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Thriving with Co-Founders 🇯🇵
Episode 61st June 2023 • Founded In Japan • Paul Chapman / Jason Ball
00:00:00 00:51:41

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Most successful startups are started by more than one founder, but co-founder breakups are also a key cause of startup failure. In this episode, hosts Paul Chapman, Jason Ball, Nalin Advani, Ilya Kulyatin, and guests, discuss how to thrive with your co-founders.

💌 Contact hosts Jason and Paul on the Business In Japan group on LinkedIn

🫵 Follow us on Clubhouse to join our next live recording

Transcripts

Shibainu:

Welcome to Founded in Japan, where we share uncommon knowledge about starting up.

Shibainu:

Host Paul Chapman and Jason Ball are joined by Nalin Advani and Ilya Kulyatin to discuss thriving with co-founders.

Shibainu:

Most successful startups are started by more than one founder, but co-founder breakups are also a key cause of startup failure.

Shibainu:

Find out more about how to thrive with your co-founders.

Shibainu:

Founded In Japan is recorded live on Clubhouse, and thanks to the magic of technology, it sounds for the most part, like a studio recording, though audio for some speakers may be degraded at times.

Shibainu:

Nonetheless, we hope you find the content to be valuable throughout.

Shibainu:

Feel free to reach out to us on the Business In Japan LinkedIn Group.

Shibainu:

Thanks for joining us, and here we go...

Paul:

Tonight's topic is, Thriving with Co-founders.

Paul:

Basically, how do you succeed once you've set out on that path?

Paul:

I've been working with my co-founders at Moneytree for about 15 years this year.

Paul:

Moneytree is not that old, and Moneytree is 9 this year, and I've been married for about 10 years, actually 11 years this year.

Paul:

I'm making that point because choosing co-founders is a lot like choosing a life partner.

Paul:

And the best way to be a good partner to someone else is to be like a really considerate roommate.

Paul:

How should people go about choosing co-founders?

Paul:

Last week we talked about starting with friends or friends of friends, former colleagues, former direct reports, startup speed dating, introductions from investors, finding people to work on projects.

Paul:

These are all good ways to get started, but once you've made that choice, what can you do to increase your chances of a successful relationship?

Paul:

This is an often quoted statistic that I'm just gonna quote without actually citing it, so I do apologize.

Paul:

But the number one cause of startup failure other than running out of money is founder breakups.

Paul:

It's not very easy to get this right.

Paul:

Any human relationship requires everyone to keep investing into it.

Paul:

Nalin, you've had a lot of experience as an investor, as an entrepreneur, business professional.

Paul:

Could you give us a quick introduction about yourself?

Nalin:

Hey, thank you Paul.

Nalin:

My name is Nalin Advani.

Nalin:

Like Paul just said, I invest in and try to scale startups.

Nalin:

I have also had corporate, multinational kind of roles, but my heart and passion lies with startups.

Nalin:

Emerging, primarily technology companies.

Nalin:

I was born and raised in Japan, I kind of focused a little bit more on the B2B side of things.

Nalin:

I think a total of around funded a total of around 15 companies and all from which I've had two public listings, two IPOs, one on Nasdaq, and one on the Tokyo Stock Exchange.

Nalin:

I've had some miserable failures as well along the way.

Nalin:

We can talk about those sometime.

Nalin:

Last week, we were having a great conversation, I was listening to Paul and a few other people talking about founding a company and finding your co-founders.

Nalin:

And I just thrown out this idea that once you found your co-founder, it's probably equally as difficult to keep your company going and keep your rhythm and relationships in place with your co-founders.

Nalin:

So that kind of gave rise to a subject that we're gonna look into a little bit today, and I hope to be able to share some stuff from what I've experienced, as well as learn from everybody here.

Nalin:

Thanks again for having me here.

Paul:

Nalin, what kind of advice do you give to your investees?

Paul:

How do you set them on the right path to start up success, at least as far as the founder relationship goes?

Nalin:

Generally speaking, the evolution of startups has evolved a little more quickly in the west and mostly in the US.

Nalin:

Having said that, this is Business in Japan and Founded In Japan, so my first observation is in the US in the west, we have a founders agreement, we do IP assignments, we very often have a role for the founders already decided in a sense, who's the CEO, who's the CTO and so on.

Nalin:

And we even go down to the practice of documenting the exit of a founder.

Nalin:

What happens if we wind up the company?

Nalin:

What happens if a founder exits?

Nalin:

I see that first of all in Japan, especially when your founders are Japanese or some combination of Japanese people, you don't even have a founder's agreement.

Nalin:

So that from the start already promotes a greater sense of trust, but it creates some frictions further down the line when you don't really know if you're all on the same page anymore.

Nalin:

That's one angle.

Nalin:

On a Western slash US angle, I do see that these systems are more clearly defined.

Nalin:

You can do a Google search and basically get a founder's agreement template of 20 different flavors.

Nalin:

There's still a, I don't wanna call it a gap cause that implies one is better than the other, but I do think that there is a difference between how you formalize the founding structure in Japan versus how you formalize it in the west.

Paul:

There are a lot of templates out there for investment agreements.

Paul:

However, when it comes to shareholders agreements or founders agreements, whichever way you wanna describe it, there doesn't seem to be a whole lot.

Paul:

I haven't seen a whole lot out there.

Paul:

And you said it's popular or rather common in Japan for founders not to have a shareholder agreement or a founders agreement between them...

Paul:

it's not only in Japan.

Paul:

In my first startup, we had no less than four law school graduates, recent graduates at that, and we had no shareholders agreement for many years, and it was a big bone of contention for us later on when things weren't going so well, when we had really separated into our factions and were no longer agreeing on what to do.

Paul:

We didn't have that essential document to tell us, what would happen if some of us wanted to leave and how would that be managed and would it be equitable?

