though it really might be the one. In other words, you're not just testing. In that sense, it's not quite like dating. Most people don't go into a first date being like, maybe we should just pretend we're married, and then eventually we will be. Whereas actually, we do believe that's the right way to find a co-founder. You shouldn't sort of date in the sense of get to know each other, go out for dinner, have drinks. You should date in the sense of try and build a company. And at the right moment, if it feels like there's not going to be the right partnership for you, absolutely stop. But equally, that moment might never come. And maybe pretending to start a company together very rapidly becomes, oh, we actually have got a company together. And so, the core of the EF methodology is about, do something real together, build, start building together. That's the only way you can really know if someone is the right co-founder for you.

I think, to your point about this sort of inorganic process of finding someone through something like EF, or if you're just going and running a co-founder search process by yourself, one of the benefits, I think, of this is that you are starting from a clean slate. One of the challenges we see sometimes with individuals who have known their co-founder co-founders for a very long time, is that you are bringing a bunch of baggage into that co-founding relationship, from your friendship, from your familial relations, like, how have you maybe connected? And I think there is something really beautiful, in a way, about starting a co-founder relationship from scratch, where, as Matt was saying, you're setting it up to be, first and foremost, frankly, a business relationship rather than a friendship, and really encouraging you to have those difficult, socially abnormal conversations upfront about, okay, well, actually, what do you believe in? What are the ideas that excite you? What are you good at? What are you bad at? We've worked with, what is it now, 3,000+ people going through EF to find a co-founder. And we are constantly surprised and amazed at how robust the co-founder relationships are that are formed. And largely, it's because of the setup process, you know, the fact that the individuals are going deep into What are they good at, how to give feedback. And I think you can get to a level of transparency and trust with this sort of inorganic co-founding process, that sometimes is just much more socially hard, socially abnormal, socially frowned upon, all these kinds of social norms that often block some of the more honest conversations that people need to have when they are going to be co-founders.

What you both said actually goes already, like, also in my next question. Matt, you said basically, you should just start, right, building something. But at some point, at EF, you also need to officially commit, like, to your So, I wonder, when would you do that? And what are maybe really the most important questions that you need to clarify before you do that?

I think probably the way we would talk about this is that it's not— there's not a single moment where you're like, well, before we were like playing at being co-founders, and now we're really co-founders. It's almost the other way around. You are official right up until the moment you decide not to be. So the way it works at EF is we publicly celebrate every decision to start working together, and we publicly celebrate every decision to stop working together. The reason we celebrate the first is that whenever someone starts working together and tries to build something, that creates the opportunity for a company to just emerge out of that, and that's a wonderful thing. Why do we celebrate the breakups? Because almost always those two people learn something about themselves, each other, and what they're looking for. And by deciding quickly to not work together, they've kind of created liquidity, if you like, in the founder pool, and there's more options for everyone else. But I wouldn't think of it as like going official. I would think of it as if you go back to that idea of you can't really like analytically test things, you've just got to get going. You at some point You will realize that you have a company, you have customers, you have people that want to buy stuff from you. Now, if at that point you're only just realizing that you don't want to work with this person, maybe you left that a little late. Our methodology would be to say, embrace the reality that not everyone is for you. Like, if you feel after 24 hours that someone isn't the right person, tell them, have the difficult conversation and stop. But I wouldn't think of it as like, Starting unofficial and going official, I think you've got to embrace every potential pairing, as for all the time you're in it, you are co-founders, you are building something. It's deciding when to stop rather than deciding when to commit that's the important decision.

I would encourage you to think about the kind of different stages of finding a co-founder. So, it sounds like at the moment you're in the search process, as in you're having pretty light conversations with lots of people. There's then a sort of filtering process of finding your shortlist, But then, as Matt says, the next important stage is the kind of getting building. And I suppose that is the point where we very strongly encourage you, whether you're in EF or outside of EF, to just commit to one person and test one person. It does seem like, and we've seen this time and time again, that almost the risk-averse thing to do is to hedge your bets and to have 3 or 4 projects ongoing. Weirdly or interestingly, this just doesn't seem to work. It's very, very tempting to say, I'm going to test multiple different individuals at the same time. Unfortunately, this doesn't work because you can't gather sufficient data on any one individual fast enough.

