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Business co-founders in tech startups are less valuable than they think

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Re: Business co-founders in tech startups are less valuable than they think

#231

Post by cutemonster »

greatpostman wrote: post #18

Living in NYC, I have been around a TON of venture backed startups with the classic non technical CEO, technical CTO. Some HUGE percentage of startups see the CTO fired once the tech stack and revenue are stabilized. The incentive from the CEOs perspective to remove a contender as well as claw back the equity is huge. Early stage the CTO is the most critical, but after real traction they can be replaced far easier th…

> Some HUGE percentage of startups see the CTO fired once the tech stack and revenue are stabilized.

If you know about more to read about that, it'd be interesting

Re: Business co-founders in tech startups are less valuable than they think

#232

Post by osrec »

nand_gate wrote: post #203
osrec wrote: post #126

Earlier quoted context omitted.

Good you walked away. In my experience, the heavy lifting in a tech start up is, by definition, the tech. The "idea guys" rarely understand that it's the execution that makes an idea valuable. Sales are important, but are a bit of a crapshoot. You can't consistently sell trash, no matter how good a salesperson you are. The guy was happy to roll the dice, while using your mental energy. Great deal for him, but not so…

You can consistently sell trash, you just need a captured market.

Yeah, but that rarely lasts (I am assuming the absence of corruption etc etc). If you set the bar so low with your product that it's easy to outperform by a 10x margin, then you present your customers with a huge incentive to move away.

Re: Business co-founders in tech startups are less valuable than they think

#233

Post by ghc »

Ok, but technical co-founders in tech startups are also less valuable than they think (as this blog post shows).

In reality there are four critical skillsets (outside fundraising) for a new tech venture: Operations, Sales, Product, and Engineering.

I've seen plenty of startups with a heavy focus on product and engineering flail about because they suck at operations, product, or sales. The harsh truth is your CEO better be excellent at one of Operations, Sales, or Product, and your CTO better be excellent at one of Sales, Product, or Engineering. And if your CEO isn't competent at operations, you're going to need someone who is. Dealing with HR, accountants, investor relations, lawyers, contracts, HR, and all that stuff is a big job that's hard to completely outsource.

Overall, if your founding team isn't at least competent in all four areas, you've got a gap that will be difficult to fill unless one of the founding team is willing to step up and learn that area fast. Sales (or marketing, for consumer apps) might be the exception, because in my experience everyone on the founding team will wind up needing to learn it early on.

Re: Business co-founders in tech startups are less valuable than they think

#234

Post by zero_shift »

never_inline wrote: post #226
parpfish wrote: post #86

Earlier quoted context omitted.

> Which is dumb, because sometimes I'm legitimately better at the strategy half too A semi-related thought I've had recently: I've run into a number of non-technical product people that say that they're primary skill is that they have a great "product sensibility" that engineers lack so they need to step in and provide guidance. It's true that many engineer-designed products are terrible, but I'd argue that most engi…

> It's true that many engineer-designed products are terrible Selection bias from there being too many avg UI open source tools? Engineer-designed = low budget = no expertise on UX etc.. but product fulfills their purpose.

Open source tools have bad UX because great products require coherence and you can't get coherence out of democracies.

I notice that the only truly great open source products all have some kind of benevolent dictator at their helm

Re: Business co-founders in tech startups are less valuable than they think

#235

Post by hn_throwaway_99 »

TuringNYC wrote: post #117
verelo wrote: post #92

Earlier quoted context omitted.

I’m running a business that’s currently doing around 32k a month at ~85% margin after 2 years in operations, no funds raised to far. I have a friend who is an MBA and only held corporate roles up until now. I’ve been running companies my entire life, and had one exit that was 42.5M US. We discussed partnering up, and when i mentioned a buy in or 10% equity split (with no buy in) or some combo of the two, he backed of…

From what i'm reading, you seem like you need employees or outsourcing, not partners. Why would you even bother with this person, their incentives seem all misaligned. Not sure if they approached you, or vice versa -- but people often approach with deals like this because they are trying to find suckers who they can dupe. And sadly, they find them.

Totally agree. To be honest, I think a 10% offer here would kind of lead to the worst of all worlds: too high for the person to be considered an employee, but too low for the person to really be considered a partner.

I've seen a case where a company was started by a very small, relatively inexperienced team, and then had 2 much more experienced "business people" join later. These 2 business people were actually given "founder" credit and equal equity stakes, because it was clear these folks would be integral to the success of the business (and, indeed, in retrospect, they were, and the business became quite successful). I point this out because it's an example were the addition of some later stage business people does deserve large equity stakes. But given the original commenters history (e.g a previous large exit), it doesn't appear that's the case here, so it doesn't look like he needs a partner to begin with.