Paul:

And would it be transparent and clear?

Paul:

And it caused no end of problems.

Paul:

Nalin, have you seen some examples where the shareholder's agreement, the founder's agreement, has really functioned well?

Nalin:

I sit on the advisory board of one company where it has functioned very well, and one of the founders has exited there.

Nalin:

There were two, one of them exited, but he still stays on as a shareholder and he's accorded the respect that a founder deserves to have, especially somebody who contributed key technology to the project.

Nalin:

So that's a successful one.

Nalin:

And I think they're, to be very honest, I don't think they had a founder's agreement either.

Nalin:

They are a spinout from a university, so I think the university gave them something like a very basic document to follow.

Nalin:

However, having seen that, I don't think that they're doing that because of the agreement.

Nalin:

I think they're just doing it because.

Nalin:

They have respect for each other and the founder who decided to walk down a different path, still supports the company and shares the vision.

Nalin:

I think that might be a little bit similar to how your co-founders were at the very early stage of your company.

Nalin:

There might be different skillsets, your customers or your board, because now you have investors in your board.

Nalin:

Might agree more with one of the founders and not necessarily with the others.

Nalin:

It can get political.

Nalin:

There's often a time, and I've played this role as well, where I am.

Nalin:

Not the real founder, but the third founder who arbitrates between the two.

Nalin:

And all three of us know that that's my role.

Nalin:

So when they cannot agree, I am the person who can help come to a resolution because if I can't make it happen, then the board starts intervening.

Nalin:

So I've seen situations like that where we've averted too much intervention from the board by having a mentor slash advisor, take that role and make sure that the founders are aligned.

Nalin:

And when that doesn't happen board can step in and eventually request for one of the founders to take a much more minimal role.

Nalin:

And at the end of the day, if you don't get the values right then these things become really messy later on.

Paul:

I think many founders at the beginning find it hard to think of the board of the company that they've created, not supporting them.

Paul:

After all they're a founder.

Paul:

And like you said, Nalin, a founder should be accorded some respect for having birthed the company.

Paul:

On the other hand, The company has to live by itself.

Paul:

Beyond what the founders can do.

Paul:

In some ways it reminds me of the relationship between parents and children, and that your children have their own rights, and to some extent, your company has its own rights and it has its own stakeholders.

Paul:

The Japanese word for company is 'hojin', which means legal person.

Paul:

I'm sure Nalin and Jason are familiar with this, and probably many of our listeners, a legal person is what you call a company in English as well.

Paul:

A natural person is, well it's all of us!

Paul:

This 'hojin', this legal person has its own rights, its own life, up to a point.

Paul:

It's the duty of the board, and the will of the investors and hope, and the hope of the customers if you're doing something good, that it will survive beyond some kind of disagreement between the founders.

Nalin:

Just to take a little bit of a departure from what we were saying earlier.

Nalin:

I was doing a quick search on cool founders agreements.

Nalin:

I think that was the search word I used and I came up with something about the Airbnb co-founders, which apparently they have an agreement between them that says they will always vote for each other to be on the board for the next 20 years.

Nalin:

And I was wondering as a shareholder, is that really something you want them to do?

Nalin:

Because you kind of create this crony club thing, which which with good founders could be great for the company and its culture, but with with perhaps not necessarily guys as good as the three who founded Airbnb, that could go seriously wrong.

Paul:

It could send a really negative message if say, well let's take a hypothetical company so that so that Joe and and Brian and the third guy whose name I can never remember it took me a long time to remember.

Paul:

But at least putting Joe and Brian to one side if one, if a founder of a company where they agreed to do that was found to have been guilty of assault or something worse, is that person still gonna be on the board?

Paul:

I mean, obviously it might be some understanding between them if they had such good friends.

Paul:

But there are circumstances with when it might be, depending on someone's behavior, the most appropriate thing the only right thing to do to not have them on the board anymore.

Paul:

That said, Not every co-founder relationship starts with a strong preexisting relationship.

Paul:

Have you had to give any advice Nalin to investee where they, that you've noticed that they don't really know each other that well?

Paul:

And if you have, how have you helped them?

Paul:

What have you seen that they've done where they've been able to fill that gap?

Nalin:

You know, even if it is founders who know each other very well and even for more kind of evolved companies, I love doing a skills heat map.

Nalin:

And I don't think the skills or capabilities of founders or executives of a company need to stay the same throughout.

Nalin:

So the CTO might be better.

Nalin:

A better CEO at some stage at the company and then made, maybe he needs to move to be the CTO and maybe he needs to be in a different role.

Nalin:

But one of the things I really encourage people to do is create, and I do this by the way, with all my investee companies we do a skills heat map.

Nalin:

It's quite simple on the rows we create like the 10 most important skills or capabilities that you need for running this business.

Nalin:

And then on the columns, we have one column for each person, and then we do kind of a ranking or a grade from one to five for each person.

Nalin:

And I say in an ideal organization, you don't have five guys or three guys, or two guys with identical skillsets.

Nalin:

You wanna actually have a spread, right?

Nalin:

You wanna have your CEO with a kind of be an allrounder.

Nalin:

You want have your CFO or your finance guy.

Nalin:

Who's gonna do more the fundraising with the CEO, be somebody who understands P&Ls and balance sheets, you wanna have your CTO with a different skillset.

Nalin:

Then you wanna start also saying, well, in your heat map, this is an area where you can use some development, if that's where you're gonna support each other or bring in some maybe your third or fourth co-founder, or maybe that person doesn't have a co-founder role, but  you are VP of engineering.

Nalin:

When you look at your capability, your skills, and then you actually map them you can just step back and look at it and it just it's just so clear why you're doing this together in the first place, and that you're not a clone of each other, that you're different human beings.

Paul:

What does a skills heat map consist of aside from just obviously skills?

