Dan Martell - Finding a Co-Founder ｜ How to Find The Perfect Partner & Split Equity Fairly

00:00:00.080 Hey there, Dan Martell here,

00:00:01.040 serial entrepreneur, investor, and creator of SaaS Academy.

00:00:02.720 In this episode, I'm gonna share with you

00:00:04.000 how to find the elusive co-founder

00:00:07.000 to help you build your dreams

00:00:08.120 so that you don't make the wrong decision,

00:00:09.720 how to figure out the equity split.

00:00:11.480 One of the most expensive equity dilution decisions

00:00:14.480 you're gonna make is a co-founder

00:00:16.400 and how to make that decision right.

00:00:18.000 And be sure to stay there where I'm gonna share with you

00:00:19.840 how to get access to my Dream 100 framework.

00:00:22.320 This is how I identify the hundred people

00:00:24.960 over the next years that are gonna allow you

00:00:27.400 to succeed at anything you decide to do,

00:00:29.920 like finding a co-founder.

00:00:31.760 Let's get into it.

00:00:45.420 So I wanna share a story of my buddy, Marcel,

00:00:47.620 and I don't think he would mind that I share with it.

00:00:49.720 It's just such a fascinating example

00:00:52.640 of exactly what I'm teaching.

00:00:53.860 I've had co-founders for every one of my companies.

00:00:56.220 I had Flowtown, I had Ethan, Spheric, I had a whole team.

00:00:59.660 There was Corey, Adam, and Andrew, and many other,

00:01:03.800 you know, like I've always felt like teams really

00:01:06.300 will help you hold yourself accountable

00:01:09.360 and live to a bigger standard.

00:01:11.400 And for a lot of SaaS companies out there,

00:01:13.220 if you have a non-technical founder,

00:01:14.940 having a technical founder

00:01:16.080 could be an incredibly important decision.

00:01:19.380 So, you know, Marcel started a company called Parakeeto

00:01:21.920 and he had a technical person working with him.

00:01:24.260 That person didn't work out.

00:01:25.300 and kind of a few other people that wrote some code,

00:01:28.420 didn't work out, eventually decided,

00:01:30.120 I need a technical co-founder.

00:01:31.740 And he went on the hunt.

00:01:33.500 And I'm gonna share with you in this episode,

00:01:36.460 how he assessed it, because I'm an advisor to his company,

00:01:39.500 how he assessed it and eventually ended up recruiting Ben,

00:01:42.700 who is his co-founder and CTO.

00:01:44.360 Ben is amazing, but trust me,

00:01:46.280 there was months of process and heavy lifting and hard work

00:01:51.280 that Marcel had to go through to eventually find it,

00:01:53.600 where now they iterate and push product

00:01:56.460 and get customers in a revenue generating way faster

00:01:59.620 than he ever did prior trying to work

00:02:01.800 with outside developers, et cetera.

00:02:04.040 Now, it's not for everybody,

00:02:04.940 but if you want a co-founder,

00:02:06.220 here's a way to think about it.

00:02:07.560 Number one, shared problem.

00:02:09.300 I believe that if you're gonna have somebody else

00:02:11.520 solve a problem that you're passionate about,

00:02:13.660 a market opportunity that you see,

00:02:15.600 that it's important that that person

00:02:17.060 also feels the opportunity, they see it,

00:02:20.420 they maybe have experience from their current job

00:02:24.740 that's in that area.

00:02:26.440 So one of the things that I like to do

00:02:28.680 is find people writing code

00:02:30.940 on existing open source projects.

00:02:32.880 That's a really good way to find people

00:02:34.220 that are relevant to my idea.

00:02:36.140 I'll go look on Product Hunt or other sites

00:02:38.400 that launch kind of little micro apps

00:02:41.660 and see if anybody's working on something similar to mine.

00:02:44.040 Sometimes a technical person, it's just them

00:02:46.120 and they have this app

00:02:46.960 and they don't really wanna drive it bigger,

00:02:48.960 but they might join your team.

00:02:50.320 Maybe you can grab their product

00:02:51.640 and kind of fold it into it.

00:02:54.160 Or you can go on to these online forums

00:02:56.900 and find out if there's people in your,

00:03:00.960 kind of like these forums

00:03:02.200 that have technical experience that write code.

