The Dark Side of Startups: 5 Corrosive Co-Founder Conflicts

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The Dark Side of Startups: 5 Corrosive Co-Founder Conflicts

 

Most of the startup writing out there (including articles on this blog) addresses issues of strategy, finance, innovation, product development and other "fun" topics. 

For this article (which I hope will become the first in a series), I'd like to take a slightly different angle by looking at some of the not-so-pleasant sides of the startup experience.  What I call the "Dark Side Of Startups". 

The following is a list of the types of co-founder conflicts that I have encountered in my 15 odd years working in and with startups.  Some of them are from my own personal experience, some are from late night conversations with other entrepreneurs dealing with co-founder issues.  If you've kicked off a company and had one or more co-founders/partners in it, chances are some of these might resonate with you -- I'd be very surprised if none of them did.  If you're on the outside, looking in (i.e. thinking about starting a startup), don't let this list dissuade you.  I still think startups are great things, but it's often useful to look at the dark underbelly of exeperiences sometimes to get a fuller understanding of things .

5 Common and Corrosive Co-Founder Conflicts

1.  The "Who Gets What?"  Conflict:  This conflict is likely the most common.  Anything that impacts the amount of money made for the various founders has the potential to generate conflict.  The most obvious example is equity in the company. Who gets how much?  Why?  What happens if one of us leaves?  Another example is the issue of founder compensation.  How much should each founder get paid?  Why?  Who gets to change it?  The good news about economic conflicts (vs. some of the others we'll talk about later) is that the conflict itself is understandable and rational.  Everyone wants to be treated fairly and at some level, there is a natural conflict of interest (i.e. if I get more shares, someone else gets less). 

Under good circumstances, most conflicts in this category can be resolved through discussion, negotiation and perhaps some outside intervention (i.e. an advisor or mediator).  Under bad circumstances, this cannot be reconciled the "easy" way and as such, the legal documents get visited, people hire lawyers and unpleasantness ensues.

2.  The "I Work Harder Than You!" Conflict:  It is mathematically impossible for each founder to work at exactly the same levels in a startup.    It is natural for each co-founder to invest time/energy based on her situation.  This could be influenced by how much time they have available, how passionate they are about the company (yes, you heard it here first, not all co-founders are totally passionate about the company), their own style, their personal obligations, etc.  When founders begin arguing about who is doing how much, this can often be rooted in the "who gets what" conflict.  Example:  I'm working 100 hour weeks and Joe's only working 50 hours weeks, so I should get twice as many shares as Joe!". 

3.  The "Who Gets To Decide?" Conflict:  If you and your co-founders are well matched, chances are your skills and talents are not totally overlapping (i.e. they are good at some things and you are good at others).  This resolves most of the "who gets to decide" issues as lots of decisions fall into the area of expertise of one co-founder or another.  If the founding team is functioning well, most decisions never become issues.  But, there are two areas where issues do arise:  When you both have some background/expertise in an area (or believe you do) and when neither of you has any background -- but both have opinions.  One common example of this is raising capital when all/most of the co-founders are first-time entrepreneurs.  Everyone has opinions on whether or not to raise capital -- and if so, how much and from whom.  Since there are no easy answers to this (even when you have had prior experience), conflicts can occur.  A lof the conflict in this category really comes down to personal goals of the co-founders.  Some want/like control. Some like/want a certain outcome ("We've raised money from a major VC -- woo hoo!") and some just want to build something cool.  When decisions impact the various personal goals of the founders, tensions can arise.  My only advice here is to have conversations about this as early in the process as possible.

