An appraisal of topics cofounders should agree on prior to startup to benefit the success of new venture.

Amsterdam Business School Innovation & Entrepreneurship Track

Master Thesis Final 27-01-2014

Supervisor: Wietze van der Aa Second Reader: A.C.C. Gruijters

Key issues for co-founders to agree on

when starting a venture

An appraisal of topics cofounders should agree on prior to startup to benefit the success of new venture.

Student Jorrit Klaas van Gelder Student number 10276955

TABLE OF CONTENTS ABSTRACT ... 3 1 INTRODUCTION ... 4 1.1OVERVIEW... 4 1.2RESEARCH OBJECTIVE ... 6 1.3RESEARCH QUESTIONS ... 6 1.4CONTRIBUTION... 7 2 THEORETICAL FRAMEWORK ... 8 COMPOSITION ...11 STRATEGY ...13 PROCESS ...15 TEAM TOOLS ...18 3 METHODOLOGY ... 21 3.1RESEARCH DESIGN ...22

3.2SEMI STRUCTURED INTERVIEWS ...22

3.3 SAMPLES ... 23

3.4DATA PROCESSING ...24

4 RESULTS ... 25

5 DISCUSSION ... 57

ARE COFOUNDER AGREEMENTS IMPORTANT TO AGREE ON FROM THE START? ...57

WHAT KIND OF TOPICS ARE COMMONLY AGREED ON FROM THE START? ...58

WHAT ARE THE MOST IMPORTANT TOPICS COFOUNDERS CAN AGREE ON FROM THE START? ...58

THE FOUR DIMENSIONS OF COFOUNDER AGREEMENTS ...66

CONCLUSIONS ...66

6 REFERENCES ... 68

7 APPENDICES ... 70

APPENDIX I ...70

A

BSTRACT

Purpose - The purpose of this thesis is to appraise topics cofounders can agree on in

order to increase the likelihood of success in their new venture. This study

contributes to our understanding of the drivers for success of cofounded ventures.

Design/methodology/approach- The importance of each topic was tested using a

qualitative study. By combining academic literature and semi-structured interviews, the main research question has been answered.

Findings - This study gives strong indications that by agreeing on certain topics

cofounders can increase the likelihood of success of their new venture. Cofounders should agree on or at least consider the four dimensions of cofounder agreements put forward by this thesis.

Value - Current literature on cofounded ventures addresses different aspects of the

entrepreneurial process but it does not however, cover the type of agreements cofounders can make to benefit the success of their venture. The results and conclusions of this study therefore contribute to the academic literature on cofounded ventures.

Keywords - Cofounder agreements, cofounding teams, founding team composition,

founding strategy, exit strategy, shared leadership, collective cognition, cognitive conflicts, affective conflicts, team member trust and commitment, evaluation of interpersonal processes.

1

I

NTRODUCTION

1.1

O

This thesis appraises topics cofounders should agree on prior to the start-up of a venture. The motivation to perform this study came from reading an article published by the Dutch Chamber of Commerce, which stated that out of all the ventures started in 2007, only 54% were still in business after five years. When discussing the article with several entrepreneurs and why half of the start-ups failed, it became apparent that agreements between founders, or a lack of, were an

important part of the successful development of the venture.

In literate, it is suggested that ventures founded by two or more people from the start have a higher chance of success than ventures started with one person. (Weinzimmer 1997, Teach, Tarpley et al. 1986). A possible explanation given for this higher success probability is having more human capital from the start. Each

additional member will add experience and expertise from the beginning and it is suggested that this can have a positive effect on the outcome of the venture. (Feeser, Willard 1990, Song, Podoynitsyna et al. 2008). Seeing that team-founded ventures have a higher chance of success than a single person start-ups, it is worth investigating to find out how co-founded start-ups can further increase their likelihood of success.

During the process of starting a venture cofounders have to work together. Over time they must develop a decisions making process that will allow them to estimate effects of possible actions, formalise the right strategy, make the right decisions and allocate appropriate resources at key moments in the development of the venture (West 2007). Consequently their effectiveness as a team will also determine how well they will run the venture. An ineffective team will most likely lead to a decrease in performance of the venture.

Cofounders lead the company from the start, and its assumed that the agreements they make prior to start-up have an important impact on the outcome of the venture. In order to discover how start-ups can increase their likelihood for success, the interest of this study relates to the topics that cofounders agree on prior

to start-up. The legal and financial agreements are well documented in academic literature, therefore this thesis investigates if there are other so called cofounder

agreements that can be made between cofounders that can benefit the success of

new ventures

To identify and appraise such agreements, the literatures concerning venture startups was reviewed and in total nine relevant topics were identified and

subdivided along four different dimensions. These topics are thought to be beneficial to the effectiveness of cofounding teams and were therefore considered relevant.

The framework of topics is tested on their level of importance during interviews with cofounders. The cofounders interviewed for this thesis have experience in starting a new venture together and, are therefore relevant for appraising each topic.

In conclusion this study this study gives strong indications that by agreeing on certain topics cofounders can increase the likelihood of success of their new

venture. Cofounders should agree on or at least consider the four dimensions of cofounder agreements put forward by this thesis.

1.2

R

Cofounding a new venture involves teamwork. This thesis investigates which topics cofounders can agree on that aid the way founders work together. It is common sense to think certain topics are important, however the most relevant question is how important and influential these topics are in reality. Therefore the objective of this research will be as follows:

1. Appraise topics that can be agreed on by cofounders prior to start-up 2. Rank these topics in order of importance.

3. Identify what kind of agreements cofounders can make on these topics.

1.3

R

In order to achieve the mentioned objectives the following main research question was formulated: When cofounding a venture, which topics should cofounders agree

on from the start in order to increase the likelihood of success in their new venture?

To answer the main research questions, sub questions were formulated: Sub questions:

 Are cofounder agreements important to agree on from the start?

 What kind of topics are commonly agreed on from the start?

 What are the most important topics that cofounders should agree on? o Why are they important?

o What kind of issues and problems may arise in cofounded ventures

when these agreements are not made?

1.4

C

By answering the research questions, this study contributes to the understanding of cofounder agreements. By diving deeply into the type of topics cofounders can agree on, this study presents findings of a relatively new phenomenon. Besides providing an overview of the type of topics that cofounders can agree upon (descriptive character), this study will also attempt to explain why they can be important for cofounded ventures (explanatory character).

1.4.1 THEORETICAL CONTRIBUTION

This research is relevant to the academic community because the findings of this study are currently not available in the scientific world. By adding qualitative data from cofounded ventures, this research is filling an empirical gap that contributes to the current level of scientific knowledge about cofounder agreements. A lot of previous research has been conducted on the entrepreneurial processes of

cofounded ventures, however an overview of the type of agreements cofounder can make prior to the start of their venture does not currently exist. This is interesting and relevant for the scientific world as it is suggested that ventures founded by two or more people from the start have a bigger chance of success than ventures started with one person (Weinzimmer 1997, Teach, Tarpley et al. 1986).

