As you progress in your entrepreneurial journey, you understand that finding a co-founder is the easy part. Managing long-term co-founder relationships that are healthy and powerful is the real challenge. As a company scales, the relationship matures as well and you need to work hard to make it mature well. We know many co-founder stories which led to legal battles and company failures from the dramatic Facebook drama with the Winklevoss twins suing Mark Zuckerberg, to the Open AI board drama, that led to co-founders sitting on the board of the company firing Sam Altman from his role as CEO and board member and then a few days later bringing him back to lead the company.
A recent report by ‘Google for Startups’ finds that the single largest contributor to startup failure is co-founding team dynamics (55% of startups fail). In the UK, a survey of over 3,000 business owners found that 43% of entrepreneurs are forced to buy out their co-founders due to rifts and power struggles . Evidence from a couple of decades ago paints a similar picture. The Founder’s Dilemmas by Noam Wasserman reports that 65% of startups fail because of co-founder conflicts. Founders and venture capital firms have not put enough emphasis and care into managing co-founder relationships and finding ways and frameworks that will reduce the chances of startup failures which will result in better innovation and better returns for investors.
Aligning and clarifying roles and responsibilities
In our work with early-stage startup founders, a common mistake that we see is for two or three co-founders to start building and scaling their venture without clear roles and responsibilities. Everything is vague, from who is the CEO? Who leads the product? To who is fundraising and who is speaking with journalists and the media. This uncertainty is getting more challenging when the company raises venture capital, and could even hurt chances for raising capital.
If founders understood that avoiding tough co-founders conversations consciously and subconsciously among themselves around their roles and responsibilities could hurt their chances to fundraise they might add it on their fundraising checklist. If you arrive at an investor meeting and have no clear view on “who is the CEO and CTO of the company?” that will immediately raise some red flags in the investor’s mind. You will find some weird titles that are a direct consequence of avoiding these tough discussions. Companies with 3 Co-CEOs, commercial and technical co-founders, and many other weird definitions. The longer you wait to define clear roles and responsibilities among co-founders, the worse the implications will be when things become complex as the company grows.
Aligning on product strategy and vision
A company that one of the authors advised was a growth company that raised tens of millions of dollars and had a growing team of more than 80 employees. At the time of joining the company, there were a lot of disagreements and clashes between the two co-founders. Emotions were high, and the team dynamics felt toxic. As a rule, when joining a company as a board advisor, one should first listen and observe for a while, and only after assessing the situation and asking many questions should start giving advice to the co-founders. It was apparent that the clashes and dynamics between the co-founders spread slowly to all employees and there was deep frustration on all levels from the VP level to junior developers.
Everyone thought the issue was ego. It was not ego, it had to do with communication and alignment (and a little bit of ego). Each co-founder had a different interpretation of the company vision and product strategy. One saw it as a software company, and the other as a hardware company. They operated in silos, and therefore as the company grew, they each scaled their own vision and strategies – they built two companies under the same organization. It was most apparent when speaking with employees in the company, and even with customers, who were told of different offers and product launches. There was a surprised look on the faces of people in a town hall meeting when the CEO talked about the future of the company as if it was completely opposite to what some of the employees knew and worked on. Visualize two arrows splitting and getting further and further – you cannot scale a company quickly that way.
The engagement with the two founders was also very different. One of the co-founders was extremely collaborative and responsive. He initiated conversations and often came to ask for advice. The other co-founder, who was the CEO, neglected his relationship with his co-founder. He did not respond to any email or offered to help solve the situation.
If you want to build and scale quickly, you must align on your product strategy and have a single vision for the company that is shared across co-founders and the organization – as one. Even if the vision and strategy are written down, you need to see how each founder perceives it and its evolution. If you want to funnel all your energy, capital and resources to build a strong company – you must align. The product strategy and vision must be written, and shared on the walls of your offices. You must repeat it in an all-hands meeting, and you must constantly review it with your fellow co-founders.
Aligning about equity
According to the Carta Co-Founders survey data of 7,764 US startups, the reality of co-founder equity splits is quite amazing and surprising. Most co-founders do not have an even structure for their equity split. The data suggests that with two co-founders in a startup, the median split is that one co-founder will have 55% of the company and the second will have 45%.
If you are building a culture of openness and transparency, you must make equity clear, or else you will encounter this topic as part of arguments about effort, control and ownership which are common when working together. In order to solve this from day one, work to agree on two things:
- Write a short and clear founders agreement.
- Formulate an open capitalization table with clear ownership for you and other future investors and employees.
It will come in handy with future venture rounds as well. You would like to review your equity split each roundand keep that same mindset with employees you hire.
How to run an open co-founder first conversation
Co-founders who are able to have an open and transparent conversation about titles, roles and responsibilities early on will save a lot of drama in the future and will remove barriers for growth. The main thing that goes into those tough conversations is how to deal with emotions. Founders will have many types of emotions during those conversations, including fear, shame, pride and more.
