The Single Founder Myth
My previous article, Startup Myths Debunked, seemed to attract quite a bit of attention in the developer community. In particular, people who left comments seemed to agree with “Myth#3: I need a partner”. Paul Graham who is one of the more influential voices in the startup community recently wrote an article titled “The 18 Mistakes That Kill Startups” and apparently thinks otherwise. Weighing in at mistake #1 on his list is “Single Founder”.
*sigh*
I hope that Paul reads what I have to say and rethinks his stance, or at the very least clarifies that what he means does not apply to all startups. Let’s take a look at this.
Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.
To recap where the Oracle reference comes from, in my article I had pointed to Oracle as having one founder, and one of the first comments on my blog was a correction. Paul Graham alluded to the same correction, having probably read the article himself. I did some further research, and it turns out that I was incorrect. Larry Ellison did indeed have a partner named Bob Minor. In fact, my research showed that Oracle had four co-founders: Larry Ellison, Bob Minor, Ed Oates, and Bruce Scott. My apologies.
After finding that I had been incorrect, I delved deeper to make sure that my other examples of Michael Dell and Thomas Siebel still held true. Thus far, they have held up to additional scrutiny. If anyone else has corrections to these examples, please let me know via comments or the contact page.
In any case, I agree with Paul that given the statistics, it seems unlikely that this is a coincidence. So why are so few successful startups founded by just one person? My examples seem to indicate that it is possible to succeed, but why is the figure so lopsided with multi-founder companies holding the lion’s share of the success stories?
One Word: Funding
I believe the answer lies with where these companies get their funding. Paul Graham’s Angel Investor group called Y Combinator refuses to work with individuals. I suspect that most VCs probably feel the same way and refuse to fund a company with only one founder. Neglecting their reasons for operating this way, the most popular way to fund a startup, historically, is through Angel Investors and VCs. If Angels and VCs requirements for funding a company also require co-founders, then it stands to reason that the majority of startups will have more than one founder. This only perpetuates the myth that it cannot be done, or is excessively rare.
It’s not an absolute fact that angels and VC’s refuse to fund single founder companies, but is generally accepted as such. I’m sure there are exceptions to the rule in other angel groups, but Y Combinator flat out refuses to work with individuals and they are arguably more well known to developers than any other angel investor group. Paul has such a wide reach with his writing, that it’s difficult to believe that he has less market share than anyone else. So on one hand, Paul asks the question as to why so few successful startups are founded by one person and on the other, he and his Angel group refuse to fund single founder companies. I would think that the reason there aren’t more single founder companies would be self evident.
A contributing factor to this phenomenon is the fact that single founder companies are forced to find alternative forms of funding. Thomas Siebel was lucky enough to be on the sales team at Oracle from 1984 to 1990. After that, he was the CEO of Gain Technology and after only 3 years, the company was sold for $30 million. I’m told by a serial startup executive that CEOs of startups take in around 5% of the sale price when a company is sold. That means Siebel made somewhere around $1.5 million when Gain was purchased. Even after taxes, that’s plenty of cash to fund your own company and fast track it in the early stages with employees rather than co-founders.
Most single founder companies are not quite so fortunate. They have to fund their company using much more creative means. Without hundreds of thousands of dollars in the bank, they must watch their spending far more than well-funded startups do and can’t hire on a whim. Having started three different companies myself and worked for three more “conventional” startups (startups with Angel or VC funding), let me clue you in on the difference. Conventional startups have money to burn and are willing to burn it, trading dollars for fast growth. As Paul Graham points out in Mistake #13, VCs want their money to go to work, and that means spending it. On the other hand, self funded companies have all of their eggs in one basket and cannot afford to burn money indiscriminately because they need to be sure the steps they are taking are going to pay off, both short and long term. This means that unless the founder had money to begin with, the self funded company is forced to grow in a much slower, much more controlled fashion unless they’re willing to take substantial risks.
Contrast a startup company that hires dozens of people within the first few months with a self funded company that adds employees only when the current business can support that growth. The result is another condition that contributes to the seemingly skewed statistics whch appears to indicate that single founder startups can’t make it or are far less often successful than multi-founder companies. Angel and VC funded startups are given X dollars to get the company going, ramp it up as quickly as possible and sell it (or have an IPO). Self funded companies don’t have wads of cash in the bank to trade for the ability to build the business faster without accepting the significant risks that operating at a loss every quarter entails.
