Turnbull’s R&D cuts will flatten the ideas boom

Our newly re-elected government is engaging in the most creative innovation ever: doublespeak.

On one hand, new Minister for Industry, Innovation and Science, Greg Hunt, is telling us he’s focused on the second and third wave of the National Innovation and Science Agenda. On the other hand, re-elected Prime Minister, Malcolm Turnbull, is cutting nearly $1 billion to R&D incentives. Is anyone confused?

Over the last few months, and during the election period, we’ve been reminded of the importance of Australia becoming an innovative country. Innovation, affecting all parts of our economy, is meant to ensure job security of Australians as we transition to a value-adding, knowledge-based economy.

Since his appointment as Minister for Industry, Innovation and Science, Mr Hunt has hit the ground running, giving a series of keynote speeches outlining his portfolio’s top priorities.

His first speech focused on the importance of science and research within our national peak bodies; his second speech focused on industry and the need for micro economic reform; his third speech focused on previewing the second and third waves of the National Innovation and Science Agenda.

In FY17, the government is budgeted to support R&D to the tune of $10.1 billion. Mr Hunt has also reminded us innovation matters because it drives 60 per cent of our national productivity.

But all this talk of R&D and its impact on national productivity and economic development has been undermined by Mr Hunt’s boss, Mr Turnbull.

The day before Mr Hunt gave his keynote trumpeting the above figures at The Australian Financial Review Innovation Summit, Mr Turnbull announced his intention to push through an “omnibus” bill containing almost $6.5 billion in spending cuts over the four-year forward estimates period spread over a raft of portfolios.

Buried in the detail is a cut of $990 million to the R&D Tax Incentive. This will be achieved by reducing the rates of the refunding and non-refundable tax offsets available under the scheme.

Counter productive

Given the R&D Tax Incentive has been a major contributor to the number of Australian businesses being involved in innovation, a severe cut to its eligibility and size of rebate could do the very opposite of Mr Hunt’s wishes.

The government is still sitting on a review it commissioned this year of the R&D Tax Incentive, which was meant to identify ways to improve its effectiveness. Many reviews of the past have been used to justify a reduction in the size of such programs.

As I’ve said before, we need to have a sustainable and long-term approach to innovation policy.

Instead of the endless tinkering of R&D programs, our government should be expanding its remit, especially for younger firms and cash-strapped innovators.

In the last year, Australia slipped from 17th to 19th in the Global Innovation Index, which ranks the world’s countries and economies through innovation measures, environments and outputs.

Australia is being pulled down by its knowledge and technology outputs, business sophistication and creative outputs.

 In short, we haven’t commercialised or exported enough of our innovations, our ecosystems don’t actively encourage cross industry and sector linkages, and we haven’t been truly creative.

New ideas

As Mr Hunt puts the finishing touches on the second wave of the National Innovation and Science Agenda, it’s important he reviews the programmes of the past.

We’ve had a tonne of schemes including the Pooled Development Funds (PDF) of the 1990s, the Industry Innovation Funds (IIF) of the 1990s and 2000s, and the Building on IT Strengths (BITS) programme of the 2000s.

 The development of a new government-matched debt- or equity-funding scheme for companies valued at $20 million to $200 million needs to ensure that deserving companies with credible management teams and market prospects receive such funds.

If we wish to lift our rankings on the Global Innovation Index we must back companies who commercialise and export our innovations.

As Mr Hunt finalises the third wave, which is meant to increase the ease with which business interacts with government, he must have a strong word to government departments and his state government counterparts.

We’ve been promised a reduction in government red tape for years but it hasn’t yet happened.

I know of fintech businesses waiting for close to a year to get regulatory approval from the Australian Securities and Investments Commission because of government cutbacks.

Some state governments still charge stamp duties on marketable securities, a tax that was meant to have been abolished with the introduction of the GST in 2000.

Better still, why doesn’t he tackle the age-old employment drag of payroll taxes?

Finally, Mr Hunt needs to have a strong word with his Prime Minister and Treasurer. How can we have a thriving innovation economy in light of a $1 billion cut to R&D?

This post was originally published on Financial Review, a leading Australian online news site that reports the latest from business, finance, investment and politics, updated in real time.

Election campaign shows why Australia won’t be an innovative country

Despite both major parties agreeing about the need for Australia to be an innovative country, neither seems seriously committed to a deep-seated and long-term plan for change.