1.4.2 MANAGERIAL CONTRIBUTION

This study is interesting for nascent entrepreneurs on the verge of cofounding a venture. Most cofounders start a venture together without knowing the implications of starting a long-term partnership with their cofounder. The effectiveness of their partnership does, in part, determine the success of the venture. This study also attempts to provide a framework of topics that cofounders can agree on to aid the effectiveness of cofounder partnerships. It is believed that agreeing on, or at least considering, the topics put forward by this study may increase the cofounding team’s effectiveness and help prevent problems concerning a cofounder partnership. This in turn may increase the likelihood of success of a new venture.

2

T

HEORETICAL FRAMEWORK

This chapter outlines the theoretical framework used for this study. It starts by explaining how the topics were chosen and why they are found to be relevant for cofounders to agree on. To introduce you to the found theory an overview of the nine topics, and the four dimension they are divided in, is given. This is followed by summaries of the dimensions, their corresponding topics, articles and key points. Finally, to give a better understanding of the topics, each topic is discussed more elaborately.

When cofounding a new venture, there are many topics that cofounders can agree on prior to starting their new venture. The legal and financial agreements are well documented in academic literature, therefore this thesis investigates if there are other so called cofounder agreements that can be made between cofounders that can benefit the outcome of a new venture.

The starting point of this literature review was the article ‘Founding Strategy and Performance: A comparison of High and Low Growth High Tech Firms ‘(Feeser, Willard 1990). In this study the founding strategies of a group of firms in the computer industry are compared. The paper investigated whether the founding strategies differed systematically between these firms and if so what the

implications of these differences may be. The interesting part of the conclusion of this paper is the importance of the entrepreneur and more importantly the

importance of the group of entrepreneurs that start the venture. It was found that larger founding teams enhance the probability of a firm’s success; “The pooling of

(human) capital, sharing of personal risks, and the psychological support of knowing that others ‘are in the same boat’ may enhance the prospects for subsequent high performance. Synergy may very well result.” (Feeser, Willard 1990) This conclusion

underlines the importance of an effective partnership between cofounders for the success of a new venture. Now that the importance of cofounder partnership is explained, the theoretical framework needed topics that can increase the effectiveness of a cofounding team. This then formed the basis from which the search for other topics started. Consequently topics involving issues, problems, and

solutions concerning the partnership of cofounders were considered relevant for this theoretical framework.

In the search for relevant topics, literature concerning venture startups, cofounded ventures and top management teams was reviewed. In total nine topics were found. These topics are thought to be beneficial to the effectiveness of cofounding teams and were therefore considered relevant.

From the nine topics a framework was derived that subdivided them in four different dimensions, namely: composition, strategy, process and team tools. The composition dimension covers the available human capital of the cofounding team. The strategy dimension covers how well the founding team chooses, implements and if needed changes their strategy. The process dimension covers how cofounders interact with each other, use and resolve conflicts, and (co)manage their new

venture. The team tools dimension covers topics that can be used as tools to further increase the cofounding team’s effectiveness. An overview of these dimensions and the corresponding topics are shown in table 2.0 on the next page.

Cofounder

Agreements

Composition: Founding Team Size

Adding & Dropping Founding Team Members Strategy: Founding Strategy Exit Strategy Process: Leadership Collective Cognition Conflicts Team Tools: Evaluation of Interpersonal Process Trust and Commitment

Now that a framework of nine topics in four dimensions is created, each dimension is summarized in the following tables. In these tables the topics are shown with the corresponding articles and key points. This is then followed by a more in depth summary of each topic.

C

Table 2.1 shows a summary of the topics from the first dimension called composition.

Table 2.1 Composition

Topic Article Article Key points

Founding Team Size

FEESER, H.R. and WILLARD, G.E., 1990. Founding Strategy and Performance: A

Comparison of High and Low Growth High Tech Firms. Strategic

Management Journal,

11(2), pp. 87-98.

SONG, M.,

PODOYNITSYNA, K., VAN DER BIJ, H. and

HALMAN, J.I.M., 2008. Success Factors in New Ventures: A Meta-analysis*. Journal of

Product Innovation Management, 25(1), pp.

7-27.

A larger founding team brings a greater

experiential and conceptual pool to the decision making process and creates a higher chance of success than single founded ventures

CLARYSSE, B. and MORAY, N., 2004. A process study of entrepreneurial team formation: the case of a research-based spin-off.

Journal of Business Venturing, 19(1), pp.

55-79.

Size has its limits with a maximum of four founders

Adding and Dropping Founding Team Members BOEKER, W., 1989. Strategic change: The effects of founding and history. Academy of

Management Journal,

32(3), pp. 489-515.

UCBASARAN, D., LOCKETT, A., WRIGHT, M. and WESTHEAD, P., 2003. Entrepreneurial Founder Teams: Factors Associated with Member Entry and Exit.

Entrepreneurship Theory and Practice, 28(2), pp.

107-128.

Highly likely to occur

Alters the available human capital CHANDLER, G.N., HONIG, B. and WIKLUND, J., 2005. Antecedents, moderators, and performance consequences of membership change in new venture teams.

Journal of Business Venturing, 20(5), pp.

705-725.

Potential to change organizational culture and direction of the venture Better to start with large team and drop those with no added value than to start small and ad shareholders later on

2.1 FOUNDING TEAM SIZE

It is suggested that having a larger founding team has its advantages of brining a greater experiential and conceptual pool to the decision process. A larger team ensures that all the rocks that needed to be unturned are, in fact, unturned, which helps reduce the risk of important decisions to be left to chance (Feeser, Willard 1990).

In a meta-analysis of new technology ventures, one out of the eight homogeneous success factors found was the size of the founding team. The study suggested that enlarging the founding team might improve new technological venture’s performance. By enlarging the founding team the venture collects more experience and thus, has more chance of success. (Song, Podoynitsyna et al. 2008)

The benefits of having a larger founding team has its limit, as entrepreneurial start-up teams with more than four persons are found to be very difficult to run during the start-up phase. Every member wants to solve every problem the company encounters. Being a shareholder versus managing a venture are two different things, and shareholder power and managerial authority are often confused. (Clarysse, Moray 2004)

2.2 ADDING AND DROPPING FOUNDING TEAM MEMBERS

Adding and dropping team members is highly likely to occur during the course of a new venture (Ucbasaran, Lockett et al. 2003). Adding or dropping team members is important, as it alters the available human capital and, can potentially change the culture and direction of the new venture. In addition, the manner in which founders decide on how and when to add or drop a team member builds the foundation of the team’s strategic decision making process (Boeker 1989).