Guess who else noticed this fundamental difference between highly funded companies and self funded startups? Joel Spolsky. He wrote a fairly detailed analysis of this phenomenon back in 2000 with his articled titled “Ben and Jerry’s vs Amazon“. (If you haven’t read it, I encourage you to do so. It’s a very good read.)
Reasons You Might Wind Up Doing It Yourself
Let’s dig further into what Paul says about single founder companies.
What’s wrong with having one founder? To start with, it’s a vote of no confidence. It probably means the founder couldn’t talk any of his friends into starting the company with him. That’s pretty alarming, because his friends are the ones who know him best.”
Hmmm… Perhaps sometimes this is the case, but certainly not always. I can think of half a dozen other reasons why a company might have only one founder. All of them are plausible and I don’t see any reason why they would be uncommon for single founder startups.
1) The founder already had enough money in the early stages, thus enabling him to hire employees instead of trading equity for co-founders.
2) The founder might have had a bad experience in the past with a partner, or seen someone who did.
3) The business is making enough money to support the founder (and thus his family) but not enough to support another founder.
4) The founder has no interest in taking on partners because his aspirations are not to build a huge company.
5) None of the founders’ friends or former co-workers are qualified to be a part of the company.
6) The founder is contractually bound to not solicit former co-workers.
In fact, with the exception of the first reason, every one of these reasons applies to myself and Moon River Software. It has absolutely nothing to do with having friends I couldn’t talk into joining my company. I’ve considered hiring two different developers who I knew on a personal basis and declined to hire both of them, for different reasons. I have a friend who has an MBA, was best man at my wedding and I was best man at his, yet I would not hire him at this time because he doesn’t have experience in the software field.
Number 1 is beyond the control of most people unless they inherited wealth to begin with or managed to sell off a previous company, as in the case of Thomas Siebel. I would imagine that numbers 2 and 3 are probably very big issues for many single founders and are probably more common than some of the others. Number 4 is not as atypical as it might sound. Look no further than Thomas Warfield for someone who is extremely successful, has only one employee who basically helps with support and order processing, and who has publicly stated he has no intentions of growing bigger. I read somewhere that during the Super Bowl one year, he didn’t get an order for 15 minutes, which was the worst he did all year. Let’s see, $25 X 4 copies/hour X 24 hours/day X 365 days/year = $876,000/year. Not bad for a single founder if you ask me.
Number 5 is a sticky point, and can be a bit subjective. Are these friends not qualified because the founder is too arrogant to think they can do a good job, or are they really not qualified? For me, an additional wrench is thrown into the equation. Because of my somewhat older age, even if I knew someone who I thought was qualified it would be difficult for me to convince my friends, who are of a similar age, to move their families to Massachusetts. In addition, having only moved to Massachusetts in 2003, I have virtually no friends in the state outside of the acquaintances of my wife, former co-workers, and fraternity alumni (most of whom already own their own businesses, I might add).
Number 6 is an issue for any founders who worked in startups recently, including myself. Sure I’ve lived in Massachusetts for the past several years, but during that time I only worked at Pedestal Software, since acquired by Altiris and with whom I’m contract bound to not solicit for employees.
Going it Alone
But even if the founder’s friends were all wrong and the company is a good bet, he’s still at a disadvantage. Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.
I’m not going to be too hard on Paul for this one. I believe he has good intentions and is doing his best to talk some good developers out of trying to make a go of it alone because it really is hard to do everything yourself. That’s important to remember – it’s really hard to do it yourself. But for Paul to say “Starting a startup is too hard for one person.” is incorrect and misleading. I’m doing it now. Is it hard? You betcha. In fact, you could say that I’ve failed twice in the past both with and without a partner. But I learned a lot during those failures and learned a lot as part of the success of Pedestal Software. Having been in the situation before, I’d prefer to have no partner and have to do all of the work than have a partner who isn’t pulling his weight.