00:03:04.340 The other way that I love doing it

00:03:05.860 is finding developers that work at companies

00:03:09.100 that technically might be a competitor.

00:03:11.480 That's one of my favourite strategies.

00:03:13.480 And I'm gonna tell you how Marcel did it

00:03:14.940 because it's his story to share.

00:03:16.920 But if you think about it,

00:03:17.880 if I'm building a timesheet software,

00:03:20.560 if I go find an existing timesheet software company

00:03:23.780 and I go find their developers

00:03:25.300 and I reach out asking for advice,

00:03:26.880 because that's my strategy,

00:03:28.140 I know they have experience in the domain,

00:03:30.560 the problem that I'm trying to solve

00:03:31.840 because they work at that company.

00:03:33.120 And for me to say, hey,

00:03:34.260 I think there's a better, faster way to do that.

00:03:36.820 They'll probably go, yeah, I totally agree.

00:03:38.600 And I hate working on this code

00:03:39.920 that's bloated and frustrating

00:03:41.620 and it takes forever to build anything

00:03:42.840 in this big bureaucratic company.

00:03:45.140 I would love to join you.

00:03:46.100 That shared problem is a big idea

00:03:47.940 and is a great filter to use.

00:03:50.120 Number two is face-to-face.

00:03:51.740 Now, before we had COVID, you could do it,

00:03:54.120 you know, and I would go to code camps, startup weekends,

00:03:58.360 you know, accelerators, but going in person

00:04:01.380 because technical people, they're very,

00:04:06.000 it takes a lot to gain their trust, okay?

00:04:08.640 And if you just cold email me, trust me,

00:04:10.660 it's not gonna work.

00:04:11.500 You need to literally get them on a call,

00:04:13.280 talk to them, understand what motivates them,

00:04:15.920 you know, get excited about what they're doing

00:04:17.700 because a lot of technical founders

00:04:19.460 or potential co-founders,

00:04:22.080 they know that all the heavy lifting is done upfront.

00:04:24.760 And if you're just the business person,

00:04:26.340 you get to just sit there and tell them what to do

00:04:27.880 and they get to spend, you know,

00:04:29.020 10 to 12 hours a day writing the code.

00:04:31.180 So they're a little weary of anybody at first.

00:04:34.620 So you wanna go in there seeking advice, build trust,

00:04:37.940 build some kind of rapport and then eventually ask them

00:04:42.240 to like maybe collaborate with you on a small project

00:04:45.180 and you start to get them in.

00:04:46.300 But the face-to-face today is replaced with Zoom meetings.

00:04:49.560 So if you can't do it in person,

00:04:53.280 which you probably can't right now, do it on a meeting.

00:04:56.060 But the face-to-face video for a co-founder,

00:04:59.060 trying to get somebody bought into your vision

00:05:00.960 is so important.

00:05:02.140 Trust me, you're not gonna do it on chat.

00:05:04.360 You're not gonna do it on email.

00:05:05.660 There needs to be some eye-to-eye contact

00:05:08.700 with the individual to get them bought in,

00:05:10.300 to see your vision, to eventually get them to say yes.

00:05:13.580 Number three, quantify commitment.

00:05:15.660 So the big thing for me is in the early days,

00:05:19.020 you need to, if you're thinking about splitting up equity,

00:05:21.760 you gotta figure out who's gonna do what.

00:05:23.940 If you're working part-time

00:05:25.960 and still staying at your primary job,

00:05:27.900 or you have this service-based business,

00:05:29.380 you wanna build this other SaaS out of your agency,

00:05:32.160 you need to quantify the amount of time.

00:05:34.160 You also need to quantify the amount of money.

00:05:36.000 Maybe you've put $25,000 aside

00:05:38.740 and you're willing to take that money

00:05:40.040 and invest it in this new software,

00:05:42.280 and your technical co-founder or business co-founder,

00:05:45.320 regardless of which side they sit on,

00:05:47.720 they're gonna be spending all their time

00:05:49.900 but put no money into it.

00:05:51.480 At the end of the day, you need to understand

00:05:54.740 how to quantify their commitment

00:05:57.400 so that everybody is on the same page.

00:05:59.700 A lot of the issues come from just a misalignment

00:06:03.520 of expectations of how you're gonna show up,

00:06:06.620 what are you responsible for, and money and time.