Nalin:

On the rows, it would be visionary, or it could be financial skills, people skills, mentoring younger people, technology, engineering, global skillset, whatever you find the 10 most desirable things you probably need for that company to be successful in its early stage.

Nalin:

And I would actually put that in on the rows.

Nalin:

And then the cool thing in an Excel or a Google spreadsheet is you can do conditional formatting that allows you to put red for one, green for five, yellow for three, and then it just creates this beautiful map.

Nalin:

And then you start scoring things.

Nalin:

You sit down together and say I think I'm a five on finance, and then my co-founder says, no, I don't think you're a five, you're probably a three.

Nalin:

You have this conversation and you start like, actually seeing what you're good at and where you're not good, but your other partners might be very good.

Sonya:

Actually just have a question, I'm just curious, what would be an agnostic list of the top 10 or top 5 skills that you should have in your startup?

Paul:

In hindsight, storytelling is perhaps one of the most important skills to have.

Paul:

If you have a product that is like just being downloaded insanely, and people are paying for it, and they're just saying, shut up and take my money, maybe you don't need to tell such a great story.

Paul:

I think at some point your first hit will turn into something that's no longer as big a hit, or you're still looking for that hit, or people are saying this is fantastic, we love what you're doing, but where's it gonna go?

Paul:

You have to be great at telling a story, and a story that will by virtue of your effort become true.

Nalin:

Definitely Paul, storytelling is like that's the vision, the mission of the company, and somebody who can articulate that, that's just, that's critical.

Nalin:

The other two, I think if you're gonna just have three, it would be the storytelling, it would be the financial acumen, and it would be the technology or product acumen.

Nalin:

It's really these three that you have to start with.

Nalin:

And then you can start kind of splitting them out and say, well the product then becomes also the technology.

Nalin:

The technology then also becomes, whether it's a service or licensing, then you start getting into legal.

Nalin:

You can quickly start branching these things out.

Sonya:

Thank you for that.

Sonya:

Jason, do you have any suggested top skills, I guess?

Jason:

Along the lines of the storytelling is sales.

Jason:

It's the highest paid, skilled job and the lowest paid, unskilled job there is.

Jason:

At some point, sales is a very important thing, especially enterprise.

Jason:

But for any startup I say I'd say that's a very important skill.

Sonya:

Nobody said people skills.

Sonya:

Is there a reason for that?

Sonya:

Do you think it can be successful without the people skills?

Paul:

I think everyone needs people skills to some extent.

Nalin:

Typically, you start out with those three, but the storyteller, like Jason said, is the person who also sells the vision to the investors, the customers, but also to the people that are gonna join the company.

Nalin:

As a small team, you've all gotta get along, you've all gotta attract investors or teammates, people skills does become very important.

Paul:

That is key.

Paul:

And if everyone in the company is perhaps lower in EQ and higher in IQ, then of course there's gonna be some challenges as you bring other people into the team.

Paul:

If they invent something that's runaway success, perhaps it's less important, but then of course, it may not be the most wonderful place to work at.

Paul:

Think about an entire company.

Paul:

A company gets to a certain level of maturity when it's at about a hundred people.

Paul:

The Dunbar number is 150 or thereabouts.

Paul:

So you need about that many people to deliver what a legit company does.

Paul:

Maybe that number's gone down a lot with technology, but you need many players to fill all of the roles.

Paul:

Another key skill is decision making.

Paul:

How do you make a decision?

Paul:

I learned that at Moneytree by getting a lot of complaints over the years because the organic, collegiate approach to decision making that works really well to begin with, starts to break down.

Paul:

And you're like "oh, it's okay, I can rely on gut" and just getting a decision alongside my co-founders, and we're all still happy, and not having fights with each other and this must be good!

Paul:

Then as you get bigger, you get staff members saying well, the decision makers aren't making decisions quickly, it's not clear where decisions get made.

Paul:

Especially when you start hiring people from bigger company backgrounds.

Paul:

If there's one thing you can do to supercharge your business, even from the early stages, it's learn how to make decisions well.

Nalin:

Decision making.

Nalin:

There's so many different styles.

Nalin:

Is it autocratic, is a democratic, and the founders that you have, cause this is again about founding in Japan and thriving with the . Co-founders, that decision making style will also have a great influence in how your company scales, and whether it ultimately does well or not.

Nalin:

So not just the decision making skill, but the style that that comes with it as well.

Paul:

Let's keep moving on.

Paul:

Andrew, welcome up.

Andrew Shuttleworth:

Thank you Paul.

Andrew Shuttleworth:

Good to see everyone here.

Andrew Shuttleworth:

Myself and Nalin are both in Singapore, are having lunch tomorrow actually.

Andrew Shuttleworth:

So I look forward to continuing the discussion then.

Andrew Shuttleworth:

But I would add to the list adaptability because one of the things that founders need is they need to change and what works when you're five people won't work when you're a hundred people.

Andrew Shuttleworth:

Right?

Paul:

That is a really good one.

Paul:

Adaptability.

Paul:

I'd also add to that resilience.

Paul:

When you're in an organization or an environment or a market or any kind of situation where things are gonna change quickly, you need that adaptability.

Paul:

And this sounds like a cliche, it should be so obvious, but again in the early stages, in a way it's easy to find adaptable people cause they're about the only people you can attract.

Paul:

When you get to a certain size and you attract all sorts of people, You may get people who are really much happier with just the obvious thing being what they need to do, and they're not changing too much.

Paul:

If you're still doing some sharp, hairpin turns every now and then, that can create a real fracture in terms of meeting their expectations.

Sonya:

I think adaptability is such an important one as well.

Sonya:

There's people who understand adaptability and there's people who have heard about it and overuse it.

