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Inside the Economist's Mind

Entrepreneurs – more successful going solo or in partnership?

As per a recent study I am told by NCAER, it seems 80% of entrepreneurs registered as private companies after 2008 in India were co-founded by 2 or more founders. We all know the successful Mind tree was co –founded by as many as 10 co-founders many years back and if I recollect, the youngest was in his early 30’s and the eldest ( Mr. Bagchi ) in his 50’s. The study reveals that more than 75% of those which were co founded did not/are not doing well while almost the same percentage of individual  led companies are satisfied with their achievements.

I am not a hard believer in being swayed by statistics alone.  But why is it that co-founders often fail?

Let me share what I believe are best practices in partnering with other co founders. There is undoubtedly a need to have shared values apart from only shared interests between co founders.  Chemistry too is essential. Also –whether it is a bunch of college mates getting together or professionals getting together — co founders ideally need to have complementary skill sets which will ensure an effective relay race as the business starts off, churning of ideas and leveraging each other’s strengths.

All this is well known. In addition, I would urge all budding entrepreneurs who plan to partner to also spend quality time–as they would do building up their business plans — to carve out strategic and operational Roles at the outset. I would strongly advise co-founders to work out a Founders agreement during the incubation phase where future situations and how they would be tackled are thought through. I am also of the firm opinion that there has to be a leader who takes a final call in case of a difference of opinion on operational and most strategic matters, or a “First among equals” leadership Role assigned to one of the co founders even if they are all of the same experience profile; though there should obviously be guardrails in place to ensure that consensus is enshrined for key strategic decisions e.g. exits, new partners, changes to Founders agreement etc.

The Founders agreement should be incorporated as part of the Articles of association or partnership deed as the case may be. If well thought out governance procedures, Roles for each co founder and way forward for future situations has been well defined before the launch, it would definitely help the start up team during the ups and downs of the roller coaster that every start-up inevitably faces. The VC/seedfund fraternity would also welcome it.


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