The implications of adding or dropping team members are dependent on the development stage of the venture. It is suggested, that it is preferable for a new venture to start with a larger number of team members and drop those who do not fit within the team or do not make meaningful contributions, than it is to start with a small team and ad team members when the need arises (Chandler, Honig et al.

2005). As the venture develops, removing team members improves the chance of

changes decreases. Adding new team members in the initial stage could be risky, and doing so in the more advanced stage of development during the first 5 years was found to have significant negative performance implications (Chandler, Honig et al. 2005).

S

Table 2.2 shows a summary of the topics from the second dimension called strategy.

Table 2.2 Strategy

Topic Article Article Key points

Founding Strategy

BOEKER, W., 1989. Strategic change: The effects of founding and history. Academy of

Management Journal,

32(3), pp. 489-515.

FEESER, H.R. and WILLARD, G.E., 1990. Founding Strategy and Performance: A Comparison of High and Low Growth High Tech Firms. Strategic

Management Journal, 11(2),

pp. 87-98.

Important input for subsequent performance Provides initial strategic direction

Dictates, limits and prescribes subsequent strategies PORTER, M.E., 1980. Competitive strategies: Techniques for analyzing industries and competitors. The

Free Pres, New York, .

Hard to change over time Each strategy requires different resources and skills

When the strategy matches well with opportunities in the environment there will be less chance for the need to change Exit Strategy DETIENNE, D.R., 2010. Entrepreneurial exit as a critical component of the entrepreneurial process: Theoretical development. Journal of Business Venturing, 25(2), pp. 203-215.

Inevitable founders will leave the venture

Determines how founder’s retain part of the wealth of the venture

Has an impact on the strategy of the business itself

2.3 FOUNDING STRATEGY

The founding strategy of the new venture is an important input at a very early stage of the venture and impacts its subsequent performance. Such a strategy involves choosing what kind of product or service the venture will offer, in which market, for what price and to whom. This founding strategy provides an initial strategic

partially limiting subsequent change in strategy (Boeker, 1989). According to Porter (1980), a venture can follow three generic strategies: cost-leadership, differentiation and focus. Porter explains that implementing each strategy requires different resources and skills. Choosing a strategy will therefore, circumscribe subsequent strategies.

The importance of a founding strategy is illustrated by a study on high and low growth high tech firms and concludes that choosing what market to enter and with which product to offer will be the single most important decision the new venture will face in its start-up. The founding strategy will dictate, limit and

prescribe, to a large extent, subsequent strategy and success. Moreover, how well founders select customers, define the needs they intend to meet, and choose the product or service to fulfill that need, will determine the venture’s subsequent performance (Feeser, Willard 1990). Finally, if a founding strategy is chosen that matches the opportunities in the environment, there is less chance that there will be a need to change these strategies later on. (Feeser & Willard, 1990)

2.4 EXIT STRATEGY

Entrepreneurial exit, the process by which the founders of privately held ventures leave the venture they helped create, is an important part of the entrepreneurial process (DeTienne 2010). It is inevitable that owners will one day exit the venture they created, either by selling their share or by dying in the saddle.

During the infancy stage of the venture, De Tienne argues that forming an exit strategy at that point will help in successfully exiting the venture in a later stage. By exiting the venture, the owner has a chance of retaining a part of the wealth of the venture and therefore, is considered to be an important part of the

entrepreneurial process. More importantly, the exit strategy of each founder will consequently have an impact on the strategy of the business itself. When both founders are determined to sell the venture in 5 years, the venture will most likely have a more short-term profit/growth model.

P

Table 2.3 shows a summary of the topics from the third dimension called process.

Table 2.3 Process

Topic Article Article Key points

Vertical and Shared Leadership ENSLEY, M.D., HMIELESKI, K.M. and PEARCE, C.L., 2006. The importance of vertical and shared leadership within new venture top management teams: Implications for the performance of startups. The

Leadership Quarterly,

17(3), pp. 217-231.

PEARCE, C.L. and BARKUS, B., 2004. The Future of Leadership: Combining Vertical and Shared Leadership to Transform Knowledge Work [and Executive Commentary]. The Academy of Management Executive (1993-2005), 18(1), pp. 47-59. Vertical: Traditional method where the venture is led by one single person Shared: Leadership is given to those with key

knowledge, capabilities and skills

Shared leadership is found to have more value than vertical leadership Collective Cognition WEST, G.P., 2007. Collective Cognition: When Entrepreneurial Teams, Not Individuals, Make Decisions.

Entrepreneurship Theory and Practice,

31(1), pp. 77-102.

Highly consistent views or constantly identifying different options and alternatives has a negative effect on new venture performance Cognitive and Affective Conflicts AMASON, A.C., 1996. Distinguishing the effects of functional and dysfunctional conflict on strategic decision making: Resolving a paradox for top management teams. Academy of

management journal,

39(1), pp. 123-148.

ENSLEY, M.D., PEARSON, A.W. and AMASON, A.C., 2002. Understanding the dynamics of new venture top management teams: cohesion, conflict, and new venture performance.

Journal of Business Venturing, 17(4), pp.

365-386.

Conflicts are highly likely to occur

Cognitive conflicts are constructive to the decision making process and venture growth and should be encouraged

Affective conflicts are detrimental to the decision making process and venture growth and should be avoided

AMASON, A.C. and SAPIENZA, H.J., 1997. The effects of top management team size and interaction norms on cognitive and affective conflict.

Journal of

management, 23(4), pp.

2.5 VERTICAL AND SHARED LEADERSHIP

Vertical and shared leadership are found to be highly significant predictors of new venture performance (Ensley, Hmieleski et al. 2006). Vertical leadership is the traditional approach, where one person is fully in charge and the rest are simple followers. Shared leadership on the other hand is a group approach, where the leadership tasks are shared with team members. When a team encounters particular issues the leadership role is given to members with key knowledge, capabilities and skills to solving those issues (Pearce, Barkus 2004). Relating this to new venture teams, a single person start-up will put the founder in the position of the leader. In a team-founded venture the leadership role, and whether or not it is shared, may not necessarily be clear from the start.

The relative importance of vertical versus shared leadership varies during the evolution of the venture. During the start-up phase it is usually a single person that recognizes an entrepreneurial opportunity and decides to exploit that opportunity by founding a new venture. At this time, the vertical leadership of that person is critical for the success of the venture. Once the venture starts to evolve the entrepreneur can no longer single-handedly lead the venture effectively. At this point shared leadership within the team becomes important, as managerial needs surpass that which is capable to be provided by one person (Ensley, Hmieleski et al. 2006).