Paul acknowledges that even if you could do all the work yourself, there are other reasons for needing co-founders. Some of the things he mentions may be true, but do you need a co-founder to provide them for you? You can brainstorm with friends without forking over equity in your company. You can hire salaried or contract employees to work for your company, thus providing you with brainstorming partners. If you talk to friends and take time to gather information before making decisions, you can help prevent stupid decisions. Just remeber that having more people involved in no way prevents people from making stupid decisions. I’ll refrain from pointing to any number of failed companies *cough* Webvan *cough* as examples where an entire executive team blew spectacular amounts of money.
Staying cheerful when things go wrong is incredibly important in any startup company and is arguably where Paul has his most valid point. But again, thinking that the only place you can find this positive reinforcement is in co-founders is also inaccurate. As developers it is in our nature to solve problems, and treating your morale as a problem to be solved is no different, whether you’re a single co-founder or whether you’re a multi-founder company. In either case, you will find it helpful to know in advance what sorts of things affect your morale and how.
Personally, I do a couple different things to keep my morale up. Due to the fact that my business is doing well enough financially, I keep track of my financials every single week in Quicken. It shows that the things I’ve done that week have made an impact on my corporate bottom line, and I can quickly see how much of an impact. Every time I’m able to show my cash on hand increasing, it’s a morale booster. And when things get tough or don’t seem to be going my way, I’ll treat myself to a few video games which are challenging, but winnable. One of my favorites is to play Command & Conquer: Generals on an 8 player map playing 3 vs 5 with myself on the lean end. It turns out to be challenging enough that a victory shows that I’m not a strategic moron and should get back to work. After reviewing my failures to help me avoid them in the future, I focus on my victories, no matter how small and the things that I’ve learned from the experiences.
Not letting people down is definitely a significant motivating factor, but it is easy to replace a co-founder with someone else to obtain that motivation. As a married man, not letting my wife down would be more important to me than not letting down the co-founders that I don’t have. By staying in business I stay happy, and my wife is happy that I have a career I enjoy.
The one person that drives me to succeed more than anyone else is me. I’m more afraid of disappointing myself and not reaching my goals than anyone else. And guess what? My goals keep changing and increasing. Eventually I’m going to have to lower my sights because I keep raising the goal, which drives me even harder. My wife describes me as the most driven lazy person she knows.
With my business I’m driven to the ends of the earth to succeed. If Moon River Software fails, it will be because I’m dead. On the other hand, I’m too lazy to mow the lawn, clean the house, do laundry, fix things around the house, etc. I pay people to do that stuff so that I can work on my business instead. And you know what? It’s well worth the money. The value of my lawn will not increase nearly as much as the value of my business over any period of time. This principle is described in the book “The Millionaire Mind”. It’s a matter of priority and being able to get ahead. It’s not a matter of laziness.
On another weblog, I debated the topic of single founder companies with someone who claimed that you couldn’t run a company alone. After arguing a little bit, we realized that what the author had really meant was that you can’t truly run a company alone without delegating any of the tasks or hiring employees. While I don’t discount the difficulty of running a business without delegating anything, I don’t believe it would be impossible. It would just be far, far more difficult and time-intensive to do so. This is entirely different than being a single founder.
I hope that you’re now convinced that it is not only possible, but reasonable to become a single founder of a startup and be successful at it. If not, I invite you to leave feedback and comments.
Special thanks to Rob Walling for reading drafts of this article.
Update: One of my readers contacted me and pointed out that Siebel Systems had another cofounder named Pat House and cited not one, but two references to back that up. Direct from the first link to InformationWeek.com:
“The company, funded entirely by its employees, launched its first application suite in 1993. By 1997, revenue was $206 million, and many of its original competitors–companies such as Brock Control Systems and Sales Technologies–had disappeared.”
It would seem that they were entirely self funded, which fits with the first of my six reasons for starting a company without a partner. Still, labelling Pat House as the cofounder of Siebel Systems bothers me. If she was really a cofounder, why is the company named after only Siebel? It would seem that it wasn’t an equal division of ownership, which doesn’t particularly surprise me. My best guess would be that Siebel had the money and asked Pat House to leave Oracle and take a chance with him so that Siebel could keep up on what had been going on at Oracle the previous three years.