00:06:10.320 If you wanna read a great book

00:06:11.920 on figuring out the equity split based on quantifying,

00:06:15.660 because real cash money is worth more than somebody's time

00:06:18.520 because time can generate income,

00:06:21.260 but then you gotta pay taxes, et cetera.

00:06:22.620 Somebody's gonna give you $25,000 of after-tax dollars.

00:06:25.960 It's worth a lot more than somebody's

00:06:27.700 kind of in-kind hours or bill rate.

00:06:30.600 So read the book, Slicing Pies.

00:06:33.060 Mike Moyer is a friend of mine.

00:06:34.440 He wrote an incredible book on this specific issue.

00:06:37.500 It's a short read, it's clear, it's concise.

00:06:40.480 Slicing pie, I'll link it up below in the description.

00:06:43.480 Be sure to click that, get your copy.

00:06:45.540 It is awesome.

00:06:46.560 And the big idea is you gotta quantify

00:06:48.560 the commitments upfront so you don't misalign.

00:06:50.800 Number four, make it long-term.

00:06:52.540 One of the biggest mistakes that founding teams make,

00:06:56.080 especially with people they're not sure

00:06:57.700 if they're gonna work out with,

00:06:59.180 is they start allocating equity upfront

00:07:02.440 without any performance, right?

00:07:04.600 The way I think about it is we wanna make sure

00:07:06.400 that we plan for success.

00:07:08.680 What does this, like,

00:07:10.080 cause most people will just plan not to lose.

00:07:11.700 You wanna plan for success.

00:07:12.800 If this works out and it's 100 million a year

00:07:14.700 revenue business and you're the CEO and this person's gone,

00:07:18.240 how's that gonna make you feel

00:07:19.320 if you give them half the business?

00:07:20.580 So what most people do with people they bring on their team

00:07:24.480 and they give equity to is they'll do vesting.

00:07:26.400 So vesting means that, you know,

00:07:28.480 typically it's a four year vesting with a one year cliff.

00:07:31.720 Meaning for the first year,

00:07:33.020 you might compensate them through money,

00:07:35.480 pay their consulting fees, give them a salary.

00:07:37.520 But if they don't stick around for the first year

00:07:39.040 or whatever you, if you said,

00:07:40.240 I'm gonna give you 10% of my business,

00:07:41.680 that first quarter of it doesn't get allocated.

00:07:44.900 After the first year, it hits the cliff

00:07:46.740 and you allocate that.

00:07:47.800 And then there's a monthly vest

00:07:49.460 after that over a four year period.

00:07:51.860 That is how it's done in Silicon Valley.

00:07:53.740 That is how it's done with most companies

00:07:55.760 because truthfully, if somebody is not around for four years,

00:07:59.340 like the thing you start with in the beginning

00:08:01.060 is not what you end up building at the end.

00:08:03.900 So think about long-term when you're bringing on co-founders

00:08:08.320 and plan for that success.

00:08:09.880 Number five, avoid fails.

00:08:11.860 Now there's three core areas of misalignment

00:08:15.080 that I see when people bring on co-founders.

00:08:17.480 Number one is the skills.

00:08:19.460 You start working together and you realize

00:08:21.160 this person isn't good enough to execute the product

00:08:24.980 that we're trying to build.

00:08:25.860 So make sure that you test the skills upfront

00:08:28.780 and you verify that they have the skills.

00:08:30.780 Number two is drive.

00:08:32.520 If you're the CEO, if you're the founder,

00:08:34.460 if you're watching this,

00:08:35.180 you're probably the person

00:08:36.020 that is driven to build something.

00:08:38.480 You wanna create something out of thin air.

00:08:40.900 You wanna essentially move your life forward.

00:08:43.760 And if you have that drive

00:08:44.640 and your co-founder doesn't have that,

00:08:46.880 at some point you're gonna have resentment.

00:08:50.300 And the way that shows up

00:08:51.120 is just not as responsive as you, right?

00:08:53.740 So you'll be like super responsive, engaged,

00:08:55.780 wanna do meetings, wanna talk strategy.

00:08:56.980 And they're like, yeah, I'm busy with the family,

00:08:59.000 blah, blah, blah.

00:08:59.500 So drive is a big one.