To help founders stay focused during these open conversations, we offer a framework of four core principles to discuss. You can initiate this conversation with your co-founders and create a recurring meeting to align on those issues at least once per quarter. If you feel that you need someone neutral to facilitate this conversation, you can ask an advisor or a mentor to join. In most cases, it’s good to agree on session rules that include: act with respect and kindness, listen first and don’t judge, allow for an open-minded discussion and conversation. We would highly recommend writing those rules on a whiteboard visible to all.
- Goals: Why is each co-founder building the startup? What is their long-term goal?
- Responsibilities: Deciding on your job titles in addition to your co-founder titles, writing down your detailed job descriptions and letting your co-founders review and give feedback.
- Product Strategy: Drafting your product roadmap and strategy, writing it down with timelines and challenging each other.
- Equity: Have your cap table open. How much equity each founder has? How much is in the option pool?
It is such a simple task in theory, that we all feel empowered to do it when we hire people to our teams, but somehow we struggle to do it for ourselves as founders.
How co-founders can bridge relationship gaps
There are many things that co-founders can do to bridge those gaps and align. Every co-founder relationship is unique and would look different since the human mind and behaviour are sometimes complex and in many cases irrational when we face extreme uncertainty and pressure. However, there are 4 things that we would recommend co-founders follow to bridge those gaps:
- Build a culture of candor and trust – as mentioned before, building a culture of radical candor and trust is essential.
- Date your co-founder – you will spend most of your time with your co-founders, sometimes even more than with your family. It’s important to take time and go on a date with your co-founders. Don’t talk about work, grab a drink, go do something fun like playing basketball or going for a run.
- Get help from the outside – sometimes we cannot see things clearly because we are in the midst of an emotional turmoil, and sometimes we just don’t listen. It’s important to have advisors and coaches that will help you bridge your co-founders’ gaps.
- Know when to stop and give space to each other – it’s important when you identify misalignment to stop and give some space. Go to another room and create distance. Take some time to reflect and only then approach and try to bridge the gaps.
Why it’s important to have advisors and coaches
Facilitating and having open conversations among co-founders is very challenging and sometimes impossible to do on your own without external help. Founders are too busy building their products, are heads down with raising their next capital round or managing their teams. Some are just avoiding confrontation and maybe they are friends with their co-founders and don’t feel comfortable starting a conversation about equity splits or their roles – they might be afraid it will risk the friendship. Some are irresponsibly neglecting this part of business building. Our experience has taught us that many founders are not even aware of the gaps and misalignment that are being built among them.
As with any relationship, if you want a real chance for your startup and relationship with your co-founder to succeed, you must work hard for it every day. The chances that you will stay friends with your business co-founder are higher if you deal with those issues as early as possible, rather than if you leave them for later and neglect them.
It is important to have an advisor, a coach or a mentor who will work with you and your co-founders to bridge those gaps, help you get a different perspective, reflect and help you bring those issues to a resolution. One of the authors works as a board advisor and Non-Executive Director, where a big part of the role is to identify and aid founders when they need someone to help them solve and remove friction. Most founders believe it would only happen occasionally, but in reality, you need support almost daily.
Founders often neglect this issue when they are building their board and picking advisors, but founders should keep that in mind as a key value when engaging externals and assessing advisors. When you are bringing on board advisors, be clear that you are looking for someone to initiate and manage tough conversations among your co-founders. You should ask them to share stories and case studies about how they helped other co-founders navigate their relationships and solve challenges and dilemmas. The two most important skills your advisors should have are listening, asking questions and being able to clearly communicate with you and your co-founders. Even if this will cost you a fee or equity, this is a worthwhile investment.
How to manage your emotions as a co-founder
Building a startup company is an emotional ride, full of ups and downs. Nothing prepares you for such a chaotic, fun, exciting, and intense ride. Having co-founders with you on the journey will help you get through those ups and downs, and in many cases, whenever one founder will lose hope or develop doubts, the other will lift their spirits and bring them back on track. It is common to have days when you get out of bed and wonder “What am I doing? I have no idea. Maybe I should just quit.” Oftentimes, connecting with your co-founder can clear your mind and prepare you to go straight back to work. As one of the authors notes: “I won’t lie, some days we were celebrating together and also being down together – it’s a very lonely place if you are alone.”
However, when you are in a co-founder relationship, like in any relationship, there will be disagreements and sometimes emotions will rise. Whenever you feel those emotions, embrace them – you identified a gap and you can take action to solve it. Most founders will be swept into the chaos and uncertainty of building a new venture, and that will prevent them from regulating and managing their emotions. They will get angry or frustrated at times and will not resolve the issue.
Founders who learn how to manage and regulate their emotions through simple techniques like breathing, meditation, writing a journal or coaching will also be able to build better relationships and close gaps to build a long-term relationship with their co-founders.
About the Authors
Gary Dushnitsky is a Professor of Strategy and Entrepreneurship at London Business School, and a Senior Fellow of the Mack Institute for Technology Management at the Wharton School. His research and teaching cover topics such as entrepreneurship, innovation and corporate venturing.
Illai Gescheit is a startup advisor, investor and entrepreneur. He advised over 400 founders, built 4 startups and 2 corporate venturing units for 2 of the largest energy companies in the world. He is a Founding Partner at Gescheit & Partner.