In my eyes, this begs the question of what exactly constitutes a cofounder? If a cofounder defaults to your first employee, then by definition, no company of more than one employee can have a single cofounder. What if the “cofounder” owns less than X% of the company, where X is a number between 0.000001% and 49.999999%? Where is the line of being a cofounder drawn? Using that as a basis for the argument, one could say that I was a cofounder of Pedestal Software, since I was granted stock options and thus held some ownership of the company. To me that doesn’t make sense.
Similarly, if we base it on time with the company, if you hired an administrative assistant on day one, that hardly qualifies as a cofounder of the company.
Unfortunately, this starts to take us down the path of defining what a cofounder is and is not, which is not the path I wish to explore. I still maintain that it is possible with a lot of hard work to be a single founder and be successful. Perhaps not with Angel/VC funding due to their requirements for cofounders, but it is still possible.
… and the other reason to have a single founder is that the invention is yours and you want to progress it until you can secure your Intellectual Property.
At least according to Wikipedia and http://www.oracle.com/corporate/story.html, Oracle was started by three people: Bob Miner, Ed Oates and Ellison.
Del.icio.us was founded by one person.
So was digium. There are many more examples of startups with one founder. Paul is voicing his opinion, NOT fact.
This article clearly points at Bruce Scott as being a cofounder: http://issj.sys-con.com/read/77115.htm.
This page (http://orafaq.com/faqora.htm) credits him as the first employee. I don’t think this is an official site though. Oracle probably treats Bruce Scott as the first employee, rather than a cofounder.
Regardless of whether he was a cofounder or not, the bottom line is that Oracle had more than one founder.
There are other examples of single founder companies or at least ones where there is really one with a bunch of senior hires that could call themselves co-founders although they really are not.
To accept an investment it makes sense that one needs to have a full partner in the unfortunate event that something happens to the single founder, especially if their vision is a big component of the investment case and it will take some doing to realize it in the market over time.
Another obvious reason for a single founder: No interest in sharing the outcome with anyone else! It’s MUCH better to keep 100% control and HIRE who you need, rather than toss away all equity and ownership for someone who may or may not bring an equal amount to the plate.
Of course Paul and VC’s are going to support multiple founders: it gives them *leverage* for their business. If you have 2 or more founders, the VC’s can apply pressure as needed to get what they think is best for them.
Sheesh, what did you do to piss of Paul? 😛
Paul is myopic, he thinks because he did it one way, there is only way.
“Even after taxes, that’s plenty of cash to fund your own company and fast track it in the early stages with employees rather than co-founders.”
I dispute that assertion. Say Siebel did end up with $1.5M. How much does a GOOD developer cost? $75k to $100k annually including benefits I’d estimate. So we could conclude that $1.5M could get you 10 good developers (if you can find them) plus office space and equipment for a year. Then what? If your teams hits a wall or less than stellar marketing you’re sunk? Does external funding play a larger role then you’re supposing? Great stuff, keep it coming!
Very astute dispute of that assertion. I do make a good number of assumptions there. The first is that Siebel wouldn’t take a salary during that time, thus saving himself probably $100k. Even in my own business, I pay myself a bit more than I need to live on, but pretty far below what my market value is so that I can conserve cash.
Hiring 10 developers right from the beginning would be a bad idea. You would probably want an architect to start the product off and slowly build out the team as the project expands and revenue grows. Given that Siebel has an MBA and an MS in Computer Science, it would lead me to believe that he acted as both the product manager and the architect at first, laid the groundwork, and paid people to fill in the technical details. That’s nothing but supposition and could clearly be incorrect, but it’s certainly what I would have done.
It’s amazing what a couple of people can do in a very short amount of time. Chances are that they were profitable within 3 years, 4 years at the very most. If he had a staff of 4 developers, he could support them full time for at least 3 years with no income.
Assume $125k in costs per person per year. Hire 4 developers in year one at a yearly cost of $500k. By the end of year 1, if revenues are at least 25% of costs, the next year they burn $375k for a total of $875k. The following year, if revenues grow to 50% of costs, that brings you to a total of $1125k spent. Year 3 brings 75% of costs for incoming revenue, bringing the grand total cost to $1250k. At the end of year 4 is profitability with $250k to spare.
