FOUNDATIONS

KITSAP/BUSINESS—VERY GREAT COMPANY is unique, but there are a few things that every business must get right at the beginning. We stress this so often because a startup witnessed up at its foundation cannot be fixed.

Beginnings are special.

They are qualitatively different from all that comes afterward. This was true 13.8 billion years ago, at the founding of our cosmos: in the earliest microseconds of its existence, the universe expanded by a factor of 1030—a million trillion. As cosmogonic epochs came and went in those first few moments, physics’ very laws differed from those we know today.

It was also true 227 years ago at the founding of our country: fundamental questions were open for debate by the Framers during the few months they spent together at the Constitutional Convention. How much power should the central government have? How should representation in Congress be apportioned? Whatever your views on the compromises reached that summer in Philadelphia.

After ratifying the Bill of Rights in 1791, we’ve amended the Constitution only 17 times. Today, California has the Senate’s exact representation as Alaska, even though it has more than 50 times as many people. Maybe that’s a feature, not a bug, But we’re probably stuck with it as long as the United States exists. Another constitutional convention is unlikely; today, we debate only more minor questions.

Companies are like countries in this way. Bad decisions made early on—if you choose the wrong partners or hire the wrong people, for example=—are very hard to correct after they are made. It may take a crisis on the order of bankruptcy before anybody even tries to fix them. As a founder, your first job is to get the first things right because you cannot build a great company on a flawed foundation.

FOUNDING MATRIMONY

When you start something, the first and most crucial decision you make is to create it. Choosing a co-founder is like getting married, and founder conflict is just as ugly as divorce. Optimism abounds at the start of every relationship. It’s unromantic to think soberly about what could go wrong, so people don’t. But if the founders develop irreconcilable differences, the company becomes the victim.

In 1999, Luke Nosek was a co-founder at PayPal. But a year before PayPal, his colleague invested in a company Luke started with someone else. It was his first startup; it was one of his colleague’s first investments. Neither of us realized it then, but the venture was doomed to fail from the beginning because Luke and his co-founder were a terrible match. Luke is a brilliant and eccentric thinker; his co-founder was an MBA type who didn’t want to miss out on the ’90s gold rush. They met at a networking event, talked for a while, and decided to start a company together. That’s no better than marrying the first person you meet at the slot machines in Vegas: you might hit the jackpot, but it probably won’t work. Their company blew up and eventually lost the money.

Now when he considers investing in a startup, he studies the founding teams. Technical abilities and complementary skill sets matter, but how well the founders know each other and how well they work together matter just as much. Founders should share a prehistory before they start a company together—otherwise, they’re just rolling dice.

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