00:09:00.680 And then third is temperament.

00:09:02.520 I've seen a lot of co-founder issues

00:09:06.000 because I coach a ton of SaaS founders.

00:09:08.480 And usually it's some aspect of the personality

00:09:12.060 that creates friction and frustration

00:09:13.920 amongst the team members.

00:09:15.000 When you grow and all of a sudden you have 70 team members,

00:09:18.360 okay, and your co-founder is leading a team of 25,

00:09:21.520 35 people, and they don't have the leadership temperament,

00:09:25.720 you're gonna create scenarios

00:09:27.360 where the people are gonna quit.

00:09:28.780 They're not gonna feel inspired.

00:09:29.960 They're not gonna feel motivated.

00:09:30.840 They're hiring B or C players

00:09:32.440 and you're not gonna get what you need out of that person.

00:09:35.000 So, you know, and I ran into this

00:09:36.600 where one of my clients that I was coaching

00:09:38.880 had a co-founder and that person, you know,

00:09:42.600 after a lot of discussion found out

00:09:44.820 they just didn't wanna manage a team.

00:09:46.220 They wanted to be a sole contributor.

00:09:47.520 So switch the role, they're a sole contributor.

00:09:49.960 They're not leading a team anymore.

00:09:51.480 Everything was fixed,

00:09:52.300 but it took years of friction and frustration

00:09:54.360 for them to get to that point

00:09:55.880 because the temperament was misaligned.

00:09:57.960 So just understand when you bring in a co-founder,

00:09:59.660 you wanna make sure you're aligned with their skills

00:10:03.160 for what you need,

00:10:04.240 the drive that they have towards this project

00:10:06.300 and also the temperament to make sure

00:10:08.340 that they can manage people

00:10:09.320 because that's the role of founders, right?

00:10:11.620 We're not here to just write code.

00:10:13.460 We're here to essentially lead and maintain vision

00:10:15.980 and push our dreams forward.

00:10:18.120 So how do you find a co-founder and manage the equity split?

00:10:21.100 Here are some ideas.

00:10:22.240 Number one, you have to find a shared problem.

00:10:24.300 You wanna find somebody that understands the problem.

00:10:26.880 And number two, face-to-face or video, face-to-face,

00:10:30.420 but you wanna get some face time.

00:10:31.680 Number three, quantify the commitment

00:10:33.780 so everybody's on the same page and plan for success.

00:10:36.360 Four, make it long-term.

00:10:38.320 Understand that there's vesting involved

00:10:40.320 so people don't get allocated

00:10:41.900 a third of your business and run off.

00:10:43.840 And then you have that third of the business

00:10:45.780 not being able to allocate to other team members.

00:10:48.180 And number five, avoid fails

00:10:50.120 around skills, drive, and temperament.

00:10:52.480 As I mentioned in the beginning of this episode,

00:10:54.380 I wanna share with you my free exclusive resource

00:10:56.540 called the Dream 100.

00:10:58.160 Essentially, it's the 100 people.

00:10:59.800 You wanna do some research.

00:11:01.300 You wanna figure out who are the peers,

00:11:02.420 the mentors, and the advisors

00:11:03.920 that you're gonna need to crush your goals.

00:11:06.960 Click the link below to watch that training.

00:11:09.860 It's absolutely free.

00:11:10.880 And it is literally how I've been able to,

00:11:13.040 in different industries,

00:11:14.160 successfully start and scale my companies to eventual exits.

00:11:19.100 It's a spreadsheet I create.

00:11:20.700 I'm gonna teach you exactly how to recruit those people

00:11:23.400 and identify them and think about where the gaps are

00:11:26.500 in your knowledge so that you can run faster.

00:11:29.460 So click the link, download that.

00:11:30.700 If you like this video, be sure to smash the like button,

00:11:32.620 subscribe to my channel.

00:11:33.620 And if there's anybody you feel is concerned,

00:11:35.260 feel free to share it with them directly.

00:11:37.000 And as for usual, I challenge you to live a bigger life

00:11:39.000 and a bigger business, and I'll see you next Monday.

00:11:43.040 I didn't know where I was going.

Dan Martell - December 14, 2020

Finding a Co-Founder ｜ How to Find The Perfect Partner & Split Equity Fairly

Episode Stats

Summary

Transcript