2.6 COLLECTIVE COGNITION

The success of new ventures is often dependent on the founding team collective cognition. This is how the founding team collectively understands its world, estimates effects of possible actions, makes decisions, and allocates appropriate resources. In a study by West (2007), performance improvements are found to be significantly associated with the degree of differentiation and integration of strategic constructs within the top management team. Moreover, it is suggested that an inverted U-shaped relationship exists. Too much integration with team members (highly consistent views) or too much differentiation (constantly identifying different options and alternatives) has a negative effect on new venture’s performance. The performance of the venture enhances when these variables deviate less from mid range levels. It is therefore important that founders have consistent views whilst at the same time identifying different options and alternatives.

2.7 COGNITIVE AND AFFECTIVE CONFLICTS

When cofounding and managing a new venture, it is inevitable that conflicts will occur between cofounders. These conflicts can be divided into two dimensions: the cognitive and affective dimension. The cognitive dimension relates to functional and task oriented conflicts. It is considered to be constructive to better decision making and is likely to lead to better venture performance. The affective dimension relates however to personally oriented conflicts, is considered to be destructive to the decision making process and should therefore be avoided (Ensley, Pearson et al. 2002).

Cognitive conflicts involve open exchanges of ideas, objective assessments of alternatives and contrasting perspectives. From these conflicts creative ideas and solutions emerge. Such conflicts may however evolve into affective conflicts, causing anger and alienation. Such emotions can lead to disaffection and can disrupt the process, which undermines decision quality(Amason 1996).

Norms encouraging frank and open discussion to promote a full airing of the substantive differences within a group were found strongly related to cognitive conflict. Such open disclosure may result in cognitive conflict and help avoid affective conflict (Ensley, Pearson et al. 2002, Amason, Sapienza 1997). To improve the

decision making process, team members should encourage cognitive conflict whilst at the same time discouraging affective conflict. When the team manages to achieve both they should produce higher quality decisions (Amason 1996).

T

T

Table 2.4 shows a summary of the topics from the fourth dimension called team tools.

Table 2.4 Team Tools

Topic Article Article Key points

Evaluation of Interpersonal Processes

WATSON, W., STEWART JR., W.H. and BARNIR, A., 2003. The effects of human capital, organizational demography, and interpersonal processes on venture partner perceptions of firm profit and growth.

Journal of Business Venturing, 18(2),

pp. 145-164.

GREEN, S.G. and MITCHELL, T.R., 1979. Attributional processes of leaders in leader—member

interactions. Organizational

behavior and human performance, 23(3), pp.

429-458.

Useful in partner problem solving

Correspondence in

partner’s direct assessment has positive association with venture growth

Discrepancies in partner’s direct assessment has a negative association with venture growth

How partners perceive each other affects their view of the venture and shapes following decisions and behaviors

SRIVASTAVA, B. and SETT, P., 1998. Managerial attribution and response: an empirical test of an

attributional leadership model in India. The Journal

of social psychology, 138(5),

pp. 591-597.

Partner assumptions about venture performance affect how they work together MAIDIQUE, M.A. and ZIRGER, B.J., 1985. The new product learning cycle. Research policy, 14(6), pp. 299-313. Trust and Team Member Commitment WU, L., WANG, C., TSENG, C. and WU, M., 2009. Founding team and start-up competitive advantage.

Management Decision, 47(2), pp.

345-358.

Trust between founders enhances their

commitment to each other and to the venture

Trust can be based on the founder’s resources and capabilities.

2.8 EVALUATION OF INTERPERSONAL PROCESS

Working within a team involves interaction between team members. This interaction is called interpersonal process. How well this interaction occurs will determine the team’s effectiveness and consequently, how well the venture is run.

Periodic measurement of partner evaluation on interpersonal processes can be useful in partner problem solving and planning, and can also aid in the venture’s success (Watson, Stewart Jr. et al. 2003). Interpersonal processes can be defined in two dimensions: venture synergy and venture direction. Synergy includes activities such as resolving conflict, sharing information, and coordinating team effort. Direction includes setting quality standards, continual improvement, and venture goals. Watson, Stewart Jr. et al (2003)found that the evaluation of interpersonal processes, from a standpoint of direct assessment by the venture’s partners,

resulted in a strong positive association with venture growth. A negative association of growth occurred when there where discrepancies in the assessment. These discrepancies can be caused by either a lack of understanding about each other’s contributions, or a feeling of one-sidedness by a partner regarding the value added by the other partner.

Partner evaluations are considered to be important. The way founders perceive each other affects the view they have on the venture. This in turn shapes following decisions and behaviors(Maidique, Zirger 1985). In addition to this, partner’s assumptions about venture performance also affects how partners work together (Green, Mitchell 1979, Srivastava, Sett 1998).

2.9 TRUST AND TEAM MEMBER COMMITMENT

Working within a team implies that cofounders will have to be able and willing to, work together. This commitment to work together is enhanced by the trust they have in each other. Such trust is based on the founder’s own resources and capabilities like specialized know-how, financial capital, managerial capability and working experience. Increases in trust increase the founding team member’s commitment to cooperate and this in turn, will contribute to the new venture’s competitive advantage(Wu, Wang et al. 2009). As the venture evolves it is important that founding team members cooperate and provide important or complementary

resources. Trust, and the resources of the founders are therefore crucial factors for start-ups to achieve success and sustain growth.

3

M

ETHODOLOGY

This thesis appraises topics that are important to agree on when co-founding a new venture. The legal and financial agreements are well documented in academic literature, therefore this thesis investigates if there are other so called cofounder

agreements that can be made between cofounders that can benefit the outcome of

a new venture. To identify and appraise such agreements literature concerning venture startups was reviewed and in total nine topics were identified as relevant.

To appraise whether these 9 topics are of importance for entrepreneurs the topics are discussed during semi-structured interviews with 11 entrepreneurs. The first aim of the interview was to asses which topics are found to be important to agree on by entrepreneurs who co-founded a venture. This was realized by asking the interviewee to give a top five ranking of the most important topics to agree on. They were allowed to choose from the nine topics or add topics themselves. The second aim was to explore what type of agreements cofounders can make on each topic.

A pilot interview was held to see if the interview could yield the desired results and to check if the topics and questions where clear and well formulated. Over the course of three months, eleven entrepreneurs were interviewed.

The first criteria for the interviewee is that he or she co-founded a venture, which is of course necessary as this thesis appraises topics cofounders can agree on. The second criteria is that the venture exists or has existed for more than three years, and it is in the author’s opinion that ventures that have existed for less than three years have not gone through the necessary entrepreneurial stages/phases for the entrepreneurs to give valuable judgment on the topics. No further criteria were used, and it is in the author’s opinion that the type of venture or any other

demographics of founders do not determine the type of topics cofounders should agree on. The eleven interviews were recorded, transcribed and finally summarised. The summary of each interview was sent to the interviewee for approval and to validate and re-check, if the summary corresponded with the answers given by the interviewee.