Amidst great fanfare in December 2015, Prime Minister Malcolm Turnbull launched the National Innovation and Science Agenda, a $1.1 billion program designed to encourage innovation across all aspects of the economy.

With $28 million devoted to a government advertising campaign extolling the virtues of an “ideas boom”, you might have thought we were entering a new age of innovation around the country.

Sadly, you’d be wrong. The $1.1 billion program is only for four years.

The bulk of government funds – $459 million – is earmarked for major research infrastructure and related programs being the Australian Synchrotron (a radiation research facility), Square Kilometre Array (a radio telescope project) and National Collaborative Research Infrastructure Strategy (research infrastructure, and increased engagement between researchers and industry).

The second largest allocation of funds – $127 million – is to encourage university researchers to commercialise their technology with businesses. This just restores cuts made to university funding in previous federal budgets.

The next two largest sums are tax incentives for angel investors at $106 million, and inspiring Australians through digital literacy and STEM at $84 million.

Labor’s pitch

The opposition, which has largely supported the government’s innovation agenda, has made additional announcements.

It proposes to establish a $500 million Smart Investment Fund to provide matching funding to venture capitalists over five years, similar to the Innovation Investment Fund scheme established by the Howard government.

It also proposes to spend $133 million over four years for 25,000 teaching scholarships for recent STEM degree graduates to pursue teaching careers.

 When it comes to the differences, the government believes their tax incentives for investments made into innovation companies will be enough, while the opposition wishes to invest a further $500 million into the ecosystem.

The government plans to increase the amount of time students get exposed to STEM teaching by adjusting the curriculum and supporting coding in schools. The opposition plans to entice more STEM graduates into teaching and establish a National Coding in Schools Centre.

Lack of long term vision

While these are positive policies, where are the long-term game-changing policies that are required to cement nation’s future success?

In December 2015, the Senate Economics References Committee handed down its report on Australia’s Innovation System.

It recommended that: (1) governments commit to stable and coherent arrangements for innovation policies based on a long-term strategic framework and lift investment in R&D to 3 per cent of GDP;

(2) an independent government agency be established to administer and coordinate innovation system policies and programs across the whole of government;

(3) governments, as part of their long-term innovation strategy address structure and strategic barriers that inhibit innovation, including the free flow of knowledge between universities and business, increasing the R&D workforce and providing long-term predictable public funding;

(4) federal, state and territory governments work collaboratively to support local and regional innovation ecosystems;

(5) the education system be a central focus of the long-term innovation strategy, acknowledging the importance between STEM subjects and the humanities, social sciences and creative industries.

For the first recommendation, the government hasn’t committed to a 3 per cent of GDP R&D target but the opposition has, setting a 2020 target. Why isn’t a government that is committed to guiding the nation through a challenging period of economic change spending more on R&D?

Top rating innovative countries have historical rates of R&D in excess of our current 2 per cent spend.

What’s more, neither party has committed to a long-term strategic framework. I’m not talking about four-year programs but seven to 10-year programs that exceed the length of a single parliament.

For the second, third and fourth recommendations, there is bipartisan support. For the fifth recommendation, the opposition’s support, particularly the interplay between STEM and the humanities and social sciences, is stronger than the government’s.

If we’re serious about anticipating the changes to the long-term structure of the Australian economy, a long-term innovation policy is a must.

Policy should involve connecting and integrating all sectors of our economy, not just some.

What’s more, the implementation of good innovation policy will take time and will also cost money.

That’s why the Senate report has recommended a commitment to stable and coherent arrangements for innovation policies based on a long-term framework, one that can last many terms of parliament. The same goes for greater levels of R&D expenditure.

As a nation, we’re great at commissioning reports but not so good at heeding their advice. Given this may be the most exciting time to be an Australian, will our leaders seize the opportunity to set us up for a successful and innovative future?

This post was originally published on Financial Review, a leading Australian online news site that reports the latest from business, finance, investment and politics, updated in real time.

How a cup of coffee (or 20) can massively increase your start-up’s chance of success

Entrepreneurs should talk to prospective customers  – perhaps over coffee – to test their assumptions.

You’ve come up with your best idea in a long time. You’re sure it’ll take the world by storm. You just need to build it right? Wrong. One of the big reasons why start-ups fail is because founders haven’t tested the key assumptions around their idea.