Sonya:

My, I guess day job is in the space industry and there's a lot of companies trying to figure out how to compete in the space, in the new space industry, right?

Sonya:

There's a lot of AI people, there's a lot of hardware people like building satellites and rockets and stuff like that.

Sonya:

I went to some conferences, and he was talking about why his company succeeded versus other companies that didn't.

Sonya:

And is that he was adapting, but he would wait to build up before, adapting because a lot of companies would just try to pivot too soon, and you cannot build up anything, and you're demoralizing the whole company because they just built up something and now they have to start from zero again.

Sonya:

So there's an art to adaptability.

Paul:

Building on Sonya's point, you should communicate that you're pivoting.

Paul:

It's kind of like when a plane is going through turbulence, it's always better when they tell you to expect it first, as opposed to you're scraping yourself off the ceiling, or off the floor after hitting the ceiling, because they didn't tell you.

Paul:

It's kind of the same thing in in a company.

Paul:

People want to know, and this comes back to storytelling.

You need to tell them:

why we're doing this thing, why it's changing, how do you want 'em to understand it?

You need to tell them:

Because in a vacuum, all sorts of typically not constructive things will rush into fill that void.

Jason:

The other end of the scale of sales and leadership, and expanding on people skills and what that might mean to someone who is not that comfortable, it means pushing yourself outta your comfort zone and stating your opinion; constant, clear communication, if you are the less vocal or the less out there co-founder.

Jason:

I would say,

Paul:

On that note, clear communication sounds easy enough, right?

Paul:

Like just say what you want, but typically it seems to work better when you've got an interpreter.

Paul:

Someone who can really understand you and understand them, and at those times when you're just not getting each other, can speak in a dispassionate way about what each of you, what the heck it is each of you is trying to tell the other one.

Paul:

Because as we all know, we're all adults.

Paul:

You could be fighting the same fight, and grinding the same axe with your, your co-founder for a very, very long time.

Paul:

This idea of having a mentor is perhaps obvious, so usually someone who's about 5 to 10 years older with experience that, that you all respect, and someone you have a reasonably equal relationship with.

Paul:

They're learning from you, but you are ultimately learning a lot from them.

Paul:

We've had someone like that at Moneytree.

Paul:

Nalin are you fulfilling a role like that with any of your startups?

Paul:

Are you acting as like not just a mentor to the CEO or to one of the founders, but to entire founding teams?

Paul:

And how have you found that?

Nalin:

To answer your question, Paul, I have taken that role a couple times.

Nalin:

And I actually, I've enjoyed it because as somebody who, you know, who thrives on working with younger, more agile minds, it's one of the key reasons I I do this in the first place.

Nalin:

In some cases I was brought in specifically for that purpose.

Nalin:

I had to be the arbiter between conflicting points of view, and of course everybody knew that was my role.

Nalin:

So it wasn't it wasn't arguments that I was solving.

Nalin:

It was more like, "hey, I think this way and he thinks that way, but can we have you tell us what really makes sense to you?"

Nalin:

Having said that, I have also found myself in situations where there's almost, I don't wanna say fistfights or anything, but something like, what is the right kind of exit for the company?

Nalin:

An exit doesn't happen like overnight, so you have to prepare for it.

Nalin:

And when you start saying, okay, what kind of exit shall we prepare for?

Nalin:

And the opinions are not the same, it can get very ugly.

Nalin:

I have found myself having to arbitrate that kind of conversation.

Nalin:

It's both fun but also can be taxing because you wanna make everybody happy, sometimes you can't.

Nalin:

Like most things I do, I try to create an Excel sheet and make sure everybody agrees with me.

Nalin:

Um, we, we collaborate around an Excel sheet or a Google spreadsheet and say, look, let's go off and populate this and come back and talk about it.

Nalin:

I've found in many cases, even if it's something very emotional, if you're forced to quantify it in some way or another, or heat map it in some way or another, your decision making becomes more clear.

Paul:

You've hit on two things that are close to my heart.

Paul:

One is decision making, and the other one I'm embarrassed to say is Excel spreadsheets or Google Sheets.

Nalin:

Are you embarrassed to say that you, you do like them or you don't like them?

Paul:

I do like them.

Paul:

I have to admit, over the years I've spent a lot of time with Excel, despite the fact that I, I initially was not the kind of person who would ever admit to that.

Paul:

You change a lot in business, in life.

Paul:

What kind of groundwork did you do before you were thrust into that situation?

Paul:

Have you mostly been brought in as like the wolf, the problem solver, the negotiator?

Nalin:

Remember I said earlier, I'd like to bookmark the vision, mission, values, culture thing.

Nalin:

That is one of the groundwork items I think, that are really important for any founders, co-founders to work on, right?

Nalin:

And typically if you look at a startup, it comes from the vision, right?

Nalin:

Hey, here's a problem statement.

Nalin:

Hey we have a cooler way, a better way, a more user friendly way, a more optimized way to solve that problem.

Nalin:

And so therefore, from my vision, I have a mission and I say, my mission now is to solve this problem, and we're gonna do it with our cool new technology.

Nalin:

And somewhere in there you say, well, okay, let's cascade this to values.

Nalin:

And we say we're gonna do this in a customer friendly way.

Nalin:

We're gonna do this in a way that that will be kind to our employees.

Nalin:

We're gonna do this in a way where we're democratizing whatever it is you're democratizing.

Nalin:

You start associating words that are closer to your value system.

Nalin:

And this is all great, but you know what, for most companies, you end up pivoting, right?

Nalin:

And when that happens, your vision changes, your mission changes.

Nalin:

And then sometimes your values change.

Nalin:

But what doesn't change and what should not change is your culture.

Nalin:

Going to to your question when I have different people that I'm working with, I'd like to know that their culture is compatible with mine, and if they're the co-founders then amongst themselves, because if the culture that they're working from and here, I don't mean culture as in Japanese culture, American culture, I mean, just what is important to them and how they go about conducting themselves.