In the results section the results of all eleven interviews are shown. All sub chapters show the results for each of the nine topics followed by an analysis. In the analysis the results are compared to theory, and the importance of the topics and the type of agreements are discussed based on the rankings given by the

respondents.

3.1

R

The research question will be answered using a qualitative study. A combination of academic literature and semi-structured interviews is used to answer the research question. A case study approach suits this research best as this study researchers a relatively new phenomenon in cofounder agreements, which at present lacks a strong theoretical foundation (Yin, 2003). It is a multiple case study, with six

cofounded ventures. The research has a descriptive and exploratory character. The unit of analysis is cofounded ventures and the unit of observation is the cofounder. This was selected because it is relevant, interesting and significant (see for more details part 1.4 contribution). A deductive research approach suits this research best because topics concerning venture startups are widely researched.

3.2

S

Semi structured interviews were used to obtain deep insights of relevant data from 'experts' in the field. According to Saunders et al (2009) semi-structured interviews contain a particular structure, which can be varied within the different interviews. Standard questions were developed before the interviews took place. The interviews were audio recorded and summaries were made of the interview for analysis at a later date. These summaries were sent to the interviewee’s for approval. On average the interviews took around 60 minutes. The interviews were held at the office of the interviewee or in one case, a restaurant. The language during the interviews was always Dutch. Each interview started with an introduction of the interviewer, the purpose of the study and some background information on the research topic. The standard interview questions and the interview summaries can be found in the appendix.

3.3

S

AMPLES

Convenience sampling was used to find respondents for this study. Through the personal network of the author, entrepreneurs were asked to participate in this research. Eleven entrepreneurs were invited for an interview and all of them participated. The interviewees needed to have founded a venture together with at least one other person and the venture must have existed for at least three years. Eleven entrepreneurs were interviewed from a total of six ventures. See table 3.3.1 for further characteristics of the sampling selection.

Table 3.31 Characteristics of sample selection

Company Product Interviewee Founded Employees

Effectory

Employee and customer surveys

A.B.

(Cofounder) 1996 130

Effectory

Employee and customer surveys G.H. (Cofounder) 1996 130 MeValue Consultancy G-J.T (Cofounder) 2006 25

WUA! Website benchmarking

H.K.

(Cofounder) 2008 12

WUA! Website benchmarking

K.K.

(Cofounder) 2008 12

People's

Playground SmartTV applications

S.v.L. (Cofounder,

left in 2009) 2006 6

People's

Playground SmartTV applications

D.N.

(Cofounder) 2006 6

People's

Playground SmartTV applications

A.H.T.

(Shareholder

since 2010) 2006 6

Waste2Chemical

Biobased building blocks for the chemical industry

K.S.

(Cofounder) 2010 3

Waste2Chemical

Biobased building blocks for the chemical industry

N.v.S.

(Cofounder) 2010 3

Biotech

Anonymous biotech company in the energy market

Mr. X

3.4

D

All interviews were audio recorded, transcribed and summarised. The summaries were sent back to the interviewee for approval. After receiving approval the summaries were analysed. The interviews were in Dutch and therefore the summaries are also in Dutch. The quotes in the results section are translated to English. To analyze the qualitative data specialized software called Nvivo10 was used. By creating nodes the qualitative data was categorized. If needed the Nvivo10 file is available to read.

4

R

ESULTS

This chapter shows the results of the eleven interviews. Subchapters 4.1 till 4.9 describe the results for each of the nine topics put forward by this study. 4.10 and 4.11 describe common and additional topics given by the respondents and in 4.11 the importance of making agreements from the start is discussed.

The results are summarised in tables. Where necessary quotes in gray boxes are shown to further illustrate the opinion of respondents. At the end of each subchapter an analysis is made in which the results are compared to theory and the importance of the topic plus the type of agreements is discussed based on the answers and rankings given by the respondents.

Table 4.1 shows how many times each topic was mentioned by the eleven respondents in their top five of most important topics to agree on.

Table 4.1 The number of times each topic was mentioned in the top five of most important topics to agree on from the start. Times

mentioned Topic

9 Founding Strategy

9 Vertical and Shared leadership 8

Trust and Team Member Commitment

8 Collective Cognition

8 Cognitive and Affective Conflicts 6 Evaluation of Interpersonal Process 2 Exit Strategy

2 Adding and Dropping Shareholders 1 Founding Team Size

4.1 FOUNDING TEAM SIZE

One out of the eleven respondents mentioned the founding team size in their top five of important topics to agree on, and so this is the least out of all nine topics. Table 4.1.1 shows how the founding team size was ranked by the respondent.

Table 4.1.1 Founding team size Ranking By whom?

Importance

Respondents were asked if the founding team size is an important topic to agree on from the start of the venture. Table 4.1.2 is a summary of their answers.

Table 4.1.2

Founding Team size

Why important? Who Company

The importance of the number of founders is highly dependent on your situation, the type of venture, in which phase you are in and what type of person you need. Therefore the number of founders is important but

dependent on your situation. N.v.S. Waste2Chemical

One founder can be ideal as he can make fast decisions and takes responsibility; however, he cannot share

knowledge with another cofounder. S.v.L.

People's Playground The advantage of having a cofounder is having someone

to look at your work. You might be brilliant but having someone have a look at your work will improve it

significantly. S.v.L.

People's Playground The advantage of three founders is having a majority vote

more easily. However there is the danger of one of the

founders feeling left out. S.v.L.

People's Playground

Four founders feels too big S.v.L.

People's Playground Three or four founders seem exponentially more difficult

than two. A.B. Effectory

I do see the advantage of two founders. Even if you only cover half of each other’s blind spots and prevent each other from short- sightedness or tunnel vision it will be of

great value to the venture A.B. Effectory

Having two founders’ means that you have to agree on

When asked whether or not the founding team size was a topic they agreed on from the start the answers of the respondent was no, the founding team size was more a coincidence than a conscious choice. A summary of their answers is shown in table 4.1.2.

Table 4.1.2.

Founding Team size

A topic to agree on from the start? Who Company

It was not really a conscious choice to start with two. We just

thought it would be more comfortable. G.H. Effectory The idea to start a venture together was more a coincidence

than a conscious choice. G-J.T MeValue

This topic does not feel that logical to agree on compared to

the other topics S.v.L.

People's Playground

Type of criteria when looking for a cofounder

Table 4.1.3 shows what criteria the respondents find important when looking for a cofounder.

Table 4.1.3

Founding Team size

What criteria are important when looking for a cofounder. Who Company Personalities and competencies of founders are key; you

must really complement each other. K.S. Waste2Chemical Someone who strengthens my weaknesses. Someone who

could really complement me. K.S. Waste2Chemical

Make sure you have a founding team member with

commercial qualities. A.B. Effectory

When you have a technology venture you will need a technical person, when you have a production venture you

will need someone with expertise in production, etc. A.B. Effectory

Analysis

The founding team size was mentioned by one of the eleven respondents in their top five of most important topics to agree on. This is the least out of all nine topics. This result is explained by the answers of the respondents who say that the number of founders was more of a coincidence than a conscious choice.