While large companies can pay big bucks to engage the services of market research firms when starting a new business or product line, most start-ups don’t have this luxury, and yet I see so many start-up founders who are keen to build their product or technology without conducting market research. Market research is the responsibility of every founder. It involves having conversations with your potential customers and understanding how your product or service may fit into their lives.

Got a business to consumer idea?

So how many people should you contact? If you’re exploring a business to consumer (B2C) idea, I suggest you survey at least 500 potential customers. These are people who are in your primary target market. They should be the potential users of your product, not your family and best friends! Think carefully about who these people are. If you’re building a new application or technology, these people are likely to be ‘early adopters’. It’s ideal if you can create personas around these people. Is it Jane who’s a 25-year old student who lives close to university or Bob who’s a 43-year old professional who works in the city?

Once you’ve worked out your primary target market, construct a survey to ascertain their habits and attitudes towards your idea and key assumptions. The questions you ask will be critical; you’ll want to avoid bias. You can administer the survey through a number of online survey collection tools and panels. One great way to test your survey before you unleash or to confirm your survey after it’s completed is to conduct some in-depth face-to-face interviews. One of the businesses I’m working with is doing this right now. We’ve selected 20 primary target members and have been engaging in a detailed structured conversation with them (much like a detailed survey). As part of the process we’ve learnt so much about their thinking process, which has been completely different from the assumptions we’d used.

Got a business to business idea?

If you’re exploring a business to business (B2B) idea, it may be more difficult to survey potential customers en masse. Instead, I suggest you engage with 20 domain experts. Domain experts are potential users of your product, influencers within organisations, and those who may have worked on competitive products. Similar to the B2C in-depth face-to-face interviews, prepare a structured conversation outline and approach domain experts asking for half an hour of their time. It also helps if you offer to buy them a coffee! As you go through the structured conversation, you should learn more about the real problems and issues around the idea you’re pursuing. You may also learn that you need to change your approach based on confirmation or rejection of your key assumptions.

Whether you’re pursuing a business to consumer or business to business idea, testing your key assumptions is critical. If your market research proves negative, you then have the opportunity to adjust or change or idea before testing it again. If it proves positive, you can continue on your path and may have acquired a few early customers. Regardless, market research should help you make informed decisions and reduce your risk of failure.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

Three ways to test if your start-up is fundable

Last year, one of the most well-attended events I took part in was a funding workshop. Many entrepreneurs attended. They wanted to understand the funding process and how they could secure investment to further their business. Many entrepreneurs, myself included, feel many of their problems will be solved with funding, but being fundable is very different from being in need of funding.

All start-ups need some kind of funding to survive but not all are considered fundable. Being fundable is all about your start-up’s potential to attract financing so you can grow your business. What are the qualities investors look for in a start-up to consider it fundable? (Not all fundable companies seek funding, they may prefer bootstrapping).

1. Are you solving a real problem?

The world is full of great business ideas, but ideas that solve real problems are far more valuable. Last week, I was presented with an idea for a personal electronic device that could help when paying for items at the cash register. While it was an interesting idea, I couldn’t see a real problem that the device was solving. It felt like a solution looking for a problem!

Start-ups that fill a void in the market have a much better chance of getting funded. That’s why you need to ask yourself: what is the problem your start-up is trying to solve? Is it a real problem or a perceived one? Have potential customers confirmed you’re solving a real problem? What’s the market size of the problem?

2. Do you have a killer team?

Investors take a leap of faith when investing in start-ups. Stakes are high and anything can go wrong. That’s why investors will place their bets on the people who get stuff done rather than the idea itself.

A great way to gain experience is by joining a start-up and contributing to the success of a fledgling business. I’ve previously employed “future entrepreneurs” who’ve added immense value to our businesses. At the same time, they’ve gained an understanding of the frenetic pace of an early-stage business and developed skills from financial modelling to phone sales to graphic design.

Start-ups whose co-founding team has a combination of deep technical know-how, business acumen and industry experience will most likely pique the interest of investors. Of course, if you’re fortunate to have previously succeeded with multiple exits, you’ll easily attract the attention of VCs!

