Does the CEO role matter?
Looking for advice on how to clarify roles and responsibilities with a co-founder early on...
I’m starting a company, and I have a potential co-founder that is awesome. We’ve worked together before, she’s very smart and motivated, she’s a force-multiplier, and I know she could be a critical leader and contributor to making this company successful.
While I don’t have revenue or a first customer, I have spent about a year going through the idea maze, doing customer research, building decks, testing them and building a prototype and testing that. It’s felt like quite a bit of mental and emotional energy to get to the level of confidence and excitement I have about the direction I’m moving in.
This potential co-founder understands the problem very well and she may have had a similar idea on her own at one point, I’m sure many people have. She brings a lot to the table, and I want to make her feel like a partner and true owner.
We are having conversations now about
- Who the CEO will be
- What’s the equity split
When it comes to the CEO role, I’m excited about what it entails and had always planned on being the CEO of the company I start. I also feel pretty strongly about having one person be responsible for the vision and direction of the company as well as the funding process (assuming we decide to take some outside money at some point whether its VC funding or not). Obviously vision, direction, funding shouldn’t happen in a silo, it should be a collaborative process, but at the end of the day I believe in a having a clear driver and decider for any area of the business.
She, on the other hand, isn’t so sure we need to decide just yet and would also be interested in taking on the CEO role at some point.
I’m trying to remain open, and I do not want to let my ego get in the way of having a great partnership. But, I also do want a partner that would support me and cheer me on in the role I’m excited to play and that acknowledges that the work I’ve done so far is not nothing.
On the equity front, we are thinking about doing basically 50/50 where I would have slightly more control, so that if I have to break glass in case of emergency, I am able to do so, and not lose the company. In a nutshell, even economics, with control weighted towards me. I feel pretty good about this because I do want to true partner, and I want her to feel like one to, even though I think it would be completely reasonable for us to do something closer to 55/45.
ANYWAY, I’m so curious how other people have dealt with these tough convos. Do you believe in having a CEO role? Do you think it’s important? How did you define roles and responsibilities and set expectations clearly at the beginning? For some teams, I know it’s very straightforward, but for others where there’s ambiguity, how did you deal with it?
SIDE NOTE: We both come from product backgrounds, however she has more of a marketing focus + finance background, and I have more technical chops + engineering background. We do make a very productive team.
My advise is that you should never do 50/50 equity split. 55/45 or better still 60/40 is better for your situation and you should not give your co-founder automatic equity. I mean both of you should earn the allocated equity through 3 year or 4 year vesting schedule and probably with a one year clip.
Really appreciate you weighing in @Andrewten! This along with all of the other responses has really helped me clarify what it is a want and how to have an open convo about it.
Definitely don't do 50/50. Read more about different ways of equity distribution and consult an experienced mentor to give an opinion.
Thanks @hyperfree, I’m starting to get the feeling that it’s really about equity and not the CEO role for me. Ie if we did 55/45, and valued my sweat equity, I would feel more open about the CEO role.
How did you end up, hope you're found a good solution.
The best advice I could give you is: "No one person is greater than the vision of the company/team!"
What I mean by that is while you are working together in tandem initially, you both will have your own unique vision of the company. However, once you have enough user feedback and understanding of your niche and product going forward, it's more important to hire the right roles. That goes for the founding team as well. You will still have great ownership and even direction for your company but hiring (in your case now: PLACING) the right person where they need to be is way more important for the vision and the product's future success.
The hardest thing entrepreneurs struggle with is letting go! Look at all the mom & pop stores, you see that they are just surviving rather than thriving because they can't let go of the way things have always been or are afraid that their business can't succeed with somebody else in charge.
To answer your question more directly! People will tell you because she has marketing and financial knowledge, she has the edge on your engineering background. However, running a company from the CEO standpoint is more about making action happen and turning what seems like chaos into a copacetic routine 🤓. There are many Fortunes 500 companies ran by engineers, finance people, and people without a degree but understand how to "make action happen". You just have to do right for the futire of your company based off what you know now 😬!
Thank you @jhart728 for your thoughtful response. I definitely have some reflecting to do!
