Making bad decisions at the founding phase of a startup is like writing a bad constitution for a country. It’s almost impossible to fix that along the way.
Choosing co-founders is like getting married, and founder conflict is as ugly as a divorce. Founders should have a solid pre-history, otherwise they’re just rolling dice.
Areas of alignment at founding of startups:
- Ownership: who owns the company’s equity?
- Possession: who runs the company day-to-day?
- Control: who governs the company’s affairs?
Distributing these functions among different people ensures utilization of different people’s strengths, but it also increases the opportunities for misalignment. Most conflicts in startups are between ownership and control: the founders, and investors on the board.
Ideal size of a board is 3 people. It should never exceed 5 people, unless the company is public, where government regulations mandate otherwise. Large boards increase misalignment, reduce accountability, and cover-up who actually runs things. The corollary to having small boards, is that it should be chosen very carefully, since misalignment between the board and the founders can be catastrophic.
The founding of a company lasts as long as the company keeps creating new things. When creation stops, so does the founding. Try to extend the venture’s founding as long as possible.
- Zero to One, Peter Thiel
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