3. Are you gaining traction?

Investors will need to see traction to determine if your start-up is viable. Traction is the proof that there is a demand for your product or service. Do you have users or customers? Is the rate of user growth increasing? Have you been able to charge customers for your product or service?

A start-up with little traction or have no results to show will not get funded.

Raising capital is just the start of a long and challenging journey. Solving a real problem, having a winning team, and demonstrating traction will make it easier for you to get an audience with an investor.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

A 5-step guide to ‘ideation’ for start-ups

One of the buzzwords I often hear in start-up communities is ideation. So what does it mean?

Ideation comes from the words “idea” and “creation”. It’s the process of not just creating but also evaluating ideas so you can extract the most viable concepts. The purpose of ideation is to help entrepreneurs develop new business concepts, products and strategies.

Here’s step-by-step guide on how you can come up with winning ideas.

Step 1: Brainstorm

The initial part of the ideation process is brainstorming, or the process of collecting ideas in a group. During brainstorming, every idea counts and should be heard. The goal is to gather as many ideas as possible without criticism and just let creative juices flow.

I was recently involved in a directed brainstorming session where we were asked to come up with 25 ideas to a business problem in five minutes. Using a stopwatch, this meant we had to come up with a solution every 10 seconds or so, leaving little time to criticise each idea. After the five minutes were up we actually generated 31 ideas, beating the target!

Step 2: Evaluation

After you have gathered ideas, the next step is to evaluate them one by one. For each idea you generate, I recommend asking these questions:

  • Are you passionate about the idea?
  • Can you see yourself working on it in the next decade or so?
  • Is the idea simple and easy to explain?
  • Does it have a revenue stream?
  • Is the idea unique or better than what is out there?
  • If the answer is no, then it’s best to kill that idea. Why? Starting a new business is harder and takes longer than you think.

A few years ago, I was keen on exploring a home meal replacement business. With more people living in apartments and pressed for time, it seemed like a logical growing market. My business partner and I gathered lots of statistics, visited factories and conducted a bunch of market research. In the end we didn’t proceed because we couldn’t see ourselves doing this for the next decade or so.

Repeat the evaluation process for all your ideas.

Step 3: Research

The next step is to research the remaining ideas. Conduct your own informal market research and constantly listen to the sounds of the marketplace. Find out who has succeeded in a similar field and who has failed. Identify your target market, talk to them about your concept and discern if there’s a real need for your idea.

The goal of research is to help you make informed decisions and reduce your risk of failure. Once you have the information that you need, trim down your ideas list and retain only those that have potential to succeed.

Step 4: Discuss

Discuss the remaining ideas to anyone and everyone who would care to listen. Conduct surveys to hundreds of potential customers (not just your mother!), interview experienced entrepreneurs, advertise your idea in social networks, create a prototype and see how the market responds. Retain the most promising idea.

Step 5: Kill the idea

After you have identified your best idea, then it’s time to kill it. Be the devil’s advocate. Find holes in your idea and question its validity.

The goal of this exercise is to find out if the idea will stand test of time and scrutiny. If it survives, then you have an idea with a better chance of succeeding. If it doesn’t, then it’s time to move on and start the ideation process anew.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

The 1 per cent you won’t regret: why it’s worth giving equity to an advisory board

One of the things I’ve learned when running a startup is you cannot do everything on your own. You and your co-founder could be specialists in your field but there will always come a time when you will need help from others. Maybe your marketing efforts fall short of your targets or there are technical challenges beyond your team’s ability. Whatever issues you may face, I believe the best way to solve problems beyond your area of expertise is to seek the advice of other experts. Forming an advisory board is a good way to do this.

Advisors are your helpers. They are a group of experts who can guide you through your business’s blind spots. The right advisors should be able mentor you, help you avoid mistakes and give you unbiased advice. An advisory board is different from a board of directors in the sense that they do not have any legal responsibility to your company’s shareholders. I made this mistake with one of my early startups in the mid-nineties where I tried to invite experienced business people to join our board. They declined the invitation as they were worried about the risks involved.

If you think an advisory board is a great idea for your business, the first thing that you need to do is identify your issues. Do you need help with marketing and sales? Do you need a technical advisor? Identify your key needs – both now and into the future – so you can establish the right advisory board.

The next step is to start looking for the experts. In my view, it is best that you focus your sights on people who have a solid track record and deep industry experience. One of our businesses has international advisors as we are seeking to grow into new geographic markets. It also makes sense to have a variety of advisors, with each person specialising in one area of business. You don’t want three advisors cut from the same cloth.