Nalin:

If these are not harmonized, you're gonna have serious problems along the way.

Nalin:

So one of the things I do wanna get a good sense of is what kind of culture do people live by and hold themselves to?

Nalin:

Because from there, you already.

Nalin:

How their organization's gonna work.

Nalin:

You see what kind of values they're that they're marching to.

Nalin:

And then even if the vision changes and the mission changes you can still work together and make something make something of the effort everybody's putting in.

Nalin:

Even though I'm 55, I'm still growing and learning too.

Nalin:

I went through several years of just not respecting the concept of pivots.

Nalin:

And I'm like if you have to pivot, that means you never, your idea was crappy in the first place.

Nalin:

And I was a bit unforgiving of companies that needed to pivot.

Nalin:

I still sometimes say you need to stick it out.

Nalin:

If your vision was correct, then don't give up so easily.

Nalin:

Don't find something, don't find another problem to solve when you haven't problem solved your first one.

Nalin:

But sometimes you do have to do it, and when you do that, pivot, your vision and mission do change.

Nalin:

I've learned this by observing and being part of that decision making cycle and process.

Nalin:

But culture and values, these are these need to be timeless.

Paul:

So this idea that your culture doesn't change, does that mean your culture is perfect?

Paul:

Just however it happened to be before the pivot?

Nalin:

Oh, wow.

Nalin:

No, good point.

Nalin:

Good point, Paul.

Nalin:

No, I mean, I don't think there's ever such a thing as a perfect culture or a perfect vision.

Nalin:

If you're core is not firm enough that your culture is wobbly and changes, that's a problem, I guess is the statement I wanted to make.

Nalin:

There's no such thing as a perfect culture but you can adapt, you can change, you can improve for sure.

Paul:

If anyone can come along and kind of, sort of bang on the walls and, and knock over your culture it's not much of a culture.

Paul:

On the other hand, one of the things that I've learned is that your culture needs to fit your mission.

Paul:

For example, a company whose culture didn't actually fit its mission, or at least not its stated mission, a very famous company, Facebook, and their culture was very much, move fast break things.

Paul:

Their culture was about growth.

Paul:

It was not about privacy.

Paul:

It was not really about bringing people together.

Paul:

It was all about growth, and bringing people together arguably was a side effect of its growth.

Paul:

It did do this amazing thing for people, like it did make the world a much smaller place.

Paul:

That said, their culture got very much outta step with what their constituents wanted, what we wanted, which was that we had some privacy, that our data wasn't just used in any way we didn't expect it to be used, over time they've had to evolve.

Paul:

That said, I don't think their culture was aligned with their mission in the way that they talked about their mission, which was bringing people closer together.

Paul:

You can still become one of the most valuable companies in the world, and have this disconnect.

Paul:

I would say that for most startups, you've gotta figure out what's the right culture that supports achievement of your mission.

Nalin:

It's not just startups either.

Nalin:

As I progressed in my career, there's two companies I've had, immense respect for, and then later on, honestly have been disappointed by.

Nalin:

They are HP and Intel.

Nalin:

And I think culture was such a great part of what formed these companies and what gave them a great story to tell.

Nalin:

Gave them adaptability, but gave them agility and resilience to become massive companies in their own right.

Nalin:

And yes, navigating and running large companies is, has different kinds of challenges.

Nalin:

But I feel somewhere along the way they lost the culture that, that they were founded by, and HP is now kind of chopped up in the little pieces and well, Intel is still one company on its own, it's very different from what it started out.

Paul:

I think it's a rare company that can reinvent itself enough, to live through all of these different eras.

Andrew Shuttleworth:

I was just gonna mention Apple cause I work there for over nine years.

Andrew Shuttleworth:

I, and Miss Sonny was speaking, I was gonna say that Apple is one company that certainly hires for culture and you probably have to go through 10 or more interviews, but one of the reasons for that is that everyone's checking, are you a good culture match?

Andrew Shuttleworth:

So even a company of that size, it shows the importance

Paul:

Maybe not just specific to Apple, but how effective can you be at defending the culture after 40 years?

Paul:

It's the culture of hundreds of thousands of people in theory.

Paul:

Yeah for Apple, I'd say it's very effective.

Paul:

And to be honest, there are very few people get through who don't match the culture because the process is so strict.

Paul:

Usually find that those people don't last very long because they're just, they kind of don't get the company once they're on the inside.

Jason:

I'd like to welcome Maxim, along with Yuko and Nobuyori

Maxim Makatchev:

We moved from co-founders to the culture, but I guess they're very much interconnected cause co-founders are the ones who like gonna plant the seeds of the culture.

Maxim Makatchev:

In my experience maybe somewhat related to the pandemic, remote work.

Maxim Makatchev:

In previous startup that I worked in Silicon Valley, we had a California team and East Coast team.

Maxim Makatchev:

We were split naturally kind of pre-pandemic.

Maxim Makatchev:

Even though the cultures were very supportive and tight, but somehow they became kind of unhealthy, I would say not rivalry, but kind of like very nationalistic feelings between East Coast and the West Coast.

Maxim Makatchev:

Eventually, it became a problem where it would result in a lack of trust and would create a rift between the groups within the company.

Maxim Makatchev:

Nowadays, that you pretty much have to be remote, how to avoid this kind of unhealthy clustering?

Nalin:

It's an interesting one, but I was earlier gonna share a story of a company that I that I was quite deeply involved in.

Nalin:

The statement I was gonna make is the values of the founders will set the tone of the corporate culture, right?

Nalin:

So this is not just the founding team, but the entire company.

Nalin:

And if the founders accept a crappy product, if they say, this is our product, it's not great, but we're gonna ship it and it's good enough then you know what?