Re: Business co-founders in tech startups are less valuable than they think

#237

Post by TuringNYC »

hn_throwaway_99 wrote: post #235
TuringNYC wrote: post #117

Earlier quoted context omitted.

From what i'm reading, you seem like you need employees or outsourcing, not partners. Why would you even bother with this person, their incentives seem all misaligned. Not sure if they approached you, or vice versa -- but people often approach with deals like this because they are trying to find suckers who they can dupe. And sadly, they find them.

Totally agree. To be honest, I think a 10% offer here would kind of lead to the worst of all worlds: too high for the person to be considered an employee, but too low for the person to really be considered a partner. I've seen a case where a company was started by a very small, relatively inexperienced team, and then had 2 much more experienced "business people" join later. These 2 business people were actually given…

Agree on your case also. Business folks can add tremendous value. But especially late-joiners as, in your case, the better setup is to set some success criteria, hurdles, and reward accordingly. Win-win.

Re: Business co-founders in tech startups are less valuable than they think

#238

Post by codingwagie »

frenchmajesty wrote: post #204
neilv wrote: post #48

One thing I've wondered about for awhile: How do you find a business co-founder you can trust? For one example, the article says that some of the best value that a business co-founder can contribute is disproportionately building the relationships. But those relationships can be more connected to the business cofounder themself, than to the company. It's a bit different for the technical co-founder, since your percep…

Hey, OP here. I agree. If you get a list of all the startups that got acquired or IPO in the last 10 years, you will find it's extremely rare the technical co-founder is still around. The staying rate for CEO is like 99% while the staying rate for CTO is more like 50% (making up numbers here but this is directionally right). With enough scale, a great CTO can be hired for the right salary. The way I answer this for m…

This is something you learn when you actually raise venture and meet peers that have raised capital. Beyond the very early stages, the CTO can easily be replaced, the CEO is the face of the business.

Re: Business co-founders in tech startups are less valuable than they think

#239

Post by nostrademons »

ZeroTalent wrote: post #95
verelo wrote: post #92

Earlier quoted context omitted.

I’m running a business that’s currently doing around 32k a month at ~85% margin after 2 years in operations, no funds raised to far. I have a friend who is an MBA and only held corporate roles up until now. I’ve been running companies my entire life, and had one exit that was 42.5M US. We discussed partnering up, and when i mentioned a buy in or 10% equity split (with no buy in) or some combo of the two, he backed of…

MBA doesn't mean that much by itself.

An MBA is exactly what it sounds like. It teaches you how to administer a business. Not how to found one (it’s often counterproductive for that), not how to have good ideas, not how to spot product cycles, but to take an existing business and make economically rational, not entirely stupid decisions for it.

Curriculum usually includes things like pricing; applied microeconomics; power & politics (ie how to get the org to do what you want), business ethics, some intro to corporate law, oftentimes electives that are deeper dives on how specific industries are structured.

My wife got an MBA at the same time I was working on founding a startup and they are basically completely disjoint skillsets. If you treat the MBA as training for how to be the hired Director/VP in an established organization and not the person who wills it into existence in the first place, it can be a pretty interesting curriculum.

Re: Business co-founders in tech startups are less valuable than they think

#240

Post by nostrademons »

ghc wrote: post #233

Ok, but technical co-founders in tech startups are also less valuable than they think (as this blog post shows). In reality there are four critical skillsets (outside fundraising) for a new tech venture: Operations, Sales, Product, and Engineering. I've seen plenty of startups with a heavy focus on product and engineering flail about because they suck at operations, product, or sales. The harsh truth is your CEO bett…

What stage of the startup’s lifecycle?

When it’s just a couple founders in an apartment, there are really just two key skillsets you need or want: sales, and then engineering for a tech-heavy startup or operations for a tech-lite startup. Product is a distraction at that point: the product will emerge as you talk to and acquire more customers. It’s very helpful if the sales cofounder has a keen product sense so they can scale up the company as it grows, and it’s helpful if the eng/ops cofounder is pretty fluent in the other competency. But buttoning down operations at a company whose primary product is software is usually a waste at the founder stage; things change so often that anything you systematize becomes obsolete. And great software for a company whose primary product is an app or website that requests some manual, physical work is also often a waste.

As the company grows past a few dozen, then you need to get the missing core competencies that you mention.

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