You said at some point, of course, you need to commit to someone quite quickly, right? Then you realize maybe, hey, it is not working. You need to be very honest to the other person, and you need to do so quickly, right? You have very limited time. Are there any methodologies at DF that encourage, like, this open feedback culture that you really need as a founder? And what is some advice that you would maybe give some teams? Around that one?

Yeah, that's a really great question. And I think it's one of the reasons this whole process is so hard to do, particularly outside a context like EF where the frameworks are there. Because the reality is that many of us go through life just avoiding difficult conversations. And there's reason for that. Like, it's not fun for most of us to have a conversation where we're talking about ending a commitment, however short-lived. But I think the way we think about this at EF is that if you start from a position of complete respect for the other person, actually, once you reach the conclusion that you're not the right co-founders for each other, the most respectful thing you can do is to communicate that kind of quickly. And if you don't do that, you're potentially creating a situation where you're effectively stringing the other person along and wasting their time. So we sort of start with the premise that There's nothing personal about the decision to stop working with someone. It doesn't mean that someone is or isn't a good founder. It doesn't mean that they are or are not smart or talented or capable or any of these things. In fact, one of the main things we've learned from doing EF for such a long period of time with so many people is that there are some people who look like pretty disastrous founders in certain combinations and become truly brilliant founders in others. The reason I'm sort of making that point is that I think one of the things you have to do as a framework for having these conversations is deprogram some of the sort of social norms that we carry with us. We're like, oh, if I say that, what will they think? In the context of trying to rapidly reach conviction about a co-founding pair, it's actually the best and most respectful thing you can do to communicate that quickly. So how do you do that? Well, partly, I think, at least in the entrepreneur-first context, it's about having a set of norms that everyone agrees to upfront and says, we commit to each other to give the feedback quickly and respectfully and to celebrate what we've learned rather than dwelling on what didn't. But I think when it gets to how do you actually do this interpersonally, we're big fans of a framework that is called Fierce Conversations. There's a book called Fierce Conversations that we really recommend to people. And at risk of trying to compress an entire book down to a single soundbite, I think it's really about getting straight to the point of what you've decided and why, and giving the other person time and space to communicate how they feel about that. And again, I don't want to pretend that there's any framework that can take away the natural human awkwardness of breaking up, which is effectively what it is. But we do think that by starting with respect, starting with the norm that actually getting people to the right co-founder is the most important thing, and using the idea of fierce conversations to get straight to the point, I think you can actually turn something that could be really painful into actually a relatively smooth process.

One of the teams that I saw do this really, really well, they used a regular Friday touchbase to give each other feedback. But the way they did it was to say, from a scale of 1 to 10, how are you feeling? Where 10 is everything's absolutely fantastic, and 1 is everything's terrible. And by turning it into a number, it depersonalized it. So it wasn't about, you have made me feel this way. It's, I am feeling this way. I have these concerns. And in some ways, it was easier to say, actually, this week, I'm feeling a 4, and then being able to explore that together, rather than it being about finger-pointing. Now, sometimes, it is about finger-pointing, in that there is a specific issue with the other person that needs to be addressed. But we find so many co-founder issues at this early stage are often through misunderstanding. As in, one person has said something that's been misinterpreted, someone's behavior has been misinterpreted. And often, one of the weirdest things, Matt, I don't know if you remember this, particularly in the early days of EF, one of the biggest causes of conflict between co-founders was working hours. As in, often, it would be one person wanted to work 8:00 AM to 8:00 PM, and the other person wanted to work 8:00 PM till 8:00 AM, the other way around. And the amount of conflict we saw just through something as simple as not being willing to have a conversation that says, Hey, actually, what are our core hours? Matt and I started our careers at McKinsey, and actually, one of the great things they do about forming teams, and this is obviously in a consulting context rather than a startup context, but at the beginning of every project, you set team norms, which is just, how are we going to work together? What are our working hours? What are the things that matter to us? I need to do yoga on Tuesdays, or I've got childcare, or whatever. And actually, setting that up front and just having that honest conversation can remove a lot of the misunderstanding and pain that you see slightly later down the line. So, it really is just about transparency, it's about good communication, but as Matt said, It's amazing how difficult that is, and amazing how much people shy away from that, because it's seen as conflict, whereas really it's just about radical candour.