Those are all estimates pulled out of a hat. It’s all guesswork anyway. The only way to know how it went down was to look at their financials. But I don’t think those are particularly unreasonable assumptions. The fact is, you can play with those numbers to make them say just about anything you want.
As I point out in my article on building a consulting business, companies like GM could theoretically last for decades while leaking money like a sieve, assuming they had a base of 6 months of income to work with and some sort of client base. That extends by quite a bit if you have 3 years of income to work with.
If you can’t do it by yourself, you shouldn’t be doing startup anyway. Yeah? 🙂
Ingvar Kamprad started IKEA by himself in his barn. But there’s a difference between IKEA and the kind of businesses Paul Graham discusses. Kamprad built and sold furniture, not a high tech innovation, so he could bootstrap the business the standard way, by selling products and slowly increasing the volume.
http://en.wikipedia.org/wiki/Ingvar_Kamprad
Very good observations Mike. Another reason why someone may prefer to not have partners is “future vision for the company”. I run a one person company and have no intention of creating something for the purpose of selling it to a large bidder. It may be difficult to find co-founders or partners who share the same philosophy.
—
Parag
It was an idea that took me a long time to develop right, so I took my “friends & family” level of capital, moved to Central Europe where I could get great talent cheap, and we are finishing it up now.
One founder sometimes means a bit more determination.
This essay is a rambling, mostly unremarkable attempt to refute Paul Graham’s #1 “startups fail” rule. Yes I’m sure there are a handful of examples of companies that were started by one person. But in the main, your chances of success are considerably greater when there is a diverse group starting a company. More ideas, more brainstorming, more skin in the game and people to talk to. These things make companies work.
I disagree with the previous statement. For someone who is unmotivated or unimaginative, it may be necessary to have someone else to bounce ideas off of. But if you know your clients and you have the will and intelligence to think through the problem on your own, there is no reason you can’t succeed. Not to mention that you have family and friends around to talk to and give a good outsider’s opinion.
I would think that in some startups, having a partner could actually be a detriment. Paul Graham’s reason #17 is fights between founders. It’s pretty easy to avoid infighting if you’re the only one, no?
I work for a successful company that was founded by a single person. I guess the difference is that he didn’t need financial backing because he didn’t expand until the company was profitable enough to do so.
see you on the parking lot, Mike.
Thanks for this article Mike – Paul made me feel there was no hope (untill I found another person).
I think Paul is concentrating on college level developers (<25) because after that most developers already have an idea of their own – and it is very difficult to convince a college budy 5 years later (bills) to leave what ever they are doing and join you – they might like your idea but the risks are just too much.
“Still, labelling Pat House as the cofounder of Siebel Systems bothers me. If he was really a cofounder, why is the company named after only Siebel?”
Pat is female.
Re: Pat House correction: My bad. Corrected. I read the Information Week article entirely and it didn’t state gender, but didn’t fully read her bio.
Re: “see you on the parking lot, Mike.”, someone thought it was cute to say that was from Paul Graham. Very funny. Heck, I’d meet him if he wanted to. I admire what he’s done for the startup community. He’s a very inspirational guy and an excellent writer. But his efforts and emphasis on angel funded startups are not the only path to success. I just want people to keep that in mind when building their companies.
Not sure if this will interest you…. Since you seem to read all of Paul Graham’s essays, this might be useful to you (depending on your preference, of course).
http://pg26.com/more.html
This helps you read PG’s essays without width restriction – which means you can increase the font size without ending up with one word per line… ( besides other benefits:) )
I think that it is unfair of you to characterize Pat House as less than a full founder. If she had only held a series of non-entity positions, then it might be warranted. But she rose to vice-chairman. To me, that means that she had the drive and smarts to be significant force in the establishment of Siebel Systems.
As to why it is called Siebel Systems, I suspect that Pat House’s need to feed her ego is no where near Tom Siebel’s need.
Dwight,
I posed my comment as a question. I really have no idea what Pat contributed to Siebel Systems, nor am I aware of what point she entered the company. Had Tom already incorporated the company and then asked her to join? Was she on board before the company was named? Did she wait until after almost a year of Siebel Systems being in business pass before hopping on board.
Rising to the position and being appointed to the position because you were there first are two entirely different things. If she rose through the ranks to vice-chairman, it would lead me to believe that she was not, in fact a cofounder.
