Podcast: Co-founder Drama

Podcast: Co-founder Drama

Listen to the Podcast:

What should you do when you hate your co-founder?

Rough transcript:

(Not copy edited)

It was an early Monday morning when a flustered founder was sitting in my office waiting for me. It is worth noting that in Startupland Monday is often a bad news day. That’s usually when a founder or startup breakdown moment finally hits the wall. An eruption took place the week before and after thinking about it over the weekend, everyone is ready to face the issue now come Monday morning. Or at least one party is ready to go to all-out war over it. 

This morning the founder wasn’t looking very talkative. When he finally did speak, he simply and softly said while looking down at his shoes: “I think I hate my co-founder, what should I do?”

Oh boy.

Let’s get to that in a minute, my brave founder. First, I need coffee.

You see, when you invest in a lot of startups, your job starts to feel like half mentor, half marriage counselor. You are pretty much guaranteed to have at least one company in your portfolio in great distress. In many cases, this is due to a founder conflict, which leads to a founder breakup in the worst cases. This can be a catastrophic blow to any young startup, so naturally, all parties involved want to try to avoid that. But what should you do if you’re sitting across the table from your co-founder and hating every moment of it? Let’s rant and break it down a bit. 

A lot of the co-founder conflicts I see, start with a dispute over company ownership and compensation. In the beginning, you don’t have much, or at leat what you have is not worth very much, so you might overpromise or not clearly define the equity structure of the company. This can become a big problem down the road, especially if your company starts to do really well. In that case the equity value increases and typically so does greediness among founders. 

So it’s incredibly important to define the founder’s ownership structure and document it right from the start. Get everyone papered up and signed instead of email chains or loose promises made. Then everyone is on the same page (literally), and future conflicts can be avoided, mostly. 

The ownership of a company is perhaps an easy prerequisite, but let’s get into a few other causes of founder drama and a few questions to ask yourself as you try to work through things. 

  • Are your individual roles well-defined and do they have any avoid overlap of duties?

    This is also a huge reason for founder drama in my experience. It is also why investors like to see two co-founder who balance each other out well. He or she is awesome at design, and the other founder is technically brilliant for example. One founder builds it, and the other founder sells it is another way to look at things. While it is common for founding teams to over-index on the technical side, this can also create a lot of disagreements and a bit of vacuum in the other areas needed for company building.

    At the start of most companies, you’re sorta in a “eveyrone does everything” kinda setup but as you scale be sure to get out of that mode. Set supppppper clear duties between the co-founders and areas of ownership. All of this can change as the business develops of course but you wont get very far constantly stepping on each others toes.

  • Next Is the conflict because you’re both trying to “be the boss”?

    This is a little different than the previously mentioned overlap of duties. When I say be the boss I mean doing the boss like things. Such as people management, recurriting, perhaps being the public face of the company, and fundraising. It typically is better if one co-founder spearheads these activities and only brings in the other co-founder sparingly when two heads are needed to solve a challenge.

    If both parties are trying to be king (or queen) that can be a problem. And if history repeats itself itself you might find one part of the nobility getting stabbed in the back as the other trys to take ultimate control. If you founder relationship looks more like an episode of game of thrones, well, you might have a problem.

  • Next question, Is one co-founder no longer pulling his or her weight?

    Oy this one is a tough one as it can be a bit subjective or there might be a myriad of reasons why a co-founder is slacking. We can perhaps break it down into two reasons might this might be happening:

    One, due to the previous mentioned issues of ownership and duties things might have become wayyyy too nebulous and a co-founder has as a result, disengaged. In most cases this can be corrected with better communication around the main issue or issues.

    Two, a co-founder has disengaged because their heart is no longer in it or they have simply burnt out. There’s no shame in either of these scenarios as the journey of company building is long and exhatuating. If somenones heart is not in it then they should just step aside and stop wasting everyone’s time, including their own. In the case of burn out this one is a bit more tricky. You could argue if they are burning out in the early stages there is no chance they’ll survive scaling the business. At the same time, I think we are now doing better in our industry to address mental health and allowing to occasically take a little breather. There’s no reason a co-founder can’t put their shoulders down for a moment, take a rest, and come back with a new energy. As with all things between co founders there just needs to be great communication on how that would happen. 

  • Final question, When and why did communication start to break down?

    Ok Maybe you’re seeing a bit of a trend but most co-founder issues come down to bad communication. So if your issues are not from what I have just discussed it’s time do a deep think on where things went wrong. Take some time to peel back the long days and nights of company building and zero in on exactly where did things go wrong? Was there a single issue or point in time when things got off the rails? Have you too quickly moved past that old issue and now it has remained, festering within your co-founder perhaps? Did you avoid a confrontation somewhere? 

Have an honest look at things and after that have an honest conversation with your co-founder. It’s time to have a  “big boy/big girl conversation.” as we like to say. And that’s not to patronize you as a founder but let’s face it, you’re probably pretty young and maybe a little inexperienced when it comes to dealing with complex personal issues. However this is part of being a founder, so get used to it. You’re going to have to resolve many conflicts throughout the lifetime  Ken’s/wh your company. It’s a tough part of the job, but afterward you’ll feel much better, I promise. You’ll also be better equipped for the next time an issue arises, and trust me, more will come. 

Let’s wrap this rant about what to do if it’s simply too late; the founder relationship is done.If the relationship cannot be salvaged, then it’s always better to take care of things sooner rather than later. Time spent with a dysfunctional partnership is going to drag your business down like an anchor. Worse, you’re likely to come to the same conclusion down the road anyway. So, it’s better to be done and move on.

If you have investors and board members, get their advice first on how to best handle the situation. They are likely to have some personal experience *and* they are the most familiar with the existing team dynamics. Also, since this represents a material change to the business, they should be the first to know. If there’s one thing investors really don’t like that is to be surprised. A sudden founder breakup would be the worst possible surprise to give your investors. 

As you move to end the relationship see if you can work out a civil arrangement with the co-founder who is going to step aside. This will sometimes include vesting their stock options early or repaying personal loans into the business. If you are say one or two years into the business, the co-founder is due something for his or her contribution. So, better to be generous here and keep people happy to avoid a long drawn-out negotiation. 

This is another reason why it’s super important to define the equity between co-founders and the vesting schedule early on. In our industry, we like to see a four-year vesting schedule with a one-year cliff and monthly vesting after that. So if a co-founder is there for two years, he or she gets 50% of their stock on the way out.

But what happens after?

Well as the song goes, Breaking up is hard to do, and there’s likely to be a mourning period for you both. Remember, it’s not personal. It’s just business. You may hate each other now, but time heals all wounds, even in startupland. 

As far as what happened to the founder at the start of our story? Well they did none of the things we just discussed and the result there was predictably a founder breakup and eventual shutting down of the business. However, I did notice for their next startup they decided to be a solo founder. While there’s a bit of a startup meme that investors only invest in businesses with two or more founders, regardless, sometimes it might be just better to go on the journey alone.