I think one of the ways that this actually ends up being hard— and frameworks are great, but I think sometimes it's helpful to talk about where people struggle implementing them— is that sometimes people say, I can't tell if there is something here that effectively can be solved by a simple conversation. Of the type that Alice just described, which I think is such an important kind of conversation to have? Or is there something really fundamental here that means that this is just the wrong person? And how do I tell the difference? Alice and I have been working together for 11 years. I think we have a great and incredibly productive co-founding relationship. But for sure, over the last 11 years, we've needed to give each other feedback and say, when you do this, this is the impact it has on me. Or we really need to spend more time together or less time together or whatever it might be. So how do you tell the difference? And I think the hard thing is there isn't a single kind of iron law that tells you. But to go back to one of our core themes, I think the best heuristic is, am I fundamentally more productive with this person? In our best moments, do I see myself being the very best version of myself, maybe even a better version of myself in a work context than I realized was possible, or not? If you do, but there are things that are holding you back from that, maybe that's the sort of thing where a feedback conversation can can get you to a great place. If actually the base rate of joint productivity is not there, then probably increasing your amount of time together in the office just isn't going to work. And I think what I would say about the very best companies, which I think every aspiring founder should aspire to be one of those, there's always been that core thing of, yes, this person just gives me superpowers. And if that's not there, It probably is better to find someone where it is there than try and fix and tweak around the edges with a kind of a fundamentally flawed relationship.

I think the gist I take out of this is really that you need to be honest with your co-founder, but you also need to be honest and true to yourself, right? And I think what really helps is really to formalize the processes around that, as you say, right? Like, have, like, regular feedback touchpoints, like, be clear on your values upfront with yourself and with your co-founder, and then really live this and decide according to that. I think that's not only true, probably, for a co-founding relationship, but also something that I feel one should implement more also in other coworking, basically in any coworking situation, right? That can be super helpful.

And I think there's a general point here, which applies to many of the challenges that founders face throughout their journey, which is, there's often opportunities to defer pain, to be like, oh, I just can kick the can down the road. And this is going to be a bit difficult. And almost always, deferring pain just means more and worse pain later. And so, like, one of our former colleagues, Alex Crompton, who was one of our first employees and helped start EF in Singapore, he always liked to talk about great founders run into the spike, meaning you sometimes can't avoid the pain, but putting it off just makes it bigger.

Yeah, just to build on that point, one of the areas where I see people avoiding the spike and really putting off those conversations It's often around the idea. You can find individuals who love working together, who feel very productive together, but they actually aren't aligned on what the idea is, or one of them is, in some ways, subjugating their own beliefs or preferences to work with this other individual, even though they aren't fully committed to the idea. It sounds like one of those things that's like, oh, that would never happen to me. Because co-founders are reasonably rare, it's reasonably hard to find a co-founder, particularly one that you click with and feel productive with and all the rest of it. We do see a surprising number of individuals who just sort of say, oh, it doesn't matter, and that the idea doesn't matter. It's interesting that when we see these individuals at investment committee, and this is very reasonably rare, but it happens enough for it to be worth mentioning, where often we'll say, hey guys, we want to invest, this looks great. And one of them turns around and goes, ah, Actually, I just don't want to do this. And they've just spent 3 months building this idea, building this co-founder relationship. They've cared enough to pitch to investment committee. But then the realization of, oh, crap, I'm going to have to work on this for the next 5 to 10 years, is enough of a kind of shock to their system that they don't want to take the funding, and they drop out of the startup, they split up. Now, I would encourage everyone, particularly the early stages of a co-founding relationship, to really dig into what the idea is, and to make sure that you spend enough time together, and enough time talking about that idea, to make Make sure you are aligned on what are the beliefs behind the idea, what is the hunch that you're trying to test. We go through this framework in the book in more detail, but actually making sure that you're aligned, not just on your productivity as co-founders, but making sure you're aligned on what you're working on, what it's going to become, and your roles in that, is super, super important. And I would encourage you to think about that at very, very early stages. And as Matt says, run into that spike, don't put it off until later.

I think you mentioned already, like, now, one pitfall you could run into with a team member, right?

Like, missing out on the idea.

Being clear about that. What are maybe, like, some other pitfalls that made, like, seemingly great teams not work out in the end? I mean, you've seen, like, hundreds of teams.