Nalin:

The whole R&D team, the whole product team will come to believe that a crappy product is okay, and that becomes the norm.

Nalin:

And I don't want to equate the culture as how high or low you're setting a bar and in whatever you set out to do, but to, to maxim's point, right?

Nalin:

Yes, you use the East Coast, West Coast thing.

Nalin:

That's one other angle of how together or not together can the, should the company be.

Nalin:

But essentially it starts at the top.

Nalin:

And the values and the culture that the founders set is gonna be what everybody ends up following.

Paul:

Strongly agree with that.

Paul:

Culture is very much a top-down thing in human society.

Paul:

We, we emulate the people above us to get their approval.

Paul:

And in a company as well, people look to the founders and the senior managers and they see what kinds of behavior is rewarded and what kind is punished either intentionally or unintentionally.

Paul:

If you're sitting in the same row of desks or you walk past each other's office, you coincidentally run into a lot of people.

Paul:

Even if you're in the same Zoom meetings, it's still, not exactly the same.

Paul:

I think you have to take a lot more steps to fill that hole.

Paul:

I have to admit I don't have the secret formula there.

Paul:

Maybe someone has had some more success in that area.

Paul:

But it's very challenging.

Nalin:

Japan gets a lot of flack for the like the after hours work culture and so on.

Nalin:

But you know what, I think there's immense value in going to that yakitori-ya in the winter with your colleagues or the beer garden in the summer with your colleagues, whether you're having sake or a beer or not, just the time you're spending together.

Nalin:

I think there's great value in it.

Yuko Nakahata:

Thank you Jason.

Yuko Nakahata:

I think that we should focus on the company as purpose driven and need to consider for whom and for what and what is the purpose?

Yuko Nakahata:

It could be the mission and the vision, and even the long way to learning the business.

Yuko Nakahata:

Back to the purpose, it's connect to sustainability.

Yuko Nakahata:

So of course there are a lot of issues and we need to struggle with things, but when we get back to for whom and what, I think the mindset could be with the co-founders.

Jason:

Welcome Nobuyori.

Nobuyori Takahashi:

I just cannot agree more.

Nobuyori Takahashi:

I run my own small startup business and I'm the CEO of the company.

Nobuyori Takahashi:

I am an engineer, so I really focus on techy stuff and I don't have people skilled much, and I don't really talk much either.

Nobuyori Takahashi:

Well I actually talk a lot of random stuff, but not like a pitching the company and all that stuff.

Nobuyori Takahashi:

I'm not really good at that stuff.

Nobuyori Takahashi:

But I am blessed in the way that I do have a really good team of people around me that really cover what I cannot do.

Nobuyori Takahashi:

For example, when it comes to financial stuff, I have a really great person that helps me out on a daily basis.

Nobuyori Takahashi:

And the sales people skill the same way and organization skill the same way.

Nobuyori Takahashi:

Without those people, I can't really be doing what I'm doing right now.

Nobuyori Takahashi:

Of course I did start my own company out of my own will.

Nobuyori Takahashi:

I just wanted to start building this software, and that was the only thing that motivated me.

Nobuyori Takahashi:

It was fun for me, and I wasn't thinking anything else but then I quickly learned that I really needed something else.

Nobuyori Takahashi:

So I totally agree that you really want to have someone who can do what you cannot do.

Nobuyori Takahashi:

And I think it's really important to understand what you can do and what you cannot do.

Nobuyori Takahashi:

That's something difficult to admit sometimes, but I know what I can't do really well.

Nobuyori Takahashi:

Knowing that, I know where to look for people for help.

Sonya:

As a conversation continuer, rather than starter, we talk about these skills that have to be spread out.

Sonya:

You know, you need to know finance and your technology and the hiring part, and maybe some HR.

Sonya:

What is something that your co-founder should have versus the people you hire?

Sonya:

I could have a co-founder that doesn't understand finance, but hire a really good finance guy or HR person.

Sonya:

But my co-founder should have something that I don't have.

Sonya:

What should that be?

Sonya:

And the other thing is, what are your thoughts on conflict resolution skills?

Nobuyori Takahashi:

I think it's important for your co-founders to actually have the same goal.

Nobuyori Takahashi:

What I mean by that is that as a founder, you really wanted to start your own company and you want your business to succeed, obviously.

Nobuyori Takahashi:

Your co-founders, they should have the same goal and they should be on the same page.

Nobuyori Takahashi:

Whereas people, you may hire along the way, they may not really care all that much.

Nobuyori Takahashi:

They might actually join your company for the fun of it, maybe or just because you're doing something cool technology wise, or maybe your salary is really awesome or something like that.

Nobuyori Takahashi:

They may not necessarily mean to really help you out to achieve the goal.

Nobuyori Takahashi:

Your co-founders shouldn't be that way.

Nobuyori Takahashi:

They should be walking on the same tight rope as you are hopefully, and they should be feeling the same pressures as you are feeling, running the company.

Nobuyori Takahashi:

I guess that's the difference.

Sonya:

All of this.

Sonya:

I agree, but I'm just wondering in terms of skills, not so not so much about mindset, that's a given.

Sonya:

Some people have to be on the same level of thinking as you to be able to be a co-founder, maybe you started it together, that's one thing.

Sonya:

In terms of skills, there's some skills you can hire and you'll be fine, and then there's some skills that probably should be between you and your co-founder.

Paul:

I think the mindset is probably the more important thing to choose for in a co-founder than skills, because you can hire all the skills.

Paul:

But if we were to narrow the discussion to skills, it's like launching a rocket into space.

Paul:

You just need the right booster to get into orbit.

Paul:

With your startup as well, with your own skills and your co-founders skills, you need to have the right skills, whatever that is, to get into orbit.

