OnStartups

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

Posted by Dharmesh Shah on August 21, 2007 in strategy startups founders dark side 28 Comments

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).