Yeah, it's a really good question. I mean, sort of on what Alice was just talking about, I think, you know, I said earlier that productivity is the ultimate arbiter of whether a team is good. I think one of the challenges sometimes is disaggregating productivity from market pull for the idea. So sometimes you get teams that, um, actually it works in both directions. Like, markets are very powerful. Like, if you're building something that it turns out people really want, you can get a lot of what looks like demand early on, and it can make you feel like you're being really productive. But maybe you're not being really productive. Maybe actually that's just because you found a real need. Equally, We have great teams in EF history, people that have gone on to build companies worth hundreds of millions of dollars that were really productive but in the wrong direction. They couldn't get any market pull for what they were doing. And yet, in terms of the number of customer interviews they were doing, the level of insight they were able to generate, their speed of iteration, their speed of shipping, they were clearly very productive. And so one of the false friends, if you like, in evaluating a co-founding team, Just as Alice was talking about lack of alignment on an idea, the other one is like the idea itself is not yours. Now, in the long run, you can't change your idea every few days, right? You've got to find something that you're really aligned on. But very early on, you've got to remember you're probably simultaneously testing a co-founder and a ton of assumptions about your business. And you mustn't let what you learn about the business idea become your evaluation of the co-founding team. Again, it's a tricky one. I think this is one of the ways where being in Entrepreneur First really helps, because of course our advisors have seen that movie many, many, many times and can help you sort of like tease that out. But remember, you are not your idea, and your co-founding team is not your idea.

Maybe it's worth us just digging into a little bit about what do we mean by productivity in the early days? So I suppose there's kind of 2 misunderstandings. Because we're talking about— remember, we're not talking about an early-stage startup where you have an idea and a team and maybe a product, we're talking about day 0, day -10, the very, very beginning. So, one mistake is focusing on process over outcomes. So, often you get a team who says, we've been so productive. We've spoken to 100 customers. We have worked a 100-hour week. We are so productive together. And then you say, cool, well, what did you learn? And they look a bit blank, and they're like, oh, but we spoke to so many people, and we heard this, and we heard this, and we heard this. It's like, okay, well, what did you learn? What hypothesis did you test? How have you pushed on your thinking about the idea, and they don't really have anything there. Now, often, that is a co-founder pairing issue, where, whatever reason, whatever the co-founder dynamic is, it's just not working, because it's not allowing them to progress the thinking behind the startup, as well as the doing behind the startup. So, one of the big mistakes we see is people that feel that they're being productive, but actually, it's focusing on the process over the outcomes. So, what kind of outcomes are we looking for in the early days? Well, as I was saying, it's really all about learning. The best teams, and we talk about this in more detail in the book, that the best teams every week surprise you by coming back with often something that they've disproved, where they're like, we thought this was true, but actually it turns out this is true instead, and we're now going to head in this direction. And this— one of the frameworks that we use a lot at EF is this idea of linear ideation. You want teams that are constantly building on what they've learned, and the body of knowledge that they have about their idea grows and augments week on week, and builds and builds week on week. Teams where the productivity isn't quite right, and where they aren't learning enough, they have this sort of scattergun approach where they learnt this one thing, and so they've completely changed the idea the next week, and they've completely changed the idea the next week, and they've completely changed the idea the next week. As Matt was saying, some of our best companies, yes, they've completely changed the idea from day one, but the idea has morphed over time as they've built on what they've learned week on week, month on month. And it's not this sort of scattergun approach that basically just destroys a lot of the learning that you've previously had. So, focus on outcomes, don't focus on process, and then really, really focus on, what am I learning? Rather than trying to make a particular metric grow, because the metric will often force you into a process productivity rather than an outcome productivity.

Yeah, I remember so clearly those early days, Alice, when EF was more or less just you and me. And so, we would spend so much time with every team every week, and by far the most reliable It turns out, long-term predictor of value was the teams that surprised you most often in a positive way, even in the first 12 weeks of existence, are the teams now that still continue to, even though they're now doing tens of millions of dollars of annual revenue, they continue to impress and surprise. I think there's just a set of habits that people form around the right kind of productivity seem to be very sticky.

And as you said, not too many processes. Is that also true for role distribution in the team? That being one of the impacting factors of productivity as well. Would you formalise around that, or should that just come naturally?

