A strong business partner decreases startup risk
Recently, I spoke at an event that highlighted working as part of a founding team. Check out the video here. Starting a business solo is OK, but I’m a big believer in having a business partner. (Exactly one business partner; teams of three or more are a disaster.) Here’s why:
A good partner increases the likelihood of a positive exit for a company. This increased chance of an exit more than offsets the 50% dilution. Getting paid a million bucks is sweet for the founder. Getting paid two million is even better, but the lifestyle change that comes with that first big win is a lot more significant than the 2nd million. This becomes the biggest conflict between investors and entrepreneurs. The entrepreneur wants an exit. The investor wants a BIG exit. So, I’ll take it on faith that everyone now agrees with my assertion that dilution is no big deal. Ok, so then what are the benefits of having a partner?
Matt & I started out with very similar skill sets. We both had technical background and had minimal understanding of marketing, sales, finance, etc. So, we had to learn. We each gravitated towards the things that interested us more. I liked doing sales and operations. Matt was more involved in marketing and product stuff.
As the business continued to grow we differentiated further. He pursued an MBA to get a deeper understanding of investor relations and finance. I spent a lot of time pouring over academic operations textbooks and thinking about how to engineer economies of scale.
Eventually, we looked around and realized that we couldn’t do each other’s jobs. However, we hadn’t differentiated to the point of exclusion; in fact, our responsibilities to this day still overlap about 80%. But what did happen was that we both mastered certain areas. I recognize that Matt is just better than me at certain things now and vice versa.
Another point worth mentioning: Downtime! Our 80% overlap of responsibilities means that we are able to cover for each other. That means that we get to enjoy a rare vacation. Every once in a while I can even take a luxurious sick day.
I’m a cocky bastard. It’s true. Generally, this trait serves me better than one might think. Most entrepreneurs are pretty cocky. Several reporters/friends/family/employees have asked me, ‘Did you ever think GrubHub would get this big?’ My answer: ‘Yes. Absolutely. I had no doubts. ‘ This is a pretty common attitude among entrepreneurs. I have the distinction of having, thankfully, been correct with the help of skill, luck, and serendipity all working together.
But, the reality of my success is closely tied to having a partner. In particular, I had (and have) a ton of blind spots. Matt could see those blind spots. He also had the … ahem…. assertiveness to point those things out to me.
One of the things that Matt was able to coach me on was how I interact with people. I had a really rough edge to me. Over time, and through Matt consistently pushing me to be better, I came to realize that I probably didn’t value other people’s perspective enough, which would be fine if I always knew the best answer…but, I didn’t. My partner’s insightful observations inspired me to face both the businessman I was and the businessman I had the potential to be.
The most important instance of this was as we started exploring acquisitions of other companies. In 2009 we had a meeting with Campusfood.com. At the time, the writing was on the wall that GrubHub was cleaning up, and we had a ton of leverage going into an acquisition conversation. But Matt & I were pompous and overbearing and as a result we almost tanked the whole deal. As we hopped on a flight home I mentioned to Matt, “Man, we were assholes today”. We recognized that we should show a lot more respect for a competitor that is about to turn partner. Fortunately, the founder of Campusfood was gracious enough to give us a pass and we were able to salvage that bad experience. This change of heart wouldn’t have happened if Matt & I hadn’t been pushing each other to be better people.
Early on, the number of hands to get the work done doubled when I wrangled a cofounder. Instantly having twice as many ideas, twice as many sales, and twice as many hands to hand out magnets at the Fullerton El stop was nothing short of pure magic.
As we’ve gotten larger, the extra hands of a cofounder mean less. The amount of work that Matt & I can get done is only a small % of the total productivity of the company. So, it has really been the big ideas that pay off now. We have big hairy audacious goals. We also build on each other’s concepts. In one afternoon, we can come up with pretty thoroughly thought out innovations that are leaps and bounds better than if either of us were to try it solo.
Finally, 9:07 AM Monday morning. I never get an email from Matt at 9:07 AM on Monday. Why? Because, if I sent him an email on Saturday at 8PM, I got a response by 9PM. We are both always on. It makes all the difference in the world to have a partner that works as hard as I do. Matt and I are completely aligned from an interest and motivation perspective. It makes the building of a business a lot less lonely.
A Big Caveat
Trust is important. Early on, we started writing a partnership agreement that would take into account any contingencies that might make for a poor working relationship. At one point I tore it up. No lawyer can ever word a legal agreement perfectly enough to replace trust. While I’m not saying that legal agreements aren’t ever needed, I am saying that a legal agreement is never going to be the key element to a healthy partnership.