Paul:

Then you can get funded, then you can hire people, then you're an attractive place for people to work

Paul:

. Nalin: I specifically know a person who I work very closely with.

Paul:

He's the CEO of Entomo, a company I invested in and work very closely in right now.

Paul:

His greatest strength is his kind of his eternal positivity.

Paul:

I don't even know think it's right to call it a skill, a trait, but the positivity supersedes storytelling, communication, decision making, adaptability, all these other things are almost secondary to positivity because startups are tough!

Paul:

I just wanna flag that for all of you to think about as well.

Paul:

Nalin, your instincts, mine and Nobuyori's are pretty similar.

Paul:

You're hiring for the cultural attitude with your co-founders more than when you're hiring for staff.

Nobuyori Takahashi:

My priority for finding someone as co-founders I guess in is that I would like to have someone who is willing to suffer with me.

Nobuyori Takahashi:

Because like Nalin said, Paul said, many other people have said in the past, running a company is really tough, really tough!

Nobuyori Takahashi:

A lot of things happen and I want to have someone who is willing to actually suffer with me.

Sonya:

I've studied several companies and I think that the best one is the one that I'm building right now.

Sonya:

And it has a lot to do with the fact that I'm looking at getting the right people on board and looking at the right skills.

Sonya:

When I'm listening to all of you guys Paul, you have a lot of experience, so do you Jason, and Nalin's experience as an investor, I think that the breadth of companies that he's seeing gives him an insight of what works and what doesn't.

Sonya:

So when I'm asking you guys, this question is definitely not that I'm asking about financial skills or HR skills.

Sonya:

As I said, you can hire those people out, but what are the skills of a co-founder?

Sonya:

And what you said now, and I think for the positivity, definitely.

Sonya:

For me, logical mindset is very important.

Sonya:

I'm a very logical person.

Sonya:

That's personal, but I think that throughout it's good to have a logical person on board, but also conflict resolution I think is a big one.

Jason:

I think the uncomfortable quick answer there is someone who's done it before and you can see their history, but of course that isn't always your choice.

Ilya:

Yeah, interesting questions.

Ilya:

Actually on the same line with Nalin and Paul.

Ilya:

And I mean it, it's not really about skills, but your mindset and skin in the game is also I'm not sure I have the same thinking about that.

Ilya:

If it's clear that somebody's less invested or maybe has less time for being, rather than being a hundred percent, maybe your co-founder has a kid, and so on.

Ilya:

So you're not always invested in the same amount of time, in the same amount of energy.

Ilya:

But as long as that's clear to both of you or to all of the co-founders, then it's not gonna be a problem.

Ilya:

On the positivity, I also wanted to add, not everyone in the team needs to be that positive.

Ilya:

You also need somebody who is somehow more critical.

Ilya:

For instance, my own experience in my previous startup, I had a co-founder that was very disagreeable, let's say.

Ilya:

It was very hard to find something to be positive about together.

Ilya:

Eventually I think, the startup ended because of that reason as well.

Ilya:

But I think that was fundamental in the beginning to not go into any direction, but just find something that was really a better fit for our product.

Paul:

Thanks for sharing that Illya.

Paul:

Definitely the differences, the disparities in effort over time can really drive a wedge even between the most the most friendly and positive startup founders.

Paul:

So that's something that you really have to understand which side your bread is buttered on, who's doing what.

Paul:

Getting that right up front is very important.

Jonathan Epstein:

I wonder if I could chip in now I've had some time to reflect.

Jonathan Epstein:

This concept of positivity, I might reframe somewhat to think about just in terms of commitment.

Jonathan Epstein:

And commitment doesn't necessarily mean always painting things in a golden light.

Jonathan Epstein:

It does, but it does mean that no matter what happens, you're gonna stick it through.

Jonathan Epstein:

That's where I think in this discussion, we have to think about contrasting this with the sole founder.

Jonathan Epstein:

Because the option is always whether to go alone versus to have partners.

Jonathan Epstein:

There are a lot of things to, to recommend just going it alone.

Jonathan Epstein:

I think that shared sense of commitment and being in it and seriousness of focus for the long term really has to be there for any founder, and maybe that's even, uh, the most important thing.

Paul:

If you look at a lot of Japanese institutional investor contracts, the person with their head in the noose is usually the CEO, and everyone else gets off scott free.

Paul:

If everyone else leaves, it's okay.

Paul:

It's like eggs and bacon, right?

Paul:

The chicken's involved, but the pig is committed.

Paul:

So if you're a CEO, you're a pig.

Paul:

You're definitely committed.

Paul:

You're not in a position where you could easily walk away by any length of the imagination.

Paul:

That said, if you've got co-founders that have got your back, that you know will not walk away just because it gets really difficult, or it's just as challenging for them, it is for you, but they're gonna stick around.

Paul:

That's gold.

Paul:

You need co-founders that are willing to be there for 10 years.

hough refer to my first point:

Japanese institutional investors may not jive with that concept.

hough refer to my first point:

One other thing that I've spoken about before is give your co-founders enough stock options, for crying out loud!

hough refer to my first point:

It's also another very specific thing to Japan.

hough refer to my first point:

If you look at the exit ownership percentages of most listed Japanese companies, the CEO has somewhere between, I guess 10 or 15 times as much stock as the CTO or some of the other founders, despite the fact they started in the company at the same time.

Ilya:

May I ask a question about this?

Ilya:

Recently, I talked to a new friend of mine, also based here in Tokyo.

Ilya:

He's starting a company and talking to investors.

Ilya:

He noticed that they prefer actually the CEO to have around at least 80% of the company.

Ilya:

And while at the same time he started this with his co-founder based outside of Japan.

Jonathan Epstein:

You know, I think it's expected in Japan just because of the history of entrepreneurship here is typically revolves around stories anyway of one very strong founder.