That said, it is entirely possible that she was placed in charge as the VP of Sales at the beginning because that’s what she was really good at and what the company needed at the time. As the company moved forward, she might have been promoted to vice-chairman to help Tom with the behemoth that he had created. I don’t know the details of how she ended up in the position. I’m just asking questions at this point.
The underlying question that I asked still remains unanswered, what exactly constitutes a cofounder. If I build a $10 million business all by myself and then hire someone, does that make them a cofounder? Does part ownership qualify someone as a cofounder? If so, that means that any VC funding you accept makes people cofounders. Is it the name on the articles of incorporation? Is your attorney a cofounder?
This is a very grey area, and difficult to answer. I believe that it is probably based somewhere in the middle and can vary from one company to the next, based on revenue, success levels, accomplishments before and after joining, etc.
What are your thoughts? What constitutes a cofounder?
Mike,
I agree that the question about what makes a co-founder is interesting and I intend to address that on my weblog this week.
If you take another look at your paragraph beginning “It would seem that they were entirely self funded, which fits with the first of my six reasons for starting a company without a partner”, then I think that you will see why your question of the next paragraph seems more rhetorical than genuine to me.
I did a quick search on Pat House and found that she co-authored a book with Tom Siebel. I also found this link indicating that House was a significant contributor:
http://austin.bizjournals.com/bizwomen/sanjose/content/feature/item.html?item_id=953&feature_id=125
For the record, I have never been employed by Siebel and if I do not own any stock individually (I may have some in a mutual fund).
I run a web2ish software company and am a single founder. I have one employee + wife doing admin + two sales guys. I have real problems with overwork, and interruptions, leading to some poor decisions, inability to execute, and significant compromises in home life.
Now we support about 30 enterprise customers, 500k lines of code and our remote staff and resellers. As well as trying to develop the product further.
Thankfully we are profitable now so I can cover frugal living expenses, take a few weeks per year holidays and I will soon employ a few more people… and more importantly “exit by acquisition” seems more and more likely as time goes on ! But I’ve been at this for 6 years.
If I had found a partner founder who was prepared to work hard , I would have avoided a number of problems, enjoyed it more, made better decisions, and hopefully exited earlier. etc
You may have friends that are qualified to be a founder and believe in your idea, but they are making 6 figures at their current jobs and their wife and kids say NO STARTUP.
Great post. My two dabloons:
1. A co-founder is one who has been lucky to have not been burned by another co-founder in the past.
2. “If I had found a partner” (see two posts above this)…fyi, if you need to go find a co-founder, in my book, that person is really not a co-founder.
3. Everyone stop with the pointless bickering about how many co-founders Famous Company X, Y, or Z had. You weren’t there, so you don’t know. e.g., only Tom Siebel and Pat-whats-her-name know if Pat could *really* be defined as a co-founder — made even more an argument with no end, since everyone has their own definition of the word.
4. Without defining what a co-founder is, Paul Graham really fails to provide proper context to his #1 Mistake. Thus, his leadoff bullet point holds no water and makes him appear to be quite naive and inexperienced.
This is a very interesting topic to me. It goes along the lines of if a company can be “sustainable” if it does not have a growth strategy. Not that that matters to anyone in regards to this blog entry, but in that discussion I feel that a company can be sustainable without having to grow it’s sales / net income year-over-year.
Now back to the the response directly related to this blog entry. I am in agreement that startups / new companies do not always need multiple partners to be successful. A lot of the reason of having multiple partners depends on things like the type of industry the business is in, how big the founder wants the company to be, if the company needs outside financing to get out of “BETA”, etc.
If one needs outside financing and is thus asking for financing / money from VCs / institutional money, one will probably need multiple partners to make the institutional money happy. Institutional money does not like to have their money controlled by 1 person. For example, institutional money hardly invests alone; they want others to take some of the risk and thus invest in syndicates (groups of VCs invest — some think of that as herd mentality). So you would expect institutional money to also lean towards companies with multiple founders, board of directories without outside directories, etc. Institutional money is all about mitigating the risk while maximizing the return. Institutional money is not about building solid companies that are fun to work in or that support the local community.