4.  The "I Can't Stand Jill, One Of Us Has To Leave!" Conflict:  This is the worst.  If the situation degenerates to the point where two co-founders are so conflicted that one or the other has to leave the company, several bad things can (and likely will) occur.  In some situations, it's not the loss of a co-founder that's the most traumatic for the startup -- but the time leading up to the loss.  If there are other members on the team, their morale is impacted.  If there are other co-founders (besides the two in conflict), they are pushed to "take sides".  Lots and lots of unpleasantness.  Of course, getting to this point is not always a bad thing.  There comes a time in the evolution of a startup that it makes good sense for a co-founder to leave.  Everyone involved discusses the situation, determines what the best path is for the company and parts friends.  It's all rainbows and sunshine. If you find yourself with this situation, congratulations, you're working with some great people.  If not, and you have this conflict, your life is going to suck for a while.  My sympathies are with you.

5.  The "We're Going Down In Burning Flames…" Conflict:  In my experience, most startups have near-fatal experiences regularly.  In my first startup, not a year went by that we didn't he a day where we just thought the company was going to die.  It could be some major product issue.  Could be the potential loss of a significant client.  Could be the draconian activities of an important business partner.  Whatever it was, something really bad was going on and it was easy to come up with all the reasons why the company would just not be able to survive this setback and the "why don't we just cut our losses" type thinking begins.  The conflict arises because not all the co-founders will see the situation in the same way.  Some, because they're natural optimists (like me) and will ignore the evidence.  Others, because they are influenced by having too much, or too little at stake in the game.  Regardless, the conflict arises because one or more co-founders want to just go ahead and call it quits -- and the others do not.  As is usually the case in these situations, there's no clear answer.  Perhaps it is time to call it quits, but nobody really knows for sure In my first startup, we had several of these near-death experiences, but did not decide to call it quits and were reasonably successful.  In another of my startups, we probably should have called it quits sooner, but didn't.  In any case, it's hard to know the right answer and even if you knew, it's sometimes hard to get everyone to agree.

So, what do you think? 

Have you experienced (or are you experiencing) any of the above conflicts now?  How do you deal with them?  When do you bring in outside help?  [Note to self:  Write future article about the difficulty of finding competent, non-conflicted advisors]. 

Have I missed any major types of conflicts?  Leave a comment, and let us know (even if it's just to vent).

Posted by Dharmesh Shah on Tue, Aug 21, 2007

COMMENTS

> Have you experienced (or are you experiencing)
> any of the above conflicts now?

Yes I have: 1, 2, 3, 4 and 5. So easy to relate :)

> How do you deal with them?

I've tried for two years to remedy the situation, by mediating, letting it go, proposing ways to solve the situation.

This year, my hair started to fall and I left the company with no regrets.

posted on Tuesday, August 21, 2007 at 10:02 AM by (anonymous)


My partner and I managed to dodge 1,2, and 3 by working things out before starting things up. We split things equally so that the motivation is balanced. We discussed upfront that one of us will almost always be working harder than the other, it simply flip-flops as to who that person is. Since we're splitting things equally, we feel responsible for balancing things out overall. #3 is interesting because we both have technology experience and marketing ideas/background. For this we assigned clear responsibility (i.e. decision-making), but we each contribute our thoughts. I think that #4 needs to be refined, or a #6 should be added: For us, it's not "I can't stand you", it's "I can't stand the way you do some things". Sometimes it's one of us nit-picking in the interest of completeness. Sometimes it's one of us being more laid-back in order to direct attention elsewhere. The important thing is to talk about what's bothering you and figure out how to avoid or deal with the specific behaviors. #5, in my opinion, should never cause conflict. The threat of going down in flames should present an opportunity to band together and, realize it or not, it's something you face daily. As Harvey Keitel put it in Pulp Fiction: "Gentlemen, if self preservation is an instinct that you possess, you'll do exactly what I say, when I say it."

posted on Tuesday, August 21, 2007 at 10:19 AM by Jay Grieves


I agree with those conflict. So far, I've experienced 1,2, and 3. I really hope I don't have to experience 4 and 5. However, the way I've dealt with it is like you said, try to deal with it and have those difficult conversations from as early as possible. Unfortunately, there's no escaping them. I haven't specifically brought in outside help to deal with those conflicts, however, I've asked mentors / lawyers what their perspective was and it's helped in a few cases.

posted on Tuesday, August 21, 2007 at 10:20 AM by Andre Charoo


A huge yes to #1 and #2, and so far we've been unable to completely resolve them. The example of 100 vs 50 hours is probably one of the biggest contention points with trying to make sure everyone feels they are being treated fairly. The problem is that not all work is equally valuable! It's additionally difficult when some members consider some activities to not be valuable at all towards the company progress.

