Founder vs. Founding Engineer

North Shore Mountains

The North Shore Mountains rise beyond Burrard Inlet. This is our third walk around Stanley Park however the topic of conversation remains the same.

Does one found a company or join a founding team?

Impact

Optimize for impact in the world. One gets to choose their definition of impact but impact is the goal.

Quantitatively, equity value is a useful proxy when comparing opportunities. It is legible, measurable, and brutally honest but it is still only a proxy. The scoreboard is the value of one’s equity. The game is impact.

Qualitatively, when your head hits the pillow at the end of the day and you stare at the ceiling, you want to feel like you put in everything that you’ve got.

Founding Engineer

For the equity alone to have comparable expected value, the company one joins must have the potential to become 10x to 100x more valuable than the company one would start.

A founding team owns nearly all of a company at inception and an individual founder often owns 10 to 100 percentage points. A founding engineer might own 0.1% to 1%. Dilution, salary, risk, and time complicate the calculation, but there is an order of magnitude of difference.

On this measure, joining makes sense when the company can become much more valuable and create much more impact than the company one could found today.

One can estimate the opportunity across five facets:

  1. Founders
  2. Growth
  3. Talent density
  4. Product
  5. Market

Founders

The quality of a startup is equal to the quality of the founders. At inception, there is little more than an idea and the people willing to make it real.

The founders provide the activation energy. They recruit the first believers, sell the unfinished product, absorb new information, and carry the company through the periods when nothing seems to work.

Do they learn quickly? Do they tell themselves the truth? Can they attract exceptional people? Do they have the endurance to stay with the problem?

If one might become a founder later then strive to apprentice with world-class founders.

Growth

Startups equal growth.

Is the company growing? How quickly? Is it growing in customers, usage, and revenue?

Is the growth durable or is it a one-time trick? Are customers staying? Are they expanding their use? Is the company growing because customers receive genuine value?

What does retention look like? Is there an acquisition channel that is working?

Growth is the strongest evidence that a startup is working and empirical evidence that the founders are great.

Startup growth is also highly correlated with personal growth. Growth means new products, new teams, new problems, new scope, new opportunity.

When growth decelerates or even worse stalls completely the game changes. Managers become political. The battle for headcount becomes fierce. Staff engineers fight for scope. There is not enough opportunity and resources to go around.

Founders need to burn it down and start again to escape the downward spiral. Most don’t have the courage.

Talent Density

A world-class team is empirical evidence of world-class founders. Great founders know how to recruit and great people want to work with other great people.

This creates a virtuous cycle. Every exceptional hire raises the standard and attracts the next one.

Talent density also transmutes into the quality of one’s network. These colleagues become future collaborators, investors, customers, and perhaps the founding team of one’s own company.

Do not evaluate talent by pedigree alone. Observe whether the team moves quickly, holds a high bar, disagrees honestly, and makes one another better.

Product

A great product is empirical evidence of great founders.

Do customers love it? Does it solve a painful problem or merely offer a pleasant improvement? Are users disappointed when it is unavailable? Do they recommend it without being asked?

An early product can be narrow, awkward, and unfinished. It cannot be irrelevant. Look past polish and ask whether a small group of customers cares deeply.

Market

A great team with a loved product can still be trapped in a small market.

How many people have the problem? How much is solving it worth? Is the market expanding? Are technology, regulation, or behavior creating a tailwind? Why is now the right time?

Market size is not just a spreadsheet estimate. Markets evolve. A product can enter through a narrow wedge and expand into something enormous. But the path from wedge to platform must be more than a story.

The market sets the ceiling. The founders, growth, talent, and product determine how much of that potential the company can capture.

Founder

Let’s pop the stack. Why should one found a company instead of joining someone else’s company?

One should start a company when doing so is their best opportunity to create impact.

There are many seductive reasons to start that are anti-patterns:

Any of these may be true. But they are stupid, self-absorbed reasons to start a company.

Founding is not a promotion. It is a commitment to a problem, usually for a decade, with no guarantee that the world will care. Once again, focus on impact.

Turn the attention away from the self: