Don’t Call Them a Co-Founder Just Yet

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1. Feature: Don’t Call Them a Co-Founder Just Yet (4 min read)

2. From the Archive: The Pivot Playbook: How Market-Driven Shifts Create Market Leaders. Read it here.

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Hiring a top-tier employee—someone who thinks like an owner—is one of the best decisions you can make as a small or medium-sized business owner. But offering that person equity—or a path to co-founder status—too early? That’s one of the riskiest.

Plenty of new SMBs rush the step. You’re growing fast. You need help. You meet someone impressive. They talk about vision, scale, and strategy. Maybe they’re even willing to work for less in exchange for “a piece of the pie.” And suddenly you’re wondering: should I bring them in as a co-founder?

Here’s the smarter approach: hire for potential, structure for protection, and evaluate over time. Below is a practical, multi-state playbook for doing just that.

Step 1: Define What “Ownership Potential” Actually Means

Before you post a job or book an interview, get clear on what you want—and what you're not ready to offer.

• Immediate Role: Are you hiring a COO, a head of marketing, a technical lead? Define what this person will actually do and how you’ll measure success in the first 6–12 months.

• Future Possibility: What would it take to consider this person for equity or a co-founder title? Specific results? Time served? Strategic alignment?

• No Guarantees: Don’t imply, suggest, or casually reference ownership. It opens the door to misaligned expectations. Instead, clearly outline a possible—but non-binding—future path. Our “Role Evolution Roadmap” template (available to Premium subscribers) can help you do this right.

Pro Tip: Think of the job offer as a handshake—not a marriage proposal. You’re hiring an employee, not taking on a partner (yet).

Step 2: Build a Filtered, Multi-Stage Hiring Process

Hiring an A-player isn’t about who sounds best on Zoom. It’s about who performs under pressure, aligns with your culture, and strengthens your vision.

Here’s a sample sequence:

1. Sourcing: Post on LinkedIn, Indeed, or industry-specific boards. Sell the journey, not just the job. A-players want growth and impact.

2. Initial Screen: Ask for a short response to a real-world problem. Example: “What would your 30-day plan look like as Head of Ops?” Ask questions that test the fact that they carefully researched your company.

3. Cultural Interview: Do they get your mission? Do they challenge your thinking—in a constructive way?

4. Test Drive: This is the key step. Assign a paid project (10–20 hours) that mirrors the role. You’ll learn more from that than from three interviews.

Use a scoring rubric:

• Skills (40%)

• Cultural Fit (30%)

• Ownership Mindset (30%)

Keep notes. Stay objective. Avoid gut decisions.

Step 3: Use the Right Offer—Not the Risky One

If they make it through the gauntlet, the next step isn’t an operating agreement. It’s an employment offer letter with upside—but not premature equity.

• They’re testing the waters while working elsewhere

• You want a “try before you buy” phase

• They’re promising—but unproven

This structure gives them flexibility, gives you protection, and sets both parties up for clarity.

Want to learn how to navigate side gigs legally and practically?
Read our article Hiring in a Side Hustle World here.

Step 4: Write an Employment Offer That Buys You Time

Your employment offer letter should do three things: incentivize performance, limit risk, and leave the door open (but not unlocked) for equity later.

Key clauses to include:

• At-Will Employment: Gives you flexibility unless your state requires more formality.

• Probationary Period: Set a 60–90 day window to test alignment. Be upfront.

• Performance-Based Bonuses: Offer cash upside tied to specific KPIs—without handing over ownership.

• IP + Confidentiality Clauses: Mandatory if they’ll touch your code, clients, or strategy.

• Equity Disclaimer: If you want to leave the door open, include language making clear that any equity decision is discretionary, subject to a separate agreement and full board/legal review.

Always have your attorney review it—especially around non-competes, which vary state to state. Need to learn more about non-compete agreements? Read our article here.

Step 5: Onboard Like You’re Grooming a Partner

Don’t just throw them into the deep end. Design an onboarding experience that sets expectations, tracks progress, and builds trust.

Create a 90-day roadmap that includes:

• Specific deliverables

• Measurable milestones

• Bi-weekly check-ins

• Feedback from team members

Use simple tools like Notion, Trello, or ClickUp. Make progress visible. This is where you find out if they lead—or just follow.

Step 6: Evaluate Objectively—Then Decide

Six months in, sit down and answer four questions:

1. Are they smarter than you? Yes, it is a great metric.

2. Did they deliver? Measurably. Consistently.

3. Did they take ownership—or just execute?

4. Would you trust them with a seat at the table—and a slice of equity?

If yes, it’s time to talk about a new role, with new documents and real legal support. If no, you still have a strong employee—or a clean off-ramp.

Final Thought

Hiring someone who could become a co-founder is thrilling. But skipping steps or offering equity too soon is like giving away the car before they’ve passed the driving test.

Use structure. Use tools. Use time.

That’s how smart SMB owners hire co-founders—without giving away their business before it’s built

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!