Thankfully no issues for 3&4 which is a good sign.

#5 might be our biggest problem though. Productive work comes and goes with a few members trying to keep everyone motivated and on-target. When those folks get tired of being 'boss' things go quiet. Not a good situation where there's a real need to get anything out there that works!

posted on Tuesday, August 21, 2007 at 10:30 AM by


Great article! It really is necessary to look at the dark side, too. Side comment: Do you think you were motivated to write this article as you just visited Norway?

posted on Tuesday, August 21, 2007 at 11:14 AM by Bina


There is always ethical conflict. I had a co-founder that was double expensing things from another job he was doing. The situation seriously sucked. The company had extremely bad structure (it was my first time out) and the only solution was to get far away, quickly. This should be very rare if you do things correctly at the onset.

posted on Tuesday, August 21, 2007 at 11:34 AM by Mike


Experienced them all - to some extend and fear that some might come up more seriously down the road.
I see most problems especially in the situation with two partners...like the old saying about divorce: There are two sides to every divorce: Yours and Shithead's..
You start off, you need each other, you got these complementary skill sets, you decide to go for a 50/50, the company grows, skill set needs change, and somehow you have to agree on how to raise capital, where to go next...and then all these background limitations of everybody come in...hard to figure out - would be great to find some guidelines and decision models down the road to resolve issues fast and painless

posted on Tuesday, August 21, 2007 at 11:41 AM by Christoph


Thanks to everyone for their comments. Co-founder conflict is a touchy issue (that few talk about). This is true even for well-intentioned co-founders that all get along reasonably well. Bina: The article really didn't have anything to do with my Norway trip. I've been working with several startups recently and helping them think through some early founder challenges. This article has been brewing for a while, and decided to go ahead and get it written.

posted on Tuesday, August 21, 2007 at 1:08 PM by


These are tough issues. I think the key thing to remember is that startup founders relationships are like a marriage. They take a ton of work, but when they succeed they can be amazingly worthwhile.

posted on Tuesday, August 21, 2007 at 1:39 PM by embed


Never experienced 1 or 2, at least not in the open. We decided who gets what early on and I didn't mind working harder than my partners as I had more relevant technical experience then the others. 3 wasn't an issue until one of the partners put in quite a lot of his own money into the company. That destroyed the balance and cracks began to appear. But 4 was the worst of them. Like Jay mentioned above, it's not exactly about not standing somebody, it's more about not standing the way they do things. I'm a hopeless perfectionist and one of the partners was a really laid back guy. REALLY laid back. I couldn't stand it and although I liked the guy, couldn't work with him for more than 10 minutes. Item 5 came in a bit later, but it was a direct result of number 4. We were going down in flames because we, okay ME, couldn't work together. That startup had dried up and died after loosing quite a bit of money and generating quite a lot of white hairs on our heads. So yeah, I'd say choosing partners wisely is an important thing, but for the love of me, I don't know how you can predict those things. You never know how you, or anyone else for that matter, will behave during a crisis or under pressure. I haven't given up on startups though, and I'm working on new things.

posted on Tuesday, August 21, 2007 at 2:59 PM by Eli Golovinsky


Dharmesh, what about friendships? It's not as obvious at first glance, but it's very possible for it to be detrimental rather than helpful. A strong friendship is a lot more valuable than some company, so you may treat issues differently. Whereas if the people are more willing to push and speak if they aren't as heavily invested in the people vs the company. It's almost the opposite of #4 where you don't want the person to leave or have to force the person out.

