For solo founders, how do you distinguish between a first employee and potential co-founder?

I'm a single founder working on a mobile app and looking to either get a co-founder or just out right hire someone as the first employee (I have some savings that I can use to pay a few months salary).

How do I figure out if a person should be an employee or if I should persuade them to be a co-founder?

Co-founder is someone who gets equity in the business for taking on responsibility as a part owner and additional risk of not being compensated at market rate for their work. Since you already started on your own, you can offer a share of the business on a vesting schedule (2-4 years) with responsibilities and deliverables clearly outlined. That way if the relationship doesn't work out you retain equity in the business. Typically, during the 1st year the vesting isn't incremental and person gets their % (25% with a 4 year vesting schedule) after 1 full year of engagement.

To help you decide between a co-founder and employee, ask yourself these questions:

1. Is the skill I am missing and need a highly valuable one and critical to launch of the product?

2. Is the need in the skill a temporary one or a long-term/ongoing?

3. Am I comfortable taking on 100% risk by paying others and retaining 100% of equity?

There are a lot of good posts on the subject of founder agreements, including this site, look around for detailed advice.

If your business is not generating revenues yet, ask the person to come build it with you without a salary. If they're really in to the concept like you are, and willing to make sacrifices for the bigger opportunity, you have a potential co-founder instead of an employee.

People either buy into a vision or they don't. This is just one way to tell if they're just looking for a paycheck or willing to go the mile with you to make the vision happen.