In all cases two founders started the ventures. The main advantage, given by the respondents, of two founders versus one is that they complement each other

and strengthen each other’s weaknesses. Sharing knowledge and having someone look at your work was found to be a big advantage. This is in line with Feeser and

Willard (1990) who suggest a larger founding team has its advantages of brining a

greater experiential and conceptual pool to the decision process.

One respondent thought three founders could be better than two, stating that you can have a majority vote more easily when making decisions. However, one of the dangers of three founders is that over time one of the founders might feel left out.

None of the respondents think four founders or more is a good idea, as they claim it becomes increasingly difficult to run a venture with more than two or three founders. According to Clarysse and Moray (2004) the number of founders has its limits, with a maximum of four founders. To some extent the answers of the

respondents correspond to this theory, as none of the founders found four or more founders a good idea.

Overall it can be concluded that according to the respondents, out of the nine topics, the founding team size is the least important topic to agree on. The results suggest that instead of a conscious choice it was more a coincidence that the respondents decided to start a venture together with one other person. The respondent made no agreements on the founding team size and was therefore found to be less important to agree on from the start of a venture.

4.2 Adding and Dropping Share Holders

Two out of the eleven respondents mentioned the topic of adding and dropping shareholders in their top five most important topics to agree on from the start. Together with exit strategy it is the second least mentioned topic. Table 4.2.1 shows how the respondents ranked adding and dropping shareholders.

Table 4.2.1 Adding & Dropping Ranking By whom?

2 H.K. (WUA!)

One respondent gave an interesting answer on why the topic of adding and dropping shareholder is important. His answer can be found in Box 4.4.1.

Box 4.2.1: Quote on the importance adding and dropping team members.

The structure of you organization is extremely important and essential to your DNA. Adding or dropping shareholders will have consequences for your DNA. (G.H., Effectory)

Adding shareholders

Respondents were asked why adding shareholders could be an important topic to agree on. Table 4.2.2 is a summary of their answers.

Table 4.2.2

Adding shareholders

Why is it important? Who? Company

It is important because over time almost all ventures will

need an investor. A.H.T.

People's Playground In our case the third shareholder added strength in the

softer elements of business, the group dynamics, this was

very valuable to the company and us. A.B. Effectory At some point an opportunity may arise and demand a new

investor. You can choose not to but then you lose your

opportunity. Mr. X Biotech

Adding our shareholder not only brought capital but also

access to his network. K.S. Waste2chemical

New shareholders can ad product knowledge, coaching and

capital. K.K. WUA!

Without our investors we might not have been where we

are now, they put us up to speed tremendously. K.K. WUA! Issuing shares of your venture is a method to attract real

talent when you do not have the financial means to do so. D.N.

People’s Playground

Respondents were asked if cofounders should agree on adding shareholders from the start of a new venture. Table 4.2.3 is a summary of their answers.

Table 4.2.3

Adding Shareholders

Should agreements be made from the start?

We made agreements when the opportunity arose to sell

the venture but not from the start. Mr. X Biotech We haven´t made agreements about this in advance, it

happened more organically. D.N.

People's Playground Agreements on this topic is difficult because it´s dynamic.

You can´t exactly choose your investor. There will be

negotiations. Before you decide you will discuss it first. K.S.

People's Playground No hard agreements but a good dialogue. A.H.T.

People's Playground We never made agreements on this topic, it happened

naturally. K.K. WUA!

The respondents were asked what type of agreements cofounders could make on adding shareholders. Table 4.2.3 is a summary of their answers.

Table 4.2.3

Adding shareholders

Type of agreements concerning adding shareholders.

How to issue shares. A.H.T.

People's Playground Issue shares after three years or a portion every year. A.H.T.

People's Playground Minority shareholders have veto rights in case the majority

shareholder want to attract a new investor. N.v.S. Waste2chemical All shareholders have equal decision power and two thirds

are needed to make a decision. N.v.S. Waste2chemical When we added the third partner we looked at what was

still missing within our company. G-J.T MeValue We asked our self: Are we were looking for a mentor? Who

do we want to be and who are the mentors that you want

Dropping shareholders

The respondents were asked if they find dropping shareholders an important topic to agree on. Table 4.2.5 shows a summary of their answers.

Table 4.2.5

Dropping shareholders

Why is it important?

For me it is important to know that I will be fairly rewarded

for my input. A.B. Effectory

By agreeing on this topic you can look each other in the

eyes when one decides to leave. A.B. Effectory Balance in your partnership is crucial. If there is an

imbalance you should act on it quickly. Don’t let someone

free ride, this will cause frustration. Mr. X Biotech Yes very important to agree on these things and put it in

black and white. D.N.

People's Playground

It makes things clear. H.K. WUA!

The reason that People’s Playground still exists is because we left on good terms. Agreements on this topic could

definitely help. S.v.L.

People’s Playground Yes very important, there must be clarity on these issues.

We invest allot of time and investors allot of money so this

should be clear for everyone. N.v.S. Waste2Chemical

The respondents were asked if cofounders should agree on dropping shareholders from the start. Table 4.2.6 is a summary of their answers.

Table 4.2.6

Dropping Shareholders

Should agreements be made from the start?

We made such strict agreements that after all these years after I left I’m still a full owner! So there is a danger in

making agreements about this topic. G-J.T MeValue I don’t think you should agree on so many things, you can’t

predict the future that well. A.H.T.

People's Playground This is more of an ad hoc thing than something you can

agree on in advance. S.v.L.

People's Playground Very dependent on your situation and what sort of people

you need. Mr. X Biotech

We made agreements but at the end it was not feasible, we therefore made another arrangement. To everyone’s

The respondents were asked what type of agreements cofounders can make on dropping shareholders. Table 4.2.5 shows a summary of their answers.

Table 4.2.5

Dropping shareholders

Type of agreements

Shares buy out. D.N.

People's Playground In case someone leaves early his reward should equal his

input. A.H.T.

People's Playground If one of the partners dies the other has the right to buy

the shares. D.N.

People's Playground When the organization says we no longer have an added

value to the company then it is time for us to leave. G.H. Effectory Share valuation method when selling your shares. H.K. WUA! Good or bad leaver: A bad leaver is someone who leaves

within two years and commits fraud or does something really bad, he or she has to give back their shares. Good leaver is someone who leaves within two years but due to circumstances beyond their own control. He or she has to

give in a percentage of the shares. N.v.S. Waste2Chemical

Analysis

Together with exit strategy, adding and dropping shareholders is the second least mentioned topic. In all six cases shareholder’s either left or were added. This is in line with the theory of Ucbasaran, Lockett et al (2003)that states that this is highly likely to occur during the course of a new venture.