posted on Tuesday, August 21, 2007 at 3:11 PM by


Shotgun clauses are useful for avoiding some of these issues in two-founder startups. There are many variations, but the basic gist is -- if one founder invokes the shotgun clause, that founder has to offer a price with which to buy the other out. If the other founder doesn't want to sell, he/she then has to buy the other out at the same price. Since the founder who invokes the shotgun clause doesn't know whether the offer will be accepted or rejected, he/she has every incentive to offer a fair price. Signing one of these in the beginning creates an escape valve so that both founders know that they can always "break up" if things get too ugly.

posted on Tuesday, August 21, 2007 at 4:12 PM by JP


I think just about every startup experiences these pains. The only remedy is complete transparency. Everyone needs to be open and honest about their thoughts, feeling, and opinions. But, unless a founders has successfully built companies in the past, rarely are the other founders willing to accept one's opinion as the way things should work. This is where a close (independent) advisor is worth their weight in gold.

posted on Tuesday, August 21, 2007 at 4:39 PM by Founder


I saw a terrible situation come up Conflict of Interest Funding. A partner finds funding source, but this source requires a huge cut of the profits plus his investment back. Despite the deal being terrible for the company, the partner continues to push this terrible idea. Why? That partner is secretly getting a slice from the outside investor.

posted on Tuesday, August 21, 2007 at 10:48 PM by Eric G


all these are good....the root cause could just be what founders want from a venture. This in turn is often related to respective age of each founder. It helps to work with people your own age or atleast within 5-10 years of your age. Decision making styles often lead to conflicts but nothing that can't be resolved through discussions. On the balance its great fun to work through these challenges and I have to say an advisory group is the only way to resolve major conflicts especially early on.

posted on Wednesday, August 22, 2007 at 12:16 AM by Paroon


The preferable number of the crew in long and hard mission is three. I think this is also good for startups. Voting with little chance to go equal. Also this is most stable social cell.

posted on Wednesday, August 22, 2007 at 4:43 AM by Alexander


As an entrepreneur, I've experienced #2 and #3. Completely painful. One of my co-founders was much older than us and he prefaced every statement with "From my lengthy experience..." believing it gave him final decision authority.

As an attorney, I've witnessed clients experience #1-#5 all too often. Sometimes I feel like I'm starring in Groundhog Day 2. The red flag statements I hear the most are:

1. "We've been friends FOREVER."
2. "We want to decide everything 50-50."
3. "We don't need a thorough shareholder's agreement." (This usually follows quickly after #2)

posted on Wednesday, August 22, 2007 at 9:40 AM by Ryan Roberts


Another common conflict that's out there I think is the "who gets it" conflict. co-founders often (either knowingly or not) do not have a common view of the company's vision or direction and each feels equally entitled to guide it. This tends to surface when major decisions need to be made (strategic product decision, bringing in other founders, investors) and is a rather common cause for issue #4 on your list.

posted on Wednesday, August 22, 2007 at 7:09 PM by Oren


I've had #1, #2, and #5. Thankfully, I've missed 3 and 4. We haven't had the "Who gets to decide" problem because we sorted that one out at the beginning. We didn't exactly have #4, but we have had some events that were close. One problem that we have had that is at the root of most of the others is with expectation management. It's really important to spell out in painstaking detail exactly what you expect from everyone and how success or failure will be judged--far more painstaking than you think, sometimes. This applies whether you're going down the hierarchy (if you have one) or up or sideways--what should your cofounders expect from you? What can then do that is going to make you feel satisfied / angry / etc?

posted on Thursday, August 23, 2007 at 4:01 PM by David Storrs


One of the most relevant and nicely composed article I've been reading recently...