I think it's okay to tell your new business partner that it's your baby and that you'd like to have the opportunity to prove yourself in the CEO function, with her as COO or maybe even CMO given her background. On top of that, you acknowledge that neither of you knows what the future brings but that for both of you your duty is toward the success of the company, so if at a later date it becomes apparent she would be a more effective role then you would gladly make the change for the good of the company. You'd also agree that both of you have cofounder status, so you'd be like CEO & Cofounder and her COO & Cofounder.
The equity side is slightly more challenging given that you're still at the ideas / prototype stage - it's all so hypothetical and you can needlessly blow it out of all proportion. I'd say 55/45 is a fair split if you haven't even got something usable (ideas are cheap, execution is everything). You could suggest that she have a 5 year vesting period and you 4 years, so that it reflects the 12 months you've done prior. You'd probably just want to put this in writing between yourselves for now and then tackle it during incorporation.
Thank you @blunicorn! Great advice. Totally agree on the idea / prototype phase and that execution is everything. I have an idea, prototype, and a bunch of customer validation… enough that I’m prepared to invest in building an MVP. That feels worth a tiny tiny bit to me, but who knows where things will go! I’m happy to hear 55/45 would be unreasonable in your opinion.
I think equity front, you should not do 50/50 at this moment. Given you have been "spent about a year going through the idea maze, doing customer research, building decks, testing them and building a prototype and testing that. "
You need to value your sweat equity. You can determine the value your partner brings to the business. If both of you set the expectation that she's going to outperform you, then you can adjust it accordingly.
Another point is that regardless of equity, if the business makes $0, then equity means nothing (Personal experience, I have 30% of a business that makes $0...lol)
Really appreciate your input @Alienroid. I am feeling like what I'm really looking for is some more acknowledgement of the value I'm bringing to the table, and 55/45 would seam reasonable to me. If that was the case, I feel like I wouldn't care so much about the CEO role per se.
does she recognize that? How about you take a different approach and ask her how much she thinks she should have and what's the expectation going forward. I think it's important to establish consensus before moving forward.
Again I guess there's not enough information here for me to make judgement, but I'd say ask around, do some research, and have that serious talk when you have done your research so you came prepared.
Thanks @Alienroid. I need to tell her that now that I’ve come to that conclusion. I know she thinks she should have 50, or at least that’s what she wants, but we’ll have another conversation to discuss what she cares about and what I care about more in depth.
good luck
Key Takeaways. The CEO (CEO) is the most elevated positioning individual in an organization. While each organization varies, CEOs are frequently liable for growing the organization, driving productivity, and on account of public organizations, further developing offer costs. Presidents deal with the general tasks of an organization.
One idea is to do a 50.1/49.9 split on both economics and voting, just to solidify that one person is the ultimate decision maker for major decisions. It can be a great mechanism to have in the case of a stalemate in the future, so the company doesn't get bogged down in debates, amongst 2 strong-willed co-founders. As part of this, you'll both have to accept that you're the ultimate decision maker and she will ultimately defer to your judgement and support your decisions.
We could probably do 51/49. My worry with that would be that if we brought anyone else on and gave them a small percentage of ownership, especially if its a friend of hers, then I would immediately lose my control. Maybe this is silly of me, and I'm being too controlling...
I'm mostly concerned about losing control in the first few years of the business, given that it's taken me year to get to this level of conviction. I want to be able to start this company, and it would suck if there was a existential disagreement early on, and I had no recourse.
I would go against the fear of losing control. If you expect the business to grow, eventually, you probably would want to have investors and thus losing control.
I understand it needs conviction to get to this point. The good part is that if this doesn't work. The hardest part of getting that conviction is already out of the way, meaning next time would be easier.
It would suck to have existential disagreement early on, so you must really trust the other person in their values in this venture.
Thank you @Alienroid. This is great advice. I think I need to understand if there is a lack of trust that I'm feeling that's driving this.
Good luck!
Also, get a mentor/advisor
You could provide any new employees either: i) options / phantom equity or ii) a different class of shares that has no voting control
Thank you!!
From the looks of it, you've both got great complementary skills and I see why you're finding it difficult to define who the CEO will be - she could also be CMO/CFO while you could also be CTO/COO. From a purely emotional standpoint, it sounds like you very much see it as "your" business and if that's the case, if you're the one who defined the product's vision, mission, and are going to direct its progress, it makes sense for the CEO to be you (by the way, I agree with you on the "I also feel pretty strongly about having one person be responsible for the vision and direction of the company as well as the funding process" point).
