This is a new segment where we try to answer questions that we get from founders in private – the things that they’re too afraid to ask just anyone.
In this week’s episode we tackle three questions that have come up in our recent conversations with founders. We discuss:
1) How do I know if I’m building the right thing?
2) What can I do if my cofounder is not pulling their weight?
3) When is it okay to pay myself?
To answer these questions, we pull from our own experience and tell you the exact advice we’ve given to entrepreneurs in the accelerator programs we work with so you can apply it to your own business.
We discuss what you can do to know if you’re on the right track with your business, how to have difficult conversations with your co-founder about the work that’s being done and being honest with yourself about the work you’re doing, and the right way to think about compensation in the early days.
:30 Today we have our co-host Vadim calling into the show because he’s at a friend’s wedding in Italy, but he wanted to make sure he could join the show anyway this week.
1:40 Sergei: Today we’re starting a new segment where we’re going to answer top questions that entrepreneurs are afraid to ask. We know they’re afraid to ask these questions because although we hear them often, usually people don’t ask them until we have a close relationship with the founder.
2:10 Vadim: Part of the benefit of meeting one on one with people is after a while, the truth will always come out.
2:30 We’re going to address some of the questions we often hear, but as always, if you have questions that you’re afraid to ask, you’re always welcome to email us at firstname.lastname@example.org, or email@example.com, and we may even bring your question up on the air, anonymously of course.
3:12 Sergei: The first question we’ll answer is one a founder actually asked me this morning at work, is
“How do I know that I’m building the right thing?”
3:40 This was asked of me by a technical founder of a company.
4:01 Before I even met with the founder, I had a suspicion that part of the reason that he didn’t know if he was building the right thing is that he didn’t understand his customer, or their problem deeply enough.
4:12 You need to have enough of an understanding of the problem you’re solving to have some idea of what to build and when to build it.
4:22 Not only do you have to have enough conversations with customers, you have to understand how big their problem is, so you can then prioritize what features to build (if it’s technology).
4:57 I would say have 20-30 conversations, but really just enough where you have faith that you’re addressing a real problem that many people have in your customer base.
5:33 Vadim: I can see how having to have 20-30 conversations can in and of itself give anxiety, you might know you have to talk to customers, but it sounds like a lot., but its not an exact science.
5:50 For example, we had the CEO of the Wandering Bear Coffee company on our show last year, and when they decided to sell cold brew coffee, they first tried selling to restaurants, and after talking to 20-30, they saw no one wanted it, the pain really wasn’t there.
6:05 Then they had the idea of selling to offices, and offered pop-ups of free coffee to test demand. It only took 2-3 of these pop-ups to show that the demand from offices was obviously there, and they could build a good business out of it. So in that case it also took talking to the right customer to get validation that they were building the right thing.
6:55 But the exercise of understanding customer needs is something you’ll have to get comfortable with anyway because you should be doing that throughout the life of the company.
7:00 We always give the example of Paul English, founder of Kayak, who had a red phone in the middle of the office that people had to take turns picking up, as a way to get as many people as possible to hear about customer complaints. Even as CEO of a big company he would always pick up that phone.
8:07 Sergei: I’ll add one more thing, it’s possible that your anxiety could be coming from a lack of communication of your co-founder. If you thought you were aligned on a product vision, but maybe you decide that a feature shouldn’t be a priority because it’s too complex, or costly, you can’t keep that bottled up. You should always be re-evaluating and openly speaking with your cofounder and team so you can be sure that you continue to say aligned.
9:08 Vadim: It’s also totally normal to have some anxiety around whether you’re making the right decision. This ambiguity is part of the reason entrepreneurship is not for everyone. Overtime, you’ll get comforable with making decisions without having all the information at hand.
10:10 Sergei: The next question that comes up all the time is
“What do I do if my co-founder is not pulling their weight?”
10:50 Vadim: Like in any good relationship, you have to communicate. So if you feel like your co-founder isn’t pulling their weight, you have to bring it up.