You can begin your search by joining networking events, by asking your contacts or through the local startup community; I’ve previously done both. You can also be a part of a program like the Founder Institute where there are a broad range of mentors who are keen to help founders building scaleable technology companies.

Once you’ve found the right advisors, you can formalise their role in your company by drawing up a simple agreement. It may include their duties, compensation, and a non-disclosure and indemnification clause. An agreement helps make them accountable to you. It also helps ensure that a request for assistance will be taken seriously and advice will be provided when needed. In terms of compensation, one way to ‘pay’ them is to share a percentage of equity, which can range from 0.15% to 1% of the company’s shares depending on the advisor’s contribution and level of expertise. Of course, you’ll need to get taxation advice about this.

Lastly, be discriminating in choosing your advisory board. It’s important that you surround yourself with people of integrity and honesty, people who will really help you improve your business. You want an advisory board who can bring out the best in you and your startup.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

Five steps for start-up founders to nail the pitch

Make it clear what you’re asking for. It could be expertise, advisors, or capital. Make sure people know why you’re pitching.

One of the biggest mistakes a start-up founder can make is bungle a pitch. A pitch is a make-or-break opportunity for any start-up. It can open doors for you, whether you are looking for capital, expertise or advisors. So how can you succeed during a nerve-racking pitch? Here are some tips for how to execute a winning presentation.

1. Explain things simply

Before nerves get to you, keep in mind that it’s important to keep things simple. You should be able to convey your idea in one sentence. An idea that can’t be explained in a single sentence is doubtful. Adeo Ressi of the Founder Institute has a simple formula for creating a one-sentence pitch: “My company, (insert name of company) is developing (a defined offering) to help (a defined audience) (solve a problem) with (secret sauce).”

In addition, every business should have a 20 to 30 second elevator pitch, which should be based on your one-sentence pitch. It also makes sense to have three minute and five minute versions of your pitch prepared. The goal is to explain your business as succinctly as possible.

2. Demonstrate your traction

Include in your spiel how you’re getting traction. The reason why traction is important to investors is because it’s an indicator of progress and momentum. Companies rely on revenue and customer response to measure traction. While it’s important to chase a large market and support your spiel with some market size data, it’s probably more important to show how you’re getting traction. How many customers do you have? Or how many trial customers have you signed up?

3. Give the investors what they’re looking for

In addition to traction, investors are looking for the answers to these questions: do you have a top notch team that can deliver the goods? Are you going after a large market – one where you could have lots of customers? What’s the problem you’re solving? Is it a real problem? Could your solution be the answer?

4. Get your audience engaged

Give your audience a reason to stay engaged with you. Keep things short as well as interesting. Show your enthusiasm and keep things light and conversational. Remember the point of pitching is to pique people’s interest so they ask you more questions and set up another meeting!

5. End clearly

After your have informed them of who you are, end your pitch by telling them what you want. Make it clear what you’re asking for. It could be expertise, advisors, or capital! Make sure people know why you’re pitching.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

The three things every start-up must focus on

Running a start-up is never easy. There are sales calls, product improvements, customer complaints and cash flow to keep on top of. With so many things going on at once, it is easy to lose sight of your three biggest priorities.

The best way to keep your entrepreneurial vision in sight is to develop habits that will help you stay focused. Here are some suggestions I have learnt that have helped me stay focused amidst the hustle and bustle of managing a startup.

Focus on the core of your business

The most important thing you should focus on is your core offering and whether there is a market for your product. One of the common mistakes is building a product you believe customers will demand, instead of testing what they’ll actually buy. A few years ago we were developing a subscription-based product and thought we knew exactly what the customer wanted. We built the landing page and ecommerce backend along with a full email autoresponder series. Once we pushed the site live we made very few sales.

Instead of building everything before launching, we should have tested first. That way we could have worked out our customers’ preferences before creating the product. At the same time, review your market size to ensure it’s large enough to provide sizeable revenue.

Focus on growing revenue

Starting a business is exciting and many entrepreneurs devote too much time on the “creative” aspects of the business like website design or building out the feature list instead of activities that will bring in revenue. Getting in front of potential customers, working out what they’ll buy, and delivering it is critical. You have to develop a clear plan for driving revenue, even if the cost of sales in the early days is higher than expected.

