Chapter 1: Understanding Single-Person Risk

The risk associated with an individual employee is a persistent challenge for businesses. Regardless of technological advancements or the era, certain startup issues remain unchanged. A notable example is the Sholes and Glidden typewriter, the first commercially successful model, developed in the late 1860s by inventors Carlos Glidden, Samuel Soule, and Christopher Sholes. Shortly after, James Densmore took over Soule's role, investing in the venture and aiding in the design process. However, the turnover within the team caused significant delays in the project.

Often, a small group of essential team members can make or break a startup. The departure of just one key individual can lead to major setbacks and even jeopardize the company’s future. By March 2021, only 80% of startups were still operational after their first year, largely due to issues such as inadequate funding, insufficient market demand, fierce competition, poor business models, and team dynamics. From my experience with various organizations across different sectors, the exit of a vital employee is a critical factor contributing to startup failures, commonly referred to as "single-person risk."

As exemplified by the challenges faced by the Sholes & Glidden team over a century and a half ago, fundraising difficulties often coincide with broader issues. The inability to secure financing by a deadline typically leads to failure, which is often not a straightforward issue. Frequently, the timeline for raising funds exceeds expectations, forcing the key person to leave in search of stable employment due to a lack of financial reserves.

To mitigate this risk, here are several financial strategies:

• Delay Leaving Your Job: Maintain both your current job and startup role for as long as possible. This will require significant effort as you'll be juggling two positions, albeit with only one providing income.
• Negotiate Part-Time Work: Discuss the possibility of transitioning to part-time work with your employer to free up time for your startup.
• Seek Additional Part-Time Employment: Look for another part-time job to supplement your income.
• Conservative Cash Flow Planning: Regardless of your confidence in the business idea, be prepared for extended fundraising periods. It's wise to assume it will take longer than you anticipate.

Chapter 2: Reasons for Co-Founder Departures

Co-founders may exit for various reasons, including:

• Decreased Interest: It’s common for a CTO, once passionate about the technology, to lose interest once the product is validated. To counter this:
• Ensure your CTO is committed to staying until project completion and understands the importance of execution.
• Consider maintaining a part-time consulting arrangement with the CTO during the execution phase.
• Deteriorating Relationships: Conflicts between co-founders can lead to breakdowns in communication. To address this:
• Establish a clear conflict resolution process, which may include a mentor or therapist both parties agree upon.
• Employ a psychologist to conduct a personality compatibility assessment, which is seldom done by venture capitalists focused primarily on business metrics.

In summary, analyzing startup failure statistics reveals that many failures are people-related. Whether you're a co-founder transitioning to a cash-strapped startup or an investor, it's crucial to utilize the single-person risk checklist and implement effective mitigation strategies.

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