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Entrepreneur Office Hours - Issue #53
Arguments between co-founders are normal, but they don't have to be fatal
Startups can be intense, intense things create lots of emotions, and emotions lead to conflict. It’s only natural. As a result, startup founders tend to fight… a lot.
At least I know that happened a lot with my co-founders over the years. If it’s happened to you (or maybe it’s happening right now), then definitely don’t skip this issue’s first article were I give you the key to resolving founder conflict.
After that is an article about turning side hustles into full-time businesses. And then I tackle a Q&A about investors who also want to be employees. (It’s more common than you might think!)
But before you start reading — because you already know it’s going to be a great issue, right? — do me a huge favor and smash this share button:
With the right strategy, the kinds of founder arguments and infighting that kills most companies could be the thing that helps you take it to the next level.
3 Things to Know Before Turning a Side Hustle Into a Full-Time Job
An entrepreneur was generating ~$30k/year on a side hustle. She asked me for advice on when to turn her side hustle into a full time job. Here's what I told her.
Office Hours Q&A
I have a simple practical question for you. We’ve got an angel investor who wants to invest ($50k on a convertible note), but he also wants to be part of the founding team and work for/with the company in exchange for additional equity.
Any thoughts on a deal like that? Is it a good idea for an investor to also be an employee and compensated with equity?
One of the frustrating things (or maybe good things) about these sorts of “digital office hours” is that you can’t see the immediate reaction on my face when you ask a question. In this case, you missed a deep inhale and a strong grimace.
All things being equal, I’m going to suggest you avoid the kind of investor relationship you’re describing. Sure, the money might be nice to have, but co-founders who are also direct investors often create trouble.
To be clear, this isn’t a statement that’s true at every level. In the earliest days of a startup, the co-founders might all agree to invest some sort of equivalent amount of money/resources at the start of the company. Those kinds of investor/co-founders are fine because they’re established at the beginning and (presumably) equal. As a result, nobody should feel more entitled than anyone else.
However, when someone wants to join the founding team later and pay for his spot, that’s usually going to create strange dynamics within the organization. Specifically, the investor/employee is going to A) feel he’s somehow entitled to more than other people (which may or not be true); B) think his opinion is more valid/valuable because he’s “paying”; and C) be much more judgmental about how money gets spent.
None of those are things you want. They’re almost guaranteed to create unnecessary friction.
In general, the only time I’ve seen an investor successfully become an employee after the company is up and running is when some sort of professional investor (e.g. a VC) who’s already on the board of the company decides to move into a leadership role within the company.
For example, I remember interviewing Raj Kapoor, founder of Snapfish, for one of my Web Masters episodes. After selling Snapfish, he spent time as a VC, where he invested in Lyft. A few years later, he left his position at the VC firm in order to become Lyft’s CSO.
That kind of investor-to-employee transition makes sense. But, obviously, that’s very different than what you’re describing.
Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!