Founding teams that combine different specializations with comparable overall ability are associated with larger, more productive and longer-lived businesses, according to research using Portuguese company records. Yet people with complementary skills are less likely to start a company together.
The working paper published by the Bank of England on October 9 examines a problem that can arise before a startup sells anything: finding the right person to build it with.
Edoardo M. Acabbi, Andrea Alati, Luca Mazzone and Marta Morazzoni use Portuguese employer-employee records covering 1991 to 2018, linked with company financial information. Occupations help describe founders’ specializations; earlier wage histories help estimate underlying ability. That estimate is not a direct test of intelligence or entrepreneurial potential.
The authors also build a model of career choice and team formation. Its results suggest that limited opportunities to meet suitable partners can prevent valuable matches. The observed business relationships are not evidence from randomly assigned co-founders, and the model’s possible gains are not improvements that have actually occurred. This is research in progress, not Bank of England policy.
Different skills must fit the business
Complementary skills are capabilities that become more useful when combined. For a hypothetical software startup, one founder might understand a customer’s problem and buying process, while another can build a reliable product. Their contribution depends on whether the business needs both capabilities and whether each can deliver.
That is different from assembling a team simply because its members have contrasting personalities or impressive job titles. Two people can have different backgrounds yet leave the same commercial problem unsolved.
Earlier Stanford research on 2,067 ventures founded by MIT alumni offers an important qualification. Technically focused founding teams reached product-development milestones more quickly, while teams with more varied skills were better placed to compete against established businesses.
The business environment mattered. A venture relying on technical innovation and partnerships with established companies had different requirements from one intending to compete directly with them. That research also examined associations rather than assigning people to teams experimentally.
There is consequently no universal rule that every technical founder needs a commercial co-founder immediately. The first task may be solving an engineering problem. Later, customer acquisition, financing or production could become the limiting factor.
Start with the next difficult milestone
A useful way to assess a potential team is to name its next concrete objective: produce a working prototype, secure a first paying customer, obtain a required authorization or deliver an order profitably.
Then identify the work needed to reach it, who can do that work and where the gaps remain. This turns a vague search for a good partner into a discussion about actual responsibilities.
It also makes alternatives easier to compare. A temporary design project may suit a contractor. An ongoing operational role may justify an employee. A co-founder relationship usually involves much broader decisions about ownership, control and long-term commitment.
For example, imagine two engineers who can create a product but have never sold to the organizations expected to buy it. Their immediate gap might be customer discovery, not another technical qualification. They could test that need through customer interviews and a limited project before deciding how to fill it.
These are practical ways to examine a team, not interventions tested in the Portuguese study. Nor can a capable founding team replace access to capital. Our earlier reporting on Europe’s startup and scaleup financing gap examines the separate challenge of funding a business as it grows.
Agree how the relationship will work
Distinct capabilities can still overlap in decisions about spending, recruitment and product direction. A team needs a way to resolve those overlaps before a disagreement prevents it from operating.
The Australian government’s guidance on partnership agreements, for example, identifies responsibilities, capital contributions, profit sharing, intellectual property, disputes and departures as matters to address.
That guidance concerns an Australian legal structure. Co-founding a company does not automatically create that kind of partnership, and the appropriate documents depend on the jurisdiction and business form. Its list nevertheless illustrates the practical decisions that enthusiasm about a new venture can leave unresolved.
A founder can make a valuable contribution without having the final say on every issue. Setting out who owns a decision, what requires joint approval and what happens if someone leaves gives the team something more concrete than an assumption that everyone will agree.
For anyone considering a co-founder, the useful question is specific: which essential work will this person help the business perform, and can the two of you agree how to perform it together?