So, we are big fans at EF of having that conversation upfront about what role each of you will take. Often, we find that there's a lot of baggage attached to role titles. Either everyone wants to be the CEO, or everyone wants to be the CTO. The roles within a startup, it's called a role because there are a certain list of activities that are attached to them. that need to be performed by that individual. There are certain lists of activities that every startup needs to, to do to get through the first couple of years of growth. So, you do need to make sure that you have within your co-founding team people that want to do both, both parts of that. Now, the errors that we would see is you often— it's often much easier to find a co-founder who is a very similar background to yourself. So, often you find 2 CTOs coming together or 2 CEOs coming together. Now, Now, if that's the case, if you're 2 CTOs, you need to ask, okay, well, who's going to do the fundraising? And do they really want to do this? Do they want to become world-class at raising money? Because if no one in the startup wants to do that, and you want to build a venture-backed startup, it's not the right co-founding pair. Likewise, with 2 CEOs, if you want to build a technology company, if you want to build a software company, we would strongly recommend that you have someone on the founding team that understands how to build software. Now, this isn't isn't always required 100% of the time, but it's typically the case, and is usually the best way to build a software company. So, if you have 2 CEOs, who's going to do that? Is one of you going to upskill technically? Will that be sufficient? Maybe it's not the right co-founding pair. So, I would encourage you to have those role conversations, largely because it will just flush out where there might be gaps in your co-founding team.

Well, Leonie, huge thanks for your time today. These are great questions, and we're really excited to see put them into action as you join us at EF Berlin very shortly. So, thanks again for joining us.

Thanks very much for that nice conversation.

So, now we've got a letter from someone facing a problem that I think is actually very common, particularly when you start a company with a friend. Alice, do you want to take this one?

Sure. So, this is anonymous, which I think makes sense when you look at the content. So, it says, Dear Matt and Alice, I'm in the process of co-founding a company with my flatmate, who I met at university. We were on the same computer science master's, and both really got into building no-code tools. After graduating, we both got jobs in finance, and ended up spending our evenings talking about how much more efficient we could make things. After enough conversations, I suggested we could turn these ideas into something. We started scribbling, got really excited, and started building in our evenings. A few weeks later, my flatmate ended up getting offered her dream job. Since she began working there, she doesn't seem focused on the company at all. She only wants to work on it 1 to 2 nights a week because she's tired, and when she's involved, she seems distracted. I feel like I'm really carrying the weight of this. At best, she just agrees to my ideas, At worst, she drags her feet on decisions and slows us down. She insists she's still dedicated to the company, and that I should understand that work's just a lot right now. However, I don't feel like I can rely on her at all, and that I need a co-founder who's committed to move this forward. What's the best way to handle this? So, Matt, this is, this is often what co-founding can feel like out in the, in the wild. This doesn't feel super surprising to me, does it to you?

No, this, I think, is exactly this question of shared level of commitment. which I think is the one that's often neglected. People very rarely will try and start a company with someone they don't think is smart, but it's amazing how many people start companies with people who actually aren't committed.

When testing a co-founder, one of the things that I would look for is this sort of idea of readiness to found. We talk about it a little bit in the book. In some ways, it's one of the hardest things to test, because If you ask someone, they will probably— ask them directly, do you want to start a company right now? Are you committed? The answer is probably yes. And it sounds like for this person and his friend, she probably would have answered yes to that. One of the questions that Erika Jung in the book suggests people use, and that we've seen work very effectively at EF when we're selecting people, is, what else are you applying to right now? What are your other options? Because it sounds like, at the point where this person's housemate was committing to co-found a company, or Actually, he doesn't ever say that they committed. It sounds like it just sort of happened organically, and maybe there weren't enough conversations at the beginning. But it sounds like just asking the question, what else are you applying for? What else are you interested in right now? If he had known that she was actually considering multiple different options, maybe it would have led to a different outcome, or at least he would have had transparency that this wasn't necessarily her primary choice right now.

Yeah. I think this is where sometimes people get confused about what testing means. I think, obviously, one thing we're very— the whole book and the whole EA framework is built around testing ideas, testing co-founders. I think we're probably— and tell me if you disagree with this, Alice— but I think we're not such a big fan of testing commitment. By which I mean, I think you do need a degree of certainty that you're all in on starting a company before you can really authentically and fairly start working with people who have really decided this is the right moment for them to start a company. I think it's really tough if people are testing not the relationship, but whether they should be a founder at all. I think this is one of the things that makes EF work, is one thing you know when you enter a cohort is that everyone else in that room has quit their job or given up something else valuable in order to be there. And so I think one of the things we discuss early on in the book is how do you get to the point where You kind of believe that you have what it takes and are ready to jump in and start a company. And I think the fact that there aren't necessarily, in the wild, very strong norms around being upfront about what your level of commitment is, does drive a lot of problems.