Focus on moving your business forward

At the beginning of each day, the key question I ask myself is “what do I need to do today to move my business forward?” For me, this often means working through uncomfortable tasks such as making unpleasant telephone calls or forecasting the next month’s cash flow. After the day is done, make another list of the three things you need to do for the next day, so you’ll come to work prepared and ready to roll.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

How to find the right investors for your startup

In the early stages, it makes sense to get funding once you have assembled your team, have made traction with your product and confirmed a product-market fit. Product-market fit means that you have a viable product that can satisfy a sizeable market. It is when your product has become attractive to your target market that you can actually see and track scalable growth.

In one of my first ecommerce businesses, we sold mobile phones online. Shortly after we launched our site, we knew we had a level of traction and product-market fit after a number of customers, who were not our family and friends, placed orders online and over the phone.

While it’s very difficult to rapidly grow a business without funding, the decision to take on external funding needs to be carefully considered. Before you even get into fundraising mode, the most important question you need to ask yourself is not how much money you need, but who you need to grow your business.

Fundraising usually takes a lot of time and the key is about getting the right investors on board. While it’s tempting to go with the first money offered to you, it’s important that you discern if this investor has your best interests at heart or if their vision and goals are in sync with yours. After all, this investor will be a partner in your business. I’ve previously asked investors about their involvement in other businesses and called founders to get their feedback on specific investors. An overbearing financial partner can dampen the enthusiasm of your team and can kill the very spark that prompted you to launch your project in the first place.

A good team of investors will help your business grow while a bad one can completely destroy the future of your startup. Ideal investors will provide more than just capital, they should help and mentor where required and open their network to your business. Also, an ideal investor should know when to take a back seat and give you and your company the freedom and time to grow your business.

Remember, finding investors is not always about the money but about building the right team who can help you make your company the best that it can possibly be.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.

How to find the right co-founder

Building a startup requires hard work and perseverance. It’s difficult to do it alone and something, I suggest, you shouldn’t do alone. You need a cofounder with whom you can share the ups and downs of starting a business.

So what do you look for in a cofounder? In my view, a successful tech business needs to have a combination of technical and business capabilities, along with some industry knowledge and experience. It’s unusual to have all these characteristics in one person. That’s why I think a startup should have at least two cofounders.

Most founders will tell you that choosing a cofounder is much like selecting a life partner. You’re looking for a long-term partnership with someone who can share the same vision and passion for the business as you do, a person you can trust and be honest with at all times. Given you’re going to be spending a lot of time with your cofounder, you want to make sure you’re compatible, have similar work ethics, and share the same goals and values. But while it’s important that you share many similarities, it’s also useful to have a cofounder that thinks different from you so you can avoid groupthink. Your cofounder should complement your skills and be able to bring something new to the table.

I met my main business partner at high school and we went to university together. During our business journey, we’ve been able to understand our respective strengths and weaknesses. In one of our early businesses, we suffered an incident where we lost a bunch of money. While we both experienced great pressure during that time, we worked through the issue and it strengthened our business partnership. If you haven’t worked with your cofounder before, you can have a trial period so you can test how you work together as a team. If things work out, then you can discuss a joint business arrangement.

Once you have found the right person, the next step is making your partnership legal. Entering into a business partnership with someone involves legal paperwork that binds the two of you together. An agreement is very important. For most businesses, it makes sense for cofounders’ equity to vest over time. For instance, a cofounder may ‘earn’ one percentage point of equity every month up to twenty months. This means the cofounder has to contribute to the business over the twenty months to earn their full amount of equity. It may also make sense for cofounders to agree to some kind of cliff arrangement. Following on the earlier example, if there was a twelve-month cliff and the cofounder left within the first twelve months, they wouldn’t be entitled to any equity. Only after they’ve served the first twelve months will their entitlement to twelve percent in equity vest.

Choosing a cofounder is both a business decision and an emotional decision. It’s got to make business sense and there’s got to be the right chemistry around it. Don’t let yourself be rushed into making a decision. Think things through and weigh all the pros and cons. Like selecting a life partner, selecting a cofounder is not something you should take lightly.

This post was originally published on BRW, a leading business magazine examining the trends and opportunities shaping Australian business.