I think you can find a way to make her feel like a real partner without giving her the CEO title, especially when you're sharing the equity 50:50. Ultimately though, have you tried speaking to her about how you feel?... that would be the best place to start, in my opinion.
Thank you @uxland! I appreciate your response.
Yes, we've started the convo, and I've expressed my feelings, but not fully. TBH I was surprised that this even became an open question at all. So, I'm still wrapping my head around what it all would mean.
yesss means alot
it good
The CEO role is very important in any business. A good CEO can make a company successful. In the case of beer companies like https://beerbaconliberty.com, the CEO has to have a strong knowledge about the industry they are operating in. They need to know how to manage their employees, how to market themselves, and what products to sell.
I think that the CEO role matters a lot.
I'm not just saying this because I work with the CEO. But I do think that there is a certain kind of role where you can't be replaced by anyone else, and that's the CEO.
The CEO is responsible for running the company, but they also need to make sure that everyone in their organization is doing what they need to do to keep things running smoothly. They're responsible for reaching out to investors, making sure that employees are happy, and planning for the future. That's why it's so important that the person in charge of all these things has an amazing head on their shoulders—and knows how to use it!
I would focus on clearly defining who owns which tasks inside the company that get your closer landing your first customer and revenue, kick the CEO title debate can down the road :), it sounds like a distraction.
Sounds like you should own more than the other person as you've taken on a lot more risk early on.
I think it's more about ownership than who is CEO.
Someone that calls themselves CEO and plays the part is probably a red flag 🤔
Thank you @nafetswirth for the advice. The responses I’ve gotten from this post are validating… I think more equity ownership is really what’s more important to me.
No worries 💪
Keep us posted how it goes :)
Best of wishes @montana!! I don't have much to add but I know that you already have the right answer by understanding exactly where you and your partner's strength are.
This is certainly not an easy decision and require a lot of communication to set honest expectation.
Thank you @frankie_xu16 for your support! Really appreciate it.
Have an open conversation and if you want to be CEO it’s better to be open about it now rather than later. Everyone of us has a reason for what we do and if that reason happen to be performing CEO role of that company you dreamt about , be candid about it . It will serve long term.
Thank you @sreejisworld! I agree.
Great post here!
These business partnerships are extremely hard to sustain. If I were you, I’d talk through any ideas or plans and find solutions together. This will help put you both on the same page which will create a foundation that you can build upon in the future.
If one of you is CEO, pushing the other in a direction against their will, it seems likely to cause conflict.
The smaller the company, the more important that CEO needs to know more, which makes sense to have partnerships instead of CEO.
What makes you think that you should be the CEO? Is it the skillset?' or is it the amount of time spent investing in the product? If you truly believe in the problem you are solving and think your product will make peoples life easier, it should not matter who the CEO is. Let her be the CEO. These days there are CO-CEO's too. It all depends upon what you want. Is it self fulfilment or solving a problem for this world? And at the end, there is no way that a CEO can make decisions without consulting with the entire team. So it will never be a one man's show.
Thanks Sona! As I said in my post, I believe in having collaborative processes, but also think it's important to have clear decision makers (ie I certainly don't believe it's going to be a one woman or man show). For me, starting a company isn't just about solving a problem in the world, it's also about giving yourself and your team the opportunities to grow and learn in ways that they are excited about. As I said, I'm excited about taking on the traditional responsibilties of a CEO. And because my co-founder is joining on me on this journey, not the other way around, I'd rather not relinquish that opportunity. I do believe we both have the skillset to be the CEO.
But, yes I do have to make a decision about what I want most and understand what she wants most and see if they are compatible. I'm just curious to hear how other people have gone through this process / if they have similar experiences.
So have you made a decision? I know it is hard.
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Good for you mate.
There are always people that love doing the work you hate, just gotta find a good one :)
I imagine that’s not a lever you want to pull unless you have no other choice. Are there specific conditions under which you feel you’d be forced to play that card?
Totally. I feel like that’s a break glass in case of emergency which hopefully never happens and hopefully you’re choosing a partner that you believe you wouldn’t have to use it with.
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Totally makes sense! I need to focus on roles and responsibilities in this convo, not CEO title.
Thank you @Primer! That makes a lot of sense. It’s interesting, I would be comfortable forgoing the CEO role if I had a bigger share of the equity. So maybe that’s the real question for me…
This comment was deleted 2 years ago.