Dharmesh, how about a post containing some guidelines for aspirants to avoid these kind of issues...?

posted on Friday, August 24, 2007 at 4:08 AM by Sumedh


I have experienced 1, 2 & 4 (in fact, 4 was ultimately because of issues in 1 - who gets how much, and 2 "I am working harder than him", resulting eventually in founder departures). This became corrosive for the company, and it lost us 2+ years in internal conflict (more than 3 founders which makes all of these issues worse in a way). Finally, people came to their senses and decided that leaving (i.e 4!) was the optimal solution. Amicable divorce should never be ruled out as an option in these situations. The company is in good shape now. The key point you made is very valid: 99% of these issues have no answers at all - you just have to rely on the good faith and judgment of all the parties involved. It is like getting cancer and asking God "Why Me".

posted on Sunday, August 26, 2007 at 8:25 PM by Experienced


I have decided to be anonymous for privacy reasons. That said, I am starting a new company. Recently I left another company I sold. Firstly, my question is how can random brainstorm be attributed to ownership? Does being on the call where one person has an ah-ha moment with the other person on the phone constitute 50/50 ownership? Paul Graham from Y Combinator also makes it complicated by suggesting that you have to have a co-founder. The most important thing here is that I resigned from my post to focus on building a new startup while the other person is still working at his/her big-business job. What's the deal here? Should I simply say, "If you join me being unemployed and we go 50/50." Casual conversations that lead to formal notions have put me in a tough place. Any thoughts from anyone?

posted on Tuesday, August 28, 2007 at 2:38 AM by Anonymous


Dharmesh, I enjoyed your article and could relate to most of it. However, one other point, I have had the bad experience of being involved with someone who claimed to have a good business background and I have a technical background, so we agreed that I should take care of all the technical side of the business and he would take care of all the administration, marketing, accounts, etc. To cut a long story short, whilst I was busy developing our new products, my partner disappeared with all of the company’s money never to be seen again and I was left to deal with the irate investor, who just happened to be, a long-time associate and fellow countryman of my partner and had difficulty believing me. Business learning curve!

posted on Wednesday, August 29, 2007 at 6:54 PM by Ian Reed


I'm on my 4th startup with 3 of them where I have been CEO and each one of these points are very relevant. My simple advice is to have an HR consultant come in and get the issues on the table. People generally respect a third-party unbiased opinion, and a professional HR type will work like a counselor to clear the air. Everybody's agenda and situation is different and the better everybody understands what each is, the easier it is to find a solution. For the newbies out there, I have found that the best way to run a startup is to run it like a corporation, not a partnership. Resist using the word partner, or even co-founder. We're not all equal when it comes to running a company. Shareholders in a company don't have a god given right to manage it, especially if they manage poorly. And keep reading this blog and others by experienced entrepreneurs. It will make all the difference, win or lose, because if you lose it won't be because your company imploded.

posted on Thursday, August 30, 2007 at 2:18 AM by Fred Yee


I can't tell you how many of my clients come to me with these issues. I've been counseling people for over 25 years in NYC and have been a consultant to over 14,000 clients. There's no one single answer. However, the key is communication. I offer a special service that helps guide business partners to realize their goals as a team while retaining their individuality and personal needs.

posted on Thursday, August 30, 2007 at 10:52 AM by Herb Hernandez


What about the "Holy crap, you're way stupider than you ever let on about" conflict?

posted on Friday, September 21, 2007 at 11:02 AM by Anon


Another good one. I know you wrote it months ago :)
PS: You were in Norway in 2007? I live in Gothenburg, Sweden, not far from Norway. I was up north, above the Arctic Circle this summer.... amazingly beautiful up there.
Cheers!

posted on Thursday, January 03, 2008 at 1:42 PM by chrisco


What about the "You slept with my wife/sister/brother/dog" conflict?
Don't startup with a man-whore....

posted on Sunday, March 02, 2008 at 1:43 PM by startup dude


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