11:05 Now this does get complicated depending on your relationship with your cofounder, maybe you depend on them, maybe they’re more senior. But when you’re building a business you have to be comfortable with having the awkward conversations when necessary.
11:20 Sergei: For a lot of teams it could be due to lack of expectation setting. If you brought in a partner and they didn’t expect the startup to be as much work, or sacrifice, they might be less motivated down the line.
12:00 So set expectations of how much your team will work, how available the team should be, and what each team member will deliver to the company.
12:34 It does happen that even if you set expectations correctly, you still end up feeling the other person isn’t committed as you are to the venture. In that case, hopefully you have vesting in the company where founders don’t just get all their shares immediately so you can test each other’s commitment over time, and if someone needs to get fired, they can get voted off the team if they’re really not doing enough work.
14:20 I had a founder come to me with this exact issue a few months ago, and they got their cofounder to agree to a milestone based plan, where if within 6 months they didn’t hit certain goals, or weren’t spending enough time on the venture, their equity stake would drop significantly.
14:38 Vadim: two things come to mind 1) What if that person makes a promise to put in more work, and ends up making excuses and doing less work and 2) What if you depend on them, like if they’re technical and they have access to all the tech assets. Maybe then you might be worried about offending them or making them angry.
15:15 Sergei: So, this is where trust is really important, that the person is not going to deliberately screw the company over, but you also need to have agreements in place that all the work that any founders do belongs to the company and not them individually.
16:20 To answer you first question, if the person starts slacking even after promising not to, that’s where hopefully you have the corporate structure to be able to fire them. If you have enough equity you can just vote to fire them. If they have more equity, you may just have to leave and start a new equity since you’ll have no choice.
16:43 Vadim: I also add that when you start a company, you should have contingency plans. You can’t fully rely on someone with no back up. No contingency plan creates unnecessary risk. Have someone on your team that knows how to access information when you need it, even if the info is technical and you’re not.
17:51 And sometimes you have to make sure that you’re honest with yourself. Are you doing enough work? Maybe your cofounder is not motivated because they’re not seeing the business moving forward. Even if you feel like you’re doing a lot of work, maybe they’re not seeing the progress. Sometimes it helps to have an advisor or other third party to help you agree on whether you’re working on the right things.
19:30 Sergei: The final question that everyone is curious about is:
“When should is it okay to start paying myself?”
19:40 I’ll answer in one way. First of all, if you’re not independently wealthy and you have minimum expenses you have to cover, there’s no investor who thinks you shouldn’t pay yourself. As soon as you have the revenue or investment to cover those basic expenses, you should do that so you can focus on your business.
21:30 Vadim: You should definitely pay yourself, but the smart entrepreneur won’t pay themselves every dollar of profit, they will use a lot of the proceeds to reinvest into growth.
23:00 Sergei: To sum up, pay yourself as little as you can until the company is healthy enough, and is consistently growing enough, where you can pay yourself more. As an example, many founders we see who raise $500,000 – 2,000,000 in financing, they pay themselves anywhere from $60,000-$100,000. In an expensive city, $80,000 is common. Once you’re growing fast enough where you raise more like $10M, then often people pay themselves more market rates, or what another executive at the company would make like $150,000 – $150,000.
24:10 Finally, if you have a private company that’s making enough money steadily, you can decide to pay yourself whatever amount you want.
24:34 Vadim: Also don’t forget to account for taxes and set that aside. But the question of when to pay yourself, we just had the founders of Slumberkins on the show, and in the beginning they were only paying themselves a few hundred dollars a month. But that worked for their situation.
26:00 Sergei: I’ll add that if you’re spending a lot of money up front to get the company off the ground, keep track of those expenses. If the company grows and makes revenue or if you raise outside capital, you can use that to pay off the effective loan you gave to the company. It shouldn’t be a personal expense if the company is making enough money to pay you back.
28:00 Write to us at thementors.co if you have any entrepreneurship questions that you’ve been afraid to ask, and we’ll cover them the next time we do this segment.