So if one wants to build a nice solid company that supports the local community and supports a decent living for the founder and it’s employees (i.e. not becoming a billionaire), then it is very doable to startup and run a successful company with one founder.
I’m still confused about the word co-founder. I started up a business…it was my idea…..I invested all the money. I gave 20% of the company to my sister to run the operation. She received a salary of $95,000.00 a year. In the beginning we worked together in the development of how the company would be run. However, I didn’t take a salary for 7 years, now I’ve sold my other business and work everyday and receive a salary. In the start-up time I worked at my other company that I owned to keeping the money rolling in to make payroll, lease equipment, lease the building, purchase ingredients , office supplies, computer, insurance,etc. I was working 70 hours a week and sending all my extra money to keep this new company going. Would you consider my sister a co-founder or not? Remember I gave her the 20% she didn’t invest anything in the company but her time, which she was paid for. She worked 2 weeks here in California and then worked from home in Utah the other 2 weeks. Our other employees ran the company during the day and kept me and my sister abreast of what was going on. I would go to the plant whenever I was needed for special meetings or board meetings. Can you give me your definition of my sister as co-founder. Thank you.
If the idea was yours, the investment was yours, and the risk was yours, then I’m not sure how you could qualify your sister as a co-founder at all. It seems to me that to be a co-founder, there must be some investment or element of risk for which you would receive no compensation for if things turn out badly.
I’ll be the first to admit that there are extenuating circumstances for just about any definition of a co-founder. But it sounds to me like you hired a manager for your company and compensated her extremely well for it. There’s certainly nothing wrong with that. I feel that employees tend to be the lifeblood of a company and replacing them is extremely difficult, thus you should do everything you can to keep them happy and keep them under your employ.
Does that include part ownership? Maybe, but maybe not. That is dependent upon the owner and what the levels of rewards are. Some entrepreneurs in the past have argued for rewarding employees with partial ownership. But you have to realize that you are indeed rewarding them for staying employed with the company.
Think of it from a few different angles. First, what if you joined a company that had 1,000 employees and had been in business for 10 years, but you were provided with 20% ownership. Are you a co-founder? I think most people would agree that you are not.
It’s intuitively obvious that a new company is not going to have 1,000 employees, because reducing the time it has been in business also reduces the number of employees. What of ownership though?
Sergey Brin and Larry Page are certainly considered to be the co-founders of Google, yet they don’t own a majority stake in the company any longer. Current ownership is not an indicator of being a co-founder. Past ownership may be though.
One might argue that joining a new company has some element of risk in that you might not be employed for very long. Realistically, this is true of all companies. Ask anyone who accepted employment at a new company, only to have it bought out the following week. There’s a lot of risk there, but no grounds for being a co-founder.
I think in the end, it is a combination of several things. First, you have to have invested both money and time. Angel investors “donate” money to startups, but they’re not considered cofounders. If you donate time, but are paid for it and there is little risk, then you’re really an employee, not a co-founder.
Even if you started the company and it is wildly successful and there’s virtually no risk because you’re making money from day one, the fact is you’re still a founder or co-founder.
I’ve been considering a follow up article to this one. It seems to hit a lot of nerves and many people seem to ask the same type of question that you do… what exactly constitutes a co-founder?
Thank you! I really needed to read this. Things are looking bad when I fire my last partner because he didn’t do jack and I did everything from bizplan, to engineering and to programming. I did it all and it was tough firing my own brother. Thank you for the post!
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I am a single founder in Mass as well. Being a tech guy, I want to balance a co-founder with business experience, but being a tech guy, I know pretty much only other tech guys, so finding a co-founder that I want is hard.
Now that my Cloud Browse iPhone app is almost out, if it works out, I wouldn’t need a co-founder.
It seems co-founding teams come out of college or a workplace, and if you out of that loop, it is very hard to form a team on your own.
“My wife describes me as the most driven lazy person she knows.
With my business I’m driven to the ends of the earth to succeed. If Moon River Software fails, it will be because I’m dead. On the other hand, I’m too lazy to mow the lawn, clean the house, do laundry, fix things around the house, etc.”
You’re the owner? You own something other than a paper house and battery gizmos? Do you OWN it? I’d never buy your product after reading this.