So, it feels like, for our anonymous letter writer, there's a bunch of things that probably should have happened upfront that didn't. But how can we now get them out of this situation? I mean, reading this letter, I have to say, I don't come out of it thinking this is a savable situation. This feels like, unfortunately, the person they've chosen to co-found with is not committed. But it feels like maybe she hasn't necessarily admitted that to herself, and hasn't admitted fully to herself that she's not ready to be a founder right now. I mean, it feels like a tricky conversation is coming up.

Yeah, and I almost suspect that the letter writer sort of knows what the answer is, But it's the tricky conversation that's maybe preventing them putting that into action, which is fair enough. I would feel the same.

We live together.

Yeah, right.

High stakes.

I think one way of thinking about this, though, both for the letter writer and for people in general, is to just go back to this framework we keep using, which is salvaging something because of the short-term gain just really makes no sense in the context of startups, where success means doing it for 10 years. And so, I think one way to almost convince yourself to have the fierce conversation is to say, how long would I be willing to have this situation continue? And if the answer is, actually, I already know that that's not something that works for me, you're only postponing the inevitable by not having the conversation.

One of the things I can see happening in this situation, which we've seen happen a lot for teams outside of EF, is the letter writer Trying to soften the blow by saying, cool, you can have, insert percentage of the company. It might be 1, it might be 10, it might be 20. I would push that there is no number here that is the right number. Ultimately, as Matt's been saying, startups are a long-haul game. So, if you are there at the very, very beginning for a short amount of time, typically, if you leave, that means you leave with nothing. You might've heard of vesting schedules, and this is something that we will go into in more detail when we talk about funding and fundraising. But typically, if a founder leaves before 1 year of the company's existence, they leave with nothing. Now, your cap table, which is the people who own equity in your company, is the most precious and important asset you have at this stage. It might be worth nothing, but one day it could be worth— you've got to believe it could be worth a lot of money. So, actually, even if you gave them 1% today, it feels like a throwaway amount. But actually, that 1% in the future could be both incredibly valuable to you, but also could be the difference between securing an incredible hire when you're very late into the company's development, or getting a key angel investor on board that otherwise you wouldn't have room for. So, the opportunity cost of not leaning fully into that difficult conversation, and trying to soften the blow with a bit of equity, the cost is really, really high, even if you don't feel that pain today. So, keep your cap table clean, give away equity to as few people as possible. And I would push the letter writer to think about how they can have this sort of honest and pretty direct conversation in a way that doesn't jeopardize the future of the company.

Yeah, the final thing I'd add is, I don't want anyone listening to think that we're saying, The minute there's a difficult situation, get out. There are no salvageable situations in startups. I don't think that's what we're saying. I think what we're saying is the reason that this feels like a situation that's not going to work out is that because commitment is one of the few non-negotiables when it comes to a company, and you're going to have disagreements along the way, that doesn't mean you break up. But ultimately, as we said on a previous episode, willpower is one of the most important resources for a startup.

And if you're just starting where one person doesn't even have the basic commitment, So, this, in many ways, feels like one of the trickiest episodes for people to put into practice. I think partly because what we're trying to encourage everyone to do is create new social norms and set up new social structures. to enable that testing of the co-founder to be as effective as possible. What would be your one single thing that you would want people to take away from this episode, Matt?

I think the main thing here is that you're entering into this really long-term relationship, if things work out, and you should plan for them to work out. And therefore, that makes the value of finding out quickly that it's not going to work much, much higher than in almost any other sort of relationship that you might enter into. And so I think that recognising that that's counterintuitive, recognising that that's going to cause you to have to make decisions more quickly and maybe more ruthlessly than you might do in other situations, is really valuable. Almost like you need to start with that mindset so that you can make the right decisions as you go through this process. Thank you for listening to How to Be a Founder. To take a deeper dive into the topics we discussed today and more, Or take a look at our book, How to Be a Founder. It's out now and available online and in bookshops.

We have also put together a website called howtobeafounder.com, which has even more resources on fundraising, including practical documents that you can download and take a look at. So do check out howtobeafounder.com.