According to Boeker (1989), adding and/or dropping founding team members is important as it alters the available human capital and, can potentially change the culture and direction of the new venture. This is supported by answers from the respondents, who state that it alters the DNA of the venture. Adding new investors added capital, and also coaching, knowhow and the ability to utilize new

opportunities.

Chandler’s (2005) theory on the implications of adding and or dropping founding team members over time was not supported by the answers of the

respondents.

The results show that adding and dropping shareholders is something that is dealt with when the moment arrives and, is not something you agree on from the start of the venture. Overall it can be concluded that according to the respondents, out of the nine topics adding and dropping shareholders is less important to agree on from the start.

4.3 FOUNDING STRATEGY

Nine out of the eleven respondents mentioned the founding strategy in their top five of most important topics to agree on. Together with vertical and shared leadership the founding strategy is mentioned the most out of all nine topics. Table 4.3.1 shows how the nine respondents ranked the founding strategy:

Table 4.3.1 Ranking By whom? 1 K.K. (WUA!) 2 S.v.L. (People´s Playground) 3 A.B. (Effectory) 3 G.H. (Effectory)

3 A.H.T. (People´s Playground) 3 G-J.T (MeValue)

4 Mr. X (Biotech) 4 H.K. (WUA!)

5 D.N. (People´s Playground)

Importance

The respondents were asked if a founding strategy is an important topic to agree on from the start of the venture. Table 4.3.2 on the next page is a summary of their answers.

Table 4.3.2

Founding Strategy

Why it is important? Who Company

The strategic direction, where you really want to go is an

essential topic. K.K. WUA!

If we had a good strategic plan in the beginning we would have looked for a business developer and marketer. We would have

talked to the right people from the beginning. A.H.T.

People's Playground If you want to compete your strategic decisions are of great

importance. A.H.T.

People's Playground The danger of not having a founding strategy is to become a Jack

of all trades, over time it will take more effort to focus on a

particular product or service. S.v.L.

People's Playground We had no founding strategy and consequently we were just

messing around for a long time. A.B. Effectory

No founding strategy slows down growth and can be a source of

frustration. A.B. Effectory

Having no founding strategy made us make many U-turns. D.N. People's Playground

Box 4.3.1 illustrates more elaborately why the respondents think a founding strategy is important to agree on.

Box 4.3.1

‘The strategic direction, where you really want to go, this is an essential topic. We work on a dream ambition; together we define where we want to be in five to seven years. What is the dot on the horizon and how are we going to get there.’ (K.K. WUA!)

‘If we had a good strategic plan from the start we would have looked for a business developer and marketer. We would have talked to the right people from the

beginning. (A.H.T., People’s Playground) ’

´We made many u turns because of a lack of a solid founding strategy. We´ve been a video production company, thereafter an Internet company and now we build apps for Smart TV’s. And there we found our focus.´ (D.N., People’s Playground)

Type of agreements

Respondents were asked what type of agreements cofounders can make on founding strategies Table 4.3.2 is summary of their answers.

Table 4.3.2

Founding Strategy

Type of agreements Who Company

The price level you want to maintain and how you can

differentiate from the competition. A.B. Effectory Strategic goals, target standards and deadlines. G-J.T MeValue The mission, what do you want to achieve? The vision,

with what do you want to achieve it with? And then the

strategy, how are you going to realize it? G.H. Effectory Uncovered the playing field and define possible business

models. N.v.S. Waste2Chemical

The vision you have for your team. A.H.T.

People's Playground Speak with one voice to your employees. Mr. X Biotech Focus and don’t be scared to switch. Mr. X Biotech

Orientate what you want to do. H.K. WUA!

Set a long-term goal. Then always ask yourself how to achieve that goal. Make sure every meeting and every action contributes to achieving that goal. Which steps do

you need to take? K.K. WUA!

A dream ambition, define where you want to be in five to

Box 4.3.2 illustrates more elaborately what type of agreements the respondents made concerning their founding strategy and why.

Box 4.3.2 Type of agreements on founding strategies.

‘There are three things that I find important. The mission, what do you want to achieve? The vision, with what do you want to achieve it with? And then the strategy, how are you going to realize it? In sailing terms your mission is that warm place in the south. Your vision is that you want to get there by boat. Then the strategy is deciding on whether you want to put up the sails, turn on the engine and to go straight or zig zag towards your destination. Those three things, especially the mission and vision, you should agree on for 100%. It is ok to disagree on the strategy and have a different approach but it is important you agree on your mission and vision and be able to speak out your strategy in one voice.’ (G.H., Effetory)

‘We made a business plan in which we agreed upon strategic goals, target standards and deadlines. We also divided the responsibility for the different result areas. This was in terms of end and operational responsibility. For every result area we stated key performance indicators. These were then again defined along target standards and deadlines. Using this business plan our painting of the future was well defined. (G-J.Ts, MeValue)

´In the first year we had no clue what we were going to do. We were just orientating. We called it pans on the fire (Pannetjes op het vuur). All we agreed on is that we wanted to form a large company in the direction of Internet but with something unique. Something that did not exist yet. (H.K., WUA!)´

Analysis

Nine out of the eleven respondents mentioned the founding strategy in their top five of most important topics to agree on. Along with leadership, this is the most out of all nine topics.

According to one respondent, an initial strategic direction is hard to change over time. Such thinking is in line with the theory by Boeker (1989), which states that

an initial strategic direction limits the subsequent changes in strategy. In line with Porter’s (1980) theory that each strategy requires different resources and skills, a respondent explained that if they had a better initial strategy they would have allocated their resources differently. Another respondent explained that due to a lack of a founding strategy they ended up going from a media, then web and finally, to a SmartTV tech company. This is in line with the theory by Feeser & Willard (1990) which states that if a founding strategy is chosen that matches well with the opportunities in the environment, there will be less chance for the need to change these strategies later on. The importance of agreeing on a founding strategy is also confirmed by claims that it will benefit growth, help to stay ahead of competition and prevent over-diversifying.

Agreements on this topic mentioned by the respondents are as follows. Firstly, founders should agree on a mission and a vision; what do you want to achieve and with what? Secondly, a strategy must be chosen to realise that mission and vision. Setting strategic goals, target standards and deadlines can aid in realising that strategy. Furthermore, cofounders should agree on setting a price level for their product or service, and choose how to differentiate from competition. A clear focus and being prepared to switch if needed, was also mentioned. If founders are still unclear of what they want to achieve, they should continuously uncover the playing field, search for business opportunities, and define possible business models.

The founding strategy was one of the two most mentioned topics in the respondent’s top five of most important topics to agree on. It can therefore be concluded that according to the respondents, out of the nine topics, a founding strategy is one of the more important topics to agree on from the start of a venture.