Paul is, as it is know in the investment world, “talking his book.” I.e., he is promoting the view that benefits him and his projects. Nothing necessarily wrong with that, you just have to recognize it. Also, most people prefer to believe his view because most people could not, and should not, found a company on their own. There’s nothing wrong with that either, it’s just a fact. Theses are just some of the reasons why Paul’s view is… simply Paul’s view…. which benefits… Paul.
The Single Founder Myth…
My previous article, Startup Myths Debunked, seemed to attract quite a bit of attention in the developer community. In particular, people who left comments seemed to agree with “Myth#3: I need a partner”. Paul Graham who is one of the more influential …
Interesting topic and article. Mike, do you consider here only single founders of IT-companies? Otherwise, I suppose Richard Branson or Li Ka-Shing were also a single founders…
I think that IT companies are where I look at most because that’s where my experience is and what I’m immersed in. There are plenty of companies outside of the software community that are single founder companies as well. I just don’t know as much about them, primarily because they aren’t as loud or annoying as us software developers.
Let’s be honest here. Payroll processing isn’t exactly the sexiest business in the world. But in 1971, Thomas Golisano started Paychex and almost 40 years later it’s a huge company and he’s made hundreds of millions of dollars. Does anyone care? No, because processing payroll is boring. But it can still make a lot of money, and he did it without a co-founder.
Hi Mike, I’m currently a single founder of startup, a question popped-up in my mind when you mentioned “death” in your article. If the single founder dies, what happens to the company? I suppose a company with 3 or more founders won’t have much of a problem when it comes to death of a co-founder. What’s your opinion? Thanks
Zach,
The rules for what happens to a company when the founder dies generally depends on what the laws are for that area. I’m not a lawyer, but I believe it depends on what sort of corporation you founded. If it’s a simple Doing Business As (DBA or Sole Proprietorship), when you die, so does the business because it’s attached to your social security number.
In the case of an S-corp, C-corp, or an LLC, it has its own tax ID number, so regardless of the status of the owner, the entity is treated separately. Each of those organizations has what are essentially considered to be shareholders. It’s a little different for an LLC, but that’s probably the easiest way to think of it in general terms.
If someone owns stock in a public company and they die, that doesn’t mean that the company is liquidated. All it means is that the ownership shares must be liquidated. The company can technically live on. However, if you’re a single founder company and there’s nobody to take over the duties, the company will eventually run itself into the ground anyway.
But the shares in the company are basically an asset, so if you as a single founder were to die, then the shares in your company would be sold as if it were an asset. Most likely, the entire business would be sold to someone else as an asset, or the company would be liquidated as part of an estate.
So it’s possible that the company could live on after you die, even if you owned 100% of it. But if, as I said, there’s nobody there who is able or willing to take over, then it would likely close up shop.
Again, the laws may read differently and there are probably some subtleties that I’m not aware of, but that’s my best guess at it.
Thanks Mike. Even though my business aren’t making significant money yet, I guess it’s good to be prepared for one’s death not only for the equity but more importantly for the customers’ safety.
I think it’s very important that someone should takeover most specially if you’re selling a subscription or retainer based service. Who’ll take care of the customers, the employees, system maintenance, billing, etc, when the single founder dies?
I love being a single founder and just hire employees throughout my entire business life however when I think of death and the future of the business, I’m starting to side in favor of a multi-founder business.
As a single founder yourself, what steps have you taken or plan to take to ensure that somebody will take over your business and that your equity goes straight to your family or whoever you want it to go to when your time comes? Or would you rather just let it die too and not pass the responsibility of running to others?
Thanks again.
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[…] with multiple founders, getting a startup going is difficult. 90% fail. Even worse, see this article on The Single Founder myth. He finds some exceptional reasons why a single founder might succeed. None of them apply to me, […]
The hard data is that 46% of startups that raise $10M or more have just one founder, and 52% of successful exits from those have a single founder. So, both myths fall when put to the harsh light of actual measurement. Single founder is the most successful way to go. Here’s techcrunch’s data:
https://techcrunch.com/2016/08/26/co-founders-optional/
Few people seem to mention the most obvious – and likely most successful – single founder company, Amazon
The reality is that this article was written 10+ years ago. At the time, Amazon wasn’t nearly what they are today so it would have been easy to overlook them.