Jonathan Epstein:

If you think about Matsushita, if you think about a lot of the founding fathers of the major 'keiretsu' and 'zaibatsu' here.

Jonathan Epstein:

There's, I think, a mythology about that.

Jonathan Epstein:

And I think that also stems from the family relationship that tends to exist in most startups in Japan.

Jonathan Epstein:

They're not a joining of equal parties.

Jonathan Epstein:

That's probably a big reason for the slow growth of entrepreneurialism here.

Jonathan Epstein:

That it's a very, a much older style of company growth.

Jonathan Epstein:

But that would be my guess that's the reason.

Nalin:

Jonathan, I think you're right.

Nalin:

There's, maybe if I could just add another element here.

Nalin:

I think it also comes from the fact that anything entrepreneurial here was not necessarily backed by venture capital, but by banks, and a bank wants basically a neck to go after.

Nalin:

Rather than having two people or four people, it would rather have one person that it can hold accountable.

Nalin:

I think this echo is a little bit what Paul was saying.

Nalin:

I was just thinking back to the large Japanese companies that were founded by somebody like Matsushita and Honda and so on.

Nalin:

The only one I could think back to that had two almost equal founders is Sony, but I have a feeling they probably were not necessarily equal.

Jonathan Epstein:

Tied with, with the bank backing is the, the personal guarantee, and how many people want to have their neck in the noose?

Jonathan Epstein:

There's not much benefit from having multiple necks in that noose.

Nalin:

It's basically, we'll give you money to start your company, but we want your house as collateral.

Nalin:

That's kind of the traditional way the banks have always worked.

Sonya:

I'm wondering, how do you guys see Japanese investment companies, not banks, investing in foreign companies?

Sonya:

The reason why I'm asking is because I find it difficult, so, I didn't even start because of the stories I've heard.

Sonya:

And I'm currently in Canada actually in establishing my company here, so I can get funded here.

Sonya:

My customers would be in Japan, but my business will be in Canada for that reason.

Sonya:

Do you see it being more difficult for foreigners?

Sonya:

One, because we don't have all these assets, for example.

Sonya:

Do you see it changing in the future?

Nalin:

Paul, you've actually experienced it.

Paul:

Thanks, Nalin.

Paul:

I'm thinking, what should I say?

Jonathan Epstein:

yeah.

Jonathan Epstein:

I think the people in the room are, are changing it.

Jonathan Epstein:

I think it is changing.

Jonathan Epstein:

But like anything in japan, you know, things, things move slowly.

Paul:

Sonya just building on what Jonathan has said, I'd, I'd refer to the old saying that a banker is a person who gives you an umbrella when the sun is shining and takes it away when it starts to rain.

Paul:

If you've just raised money, it's much, much easier to borrow money.

Paul:

If you are running out of money, it's impossible to borrow money.

Paul:

It doesn't matter so much whether you're a foreigner or you're Japanese, it matters more of what the nature of your business is.

Nalin:

On that point too, I have, you know, I have a whole separate network of people who are like SME, second generation type people.

Nalin:

And if you look at them, then most of them actually spent their twenties working in their local bank.

Nalin:

It was already like a stated path, you go to college, then you go work.

Nalin:

So you go work in the local bank for three years, you build your relationships and then you come back to your dad's company and you work your way up the ropes there.

Nalin:

But those three years that you spent working in the local bank, those relationships will help you secure capital in the future.

Nalin:

It'll help you secure customers, it'll help you secure ecosystems.

Nalin:

There's some really good things about that banking relationship.

Nalin:

You have to look at it very differently from how you look at it in other countries.

Nalin:

And it does benefit the Japanese companies.

Nalin:

I guess for us foreigners, we have to find ways to tap into that more effectively.

Sonya:

Do you find it's the same with VCs in Japan?

Sonya:

Or just with banks?

Nalin:

Typically the VCs in Japan, they don't take as big risks and they do a lot more smaller slices.

Nalin:

And investing in a few foreign owned, foreign founded companies is actually kind of cool these days.

Nalin:

Not all VCs are gonna do it, but I think you'll find some who are willing to do it.

Paul:

One of the big things you can do is de-risk by having the right skills on the team.

Paul:

If you want to get in good with the VC, Sonya, definitely look for the right kind of CFO, but that's really hard to know before the fact.

Paul:

If you're in a hot space, do your best to find a good Japanese CFO.

Sonya:

That's interesting and I'll be very honest with you, not to generalize anyone, but I have found that, when I've worked with Japanese leadership, it tends to be a little bit different than the fast paced, risk-taking needed for a startup to, to pick up and build momentum.

Paul:

You don't need a Japanese CFO, you need a CFO.

Paul:

If you can have a Japanese CFO at some point, that will probably be better, and then at some point it may not matter as much.

Paul:

Then again, if you go to IPO, it still might matter.

Paul:

Thank you everyone and in particular thank you to Nalin for being our guest speaker tonight talking on the topic of thriving with co-founders.

Paul:

Nalin, can we get just a final word from you.

Nalin:

If anybody needs help with a heat map, feel, feel free to reach out to me.

Nalin:

I love making them, if you're trying to articulate that, I'll happily work with you on building one.

In summary:

storytelling, communication, decision making, adaptability, resilience, trustworthiness, and most importantly, positivity.

In summary:

So I just wanna leave that thought with everybody again, that positivity is the thing that carries us forward, carries us through the toughest times, and I encourage everybody to stay positive no matter what.

Shibainu:

Thanks for listening to Founded In Japan.

Shibainu:

This episode was recorded live on Clubhouse on May 10th, 2021.

Shibainu:

Founded in Japan is part of the Business in Japan, Clubhouse and LinkedIn Group.

Shibainu:

Follow us on Clubhouse or LinkedIn to join our live audio events, or subscribe to us on Apple Podcasts or Spotify.

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