4.4 EXIT STRATEGY

Two out of the eleven respondents mentioned exit strategy in their top five of most important topics to agree on. Together with adding and dropping shareholders it is the second least mentioned topic.

Table 4.4.1 shows how the respondents ranked exit strategy. 2 Exit strategy

Ranking By whom?

5 S.v.L. (People’s Playground) 5 G.H. (Effectory)

Importance

The respondents were asked if they find exit strategy an important topic to agree on from the start. Table 4.4.2 shows a summary of their answers.

Table 4.4.2

Exit Strategy

Why is it important?

It gives peace of mind knowing what will happen if one of

us wants to get out. A.H.T.

People's playground It is important to know what you both want out of the

company. A.H.T.

People's playground Leaving or selling a business takes time so it is better to

have a plan in advance. A.B.

People's playground It is important to know what will happen in case one of us

decides to leave or if we want to sell the company. G.H.

People's playground We made such strict agreements on an exit strategy that

it had an adverse effect. Although I don't want to I'm still

a shareholder. G-J.T MeValue

You can agree on an exit strategy but at the end of the

day it is not worth anything. G-J.T MeValue

Many entrepreneurs start without even thinking of an exit strategy but it is important to know what you both

want out of the company. H.K. WUA!

It is important founders are on the same page when it

comes to an exit strategy. H.K. WUA!

Different strategies are needed when you either want to sell the business in five years or when you are in for the

Table 4.4.2 continued.

From day one you know what both of you want out of the

company. K.S. Waste2Chemical

You know what will happen if someone decides to leave

or if a buyer is interested. K.K. WUA!

It defines your company. N.v.S. Waste2Chemical

It is important for the survival of your company. S.v.L.

People's playground One of the reasons People's Playground still exists it

because we left on good terms. S.v.L.

People's playground

Type of agreements

The respondents were asked what kind of agreements cofounders can make on exit strategies. Table 4.4.3 shows a summary of their answers.

Exit Strategy

Type of agreements

Agree on a formula defining how much the shares are

worth when someone wants to leave. A.B. Effectory Earn out formula. Sell for example 70% percent of shares

and the remaining shares over the course of a few years. Mr. X Biotech Make agreements on different scenarios. For example

how to sell in five years and what happens in case one of

the founders wants to sell his shares G-J.T MeValue

Where do you want to be in five years K.S. Waste2Chemical Agree on a formula that describes what will happen if

someone wants to leave. K.K. WUA!

When you both have different long-term goals you should

consider not starting a business together. H.K. WUA! It is important that you talk about these things so you

know where both of you stand. G.H. Effectory

Analysis

Although only two respondents mentioned exit strategy in their top five all the respondents find it an important topic to agree on. It gives peace of mind to know what will happen when one of the founders leaves the company. In line with (DeTienne, 2010) the respondents agreed that the exit strategy will consequently have an impact on the strategy of the business itself. When both founders are determined to sell the venture in 5 years the venture will most likely have a more

short-term profit/growth model, when compared to when both founders want to own the business for as long as they can.

Agreements on an exit strategy as mentioned by the respondents are not only on financial and legal grounds but also on what the founders want from the company and when, if and how they intend to sell their shares.

Seeing that this topic was only mentioned twice by respondents in their top five of most important topics it can be concluded that, according to the respondents, out of the nine topics an exit strategy is less important to agree on from the start.

4.5 VERTICAL AND SHARED LEADERSHIP

Nine out of the eleven respondents mentioned the topic of vertical and shared leadership in their top five of most important topics to agree on. Together with the founding strategy leadership is mentioned the most out of the nine topics. Table 4.5.1 shows how the nine respondents ranked the topic of vertical and shared leadership. Table 4.5.1 Ranking By whom? 2 D.N. (People’s Playground) 2 G-J.T (MeValue) 2 A.B. (Effectory) 3 K.K. (WUA!) 3 S.v.L. (People’s Playground) 3 H.K. (WUA!)

4 A.H.T. (People’s Playground) 5 Mr. X (Biotech)

5 N.v.S. (Waste2Chemical)

Importance

Respondents were asked if vertical and shared leadership is an important topic to agree on from the start of the venture. Table 4.5.2 is a summary of their answers.

Table 4.5.2

Leadership

Why is it important? Who Company

You complement each other instead of being each

other’s substitutes. A.B. Effectory

You cover each other’s blind spots. A.B. Effectory

You bundles your forces. D.N. People's Playground

Provides balance in the group. D.N. People's Playground

Positive energy. D.N. People's Playground

You inspire each other. D.N. People's Playground

Divides your energy effectively. D.N. People's Playground

Easier to work together. D.N. People's Playground

Important for people to know who to go to. G.H. Effectory Enables you to choose your field of expertise. H.K. WUA!

Clear who is responsible for what. N.v.S. Waste2Chemical

Respondents were asked what may happen if no agreements are made on leadership. Table 4.5.3 is a summary of their answers.

What if you do not divide leadership roles?

You'll stand in each other’s way in the domains that you

are good at. A.B. Effectory

You will stand in each other’s way. H.K. WUA! You will stand in each other’s way. S.v.L.

People's Playground

Will cause frustrations. D.N.

People's Playground You have a higher chance you will perform the same

tasks twice. D.N. People's Playground Causes ambiguities. D.N. People's Playground Without synergy you are very ineffective G-J.T MeValue

Box 4.5.2 quotes answers of respondents that illustrate well why it is important to make agreements on leadership.

Box 4.5.2: Quotes on the importance of agreeing on leadership

When you cofound a venture it is vital that you complement each other instead of being substitutes. Firstly as substitutes you will be in each other’s way in the domains you are good at and secondly you will have too many blind spots in the domains you are not good at.’ (A.B. Effectory)

As a venture grows different types of leadership are needed. Leaders can change their style but cannot change into completely different types. If you are not the type that is needed you should be open for changes in leadership roles and maybe consider someone else. (Mr. X, Biotech)

‘The right role division will help team balance and create positive energy making it easier to work together. You prevent frustration and ambiguities and you prevent people from doing the same work.’ (D.N. People’s Playground)

‘It gives operational clarity and it gets the best out of you. By giving someone the responsibility you enable them to really go for it.’ (N.v.S. Waste2Chemical)

Type of agreements concerning leadership

Respondents were asked what type of agreements cofounders can make on vertical and shared leadership; a summary of their answers is shown in table 4.2.4.

Table 4.5.4

Leadership

Type of agreements Who Company

Role division A.H.T. People's Playground

Divide responsibilities for roles of commerce, sales,

production, etc. D.N. People's Playground

Keep evaluating the leadership roles and allow changes

if needed. Mr. X Biotech

Stay flexible, if needed help each other. D.N. People's Playground

External and Internal.. K.K. WUA!