Partnerships and collaborations are not new in business. But when you're venturing out towards the next level of ownership, when do you start considering a cofounder or two or more of them? In this episode, Jeff Smith discusses the importance of the cofounder and deciding whether to have one or even more. He talks about some of the successful patterns in cofounding and the expectations you need to set. Join Jeff as he provides great insights to physician entrepreneurs out there.
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Do You Need A Cofounder? A Discussion When To Have One
In this episode, I talk about the importance of the cofounder and the decision on whether or not to have one or more cofounders at all. If so, what expectations the cofounders should have of one another going into this journey. I hope you enjoy the episode.
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The topic is cofounders. If you put yourself in the seat of the physician entrepreneur, you have your idea, and you're ready to start a company. You are building the pitch deck. You've met with a law firm that specializes in healthcare startups, and you're going to start raising capital. You're going to use the convertible note for your first seed financing.
Perhaps at this point, because this happened right around the time when you incorporated the business, there's somebody that you've been working with closely. Maybe they've been a collaborator and shared an idea here or there. At this origin, the early days are important when you discuss your idea with other people, particularly when you're describing components of the idea that would be considered an invention, where you're disclosing and enabling the idea through words.
If that discussion turns into a brainstorm that turns into some ideas, the person participating with you believes they co-invented and perhaps they did. It's important at the beginning when you're collaborating with somebody, or you're working hand in hand, and it's a great partnership. It's critical that each party knows their shares in this new entity. It's something to discuss at the very beginning. That is good hygiene because you do not want somebody to have a claim on shares of the business or IP that could prevent a lot of progress in the future.
Once you've determined that anybody you are collaborating with at the beginning, you've made it clear that they are a consultant for which you're going to pay their time. In a consulting agreement, it would say that, "While we pay for your time and you're performing this consulting services. We have the company. Any ideas or improvements are the sole property of the corporation."
You do not want somebody to have a claim on shares of the business or IP that could prevent a lot of progress in the future.
That's a good way to collaborate if you do not want a cofounder. The purpose of this episode is you want a cofounder. I want to talk briefly about some of the successful patterns in cofounding. One that you typically see as a technical cofounder is commercial leaning, or the ability to sell and tell a story, and sometimes people call that the business cofounder.
For purposes of a healthcare startup cofounded by a physician entrepreneur, the pattern I see most often is you have a bright and talented clinician. They have a busy practice, get this inspiration, and have to start a company. When it comes to anything clinical, they're going to have all the ideas, but they don't know how to write the software or do not have mechanical engineering capabilities. Most likely, that would be the case because they're doctors.
What you're looking for is somebody that has a complementary skillset. The second thing is, if you're a physician entrepreneur, you want to continue to treat patients and manage your practice. It is important that you have somebody that can be fully dedicated to this, or at least significantly more time than you can offer.
I'm going to stick with two founders. There's the physician cofounder and the dedicated business cofounder. As physician entrepreneurs, when you're looking for the profile of the business, the mistake that I've seen made is going after someone tenured in their career and trying to convince them to do this startup. At that point, they've created a lot of value in their career, and they're going to be expensive.
They're going to be expensive as far as how much equity as cofounders they get, but more importantly, they're already in a high-earning job. Like the physician entrepreneur, to go ahead and quit that job and go full-time on this new entity, there's a certain income disruption that's going to be difficult. What I have seen many times is physician entrepreneur cofounder is an engineer, sales, or marketing professionals early in their med tech career, but they're already showing a nice career trajectory.
They're working at a company. Usually, that is what a physician entrepreneur knows of and respects. They've had good training. They've seen how successful business runs, and that is going to give them some exposure to how you might try to create a comparable organization with a handful of people in consultants.
The best thing that you could possibly see is a technical cofounder that also has business experience. By business, I mean product development, regulatory clinical trial, and financing, not having an MBA. The MBA is a wonderful degree, but when I say business experience, it's business experience operating within a healthcare company that has similarities to the company you're starting. Somebody smart and went to the best colleges and best MBA program looks great on a resume. The problem is they don't have enough practical in-business experience to try and create one from scratch.
Look for that person that is an up-and-comer.
In summary, the best thing a physician entrepreneur can do, or any founder when they're in that inspired and creative origins part of the journey, is anytime there's a discussion with other people, make sure that the relationship between the new company that you founded or are in the process of founding is well understood that they are either a cofounder, employee, or consultant. In all three of those situations, any discussions, improvements, or inventions towards this idea that you're developing would have to be under the ownership of the company. That’s how to prevent complicated discussions in the future.
The second part, which is a key decision for the physician entrepreneurs, is, “Should I pick a cofounder? If so, what am I looking for?” My advice to the physician entrepreneur, unless he or she does not want to continue practicing and wants to go all-in on the startup, would be to find a cofounder that has a broad range of complementary skills ideally.
The most important part of this pattern is that they're early in their career ascent, which means the idea of taking a bigger role with more responsibility, possibly comparable to even less pay. They're still in the investment stage of their career, where that might still sound great because they're also going to get equity.
Look for that person that is an up-and-comer. By that, I mean they started at one company. They were then hired by a company that's more highly respected and well-regarded. At that new company, they've been promoted. Even what would be excellent is they got promoted in one department, let's say engineering, and they were then promoted into product development or product marketing.
It’s someone with a lot of different exposure in a relatively short period of their career. That is a good model for the physician cofounder, finding a cofounder. One of the things that you're getting from this cofounder, and it goes back to the stage they're in their career in life, is an unusual reservoir of energy to push this idea forward and have fewer distractions.
Perhaps they don't have a family yet, a husband, wife, and kids, because they're starting their career, and they're going to give your business a significant percentage of their energy. Hopefully, this is helpful. As always, please reach out to me on social media. It's Jeff Smith on LinkedIn. You can always email me at Jeff@JeffSmith.co. I hope you enjoy the episode.
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About Jeff Smith
Venture backed Founder & CEO with 10+ years experience building high-growth healthcare businesses. Skilled in fundraising, executive recruitment, product development, clinical trials, regulatory affairs, reimbursement strategy, and global commercialization. High energy entrepreneurial leader with a Bachelor of Arts (B.A.) in Organizational Behavior and Management from Brown University.