Scientifically, black holes, or supermassive black holes, are the heaviest and densest objects in the universe, with a powerful gravitational pull on everything around them.
However, we seem to know something on earth which is even heavier than a black hole in the universe. That powerful thing is called a co-founder who creates heavy pressure on other co-founders and employees.
According to Noam Wasserman, author of The Founder’s Dilemma, up to 65% of startups fail due to co-founder conflicts.
We should be upfront that, more often than not, we fail to consider the healthiness of a co-founder relationship which turns out to be a key indicator of a startup’s performance, if not its success in the long run.
During the past few weeks, I was invited to act as the mediator in a conflict between a co-founding pair of an early-stage startup whom I met earlier. Witnessing their heightened tension, I have become even more aware of the importance of choosing the right co-founder(s) and maintaining a healthy co-founder relationship.
What causes co-founder conflict?
Control power or control is considered one of the biggest causes of co-founder conflict, involving a constant stream of questions, such as “Who matters more?” “Who needs whom more?” or “Who has the final say?” The answers to those questions will dictate a co-founder’s clout, salary, and shares in the startup.
Understandably, frustration and dissatisfaction will arise if those questions are not addressed fairly. Co-founders can become opponents in the race for power, downplaying others to highlight themselves and enhance their power and control in the company.
Respect and recognition
“I have worked hard from scratch, but do they recognize my effort and contribution? Or do they take all the credit?” These are just some of the endless questions constantly popping up in a co-founder’s mind in times of conflict between co-founding partners.
To make matters worse, when a startup makes the headlines and attracts lots of media attention, a particular co-founder will often be in the spotlight while the others remain almost unknown to the public. I wondered how the other co-founders felt in our case.
However, I have learned that being in the limelight matters less than full recognition and respect from the other co-founding partners. Such recognition means even more to a co-founder, especially when their startup grows and expands over time, and they spend little to no time with each other due to their heavier workload.
Essentially, all human beings require attention and recognition of their worth, and undoubtedly, a lack of them will eventually lead to frustration and conflict sooner or later.
That two heads are better than one is not necessarily true when the founding team argues about almost everything, a common phenomenon in many startups. It implies that their roles in the company are not defined, which can result in an unequal share of the workload, the root cause of many other problems and conflicts.
How to resolve co-founder conflict
Find the right co-founders
Picking the right co-founding partner is supposed to be the surefire way to avoid many mistakes later. So, how can you choose the right person?
Undoubtedly, all founders have criteria to look for in a co-founder, such as having a complementary skill set, being reliable and responsible, having chemistry with other co-founders, and having the same personality and attitudes.
To find a co-founder who speaks the same language, try out these questions with your potential partner:
- What are your top values? (Do you want to pursue wealth, happiness, fame, value creation, or public recognition?)
- What is your working style? What is your bottom line?
- How do you deal with stress at work and in life?
- What kind of organizational culture do you want to build? What is your vision of the startup?
- How much time can you spend on this company? (It’s important to find a true co-founder who can willingly devote themselves to the startup instead of working as a hired employee or treating it as a part-time job or a side project.)
They are probably not a good fit if their answers do not resonate with you. In such cases, don’t ever rush to choose a less-than-ideal alternative only to fill in the blank space and regret it later.
Being a solo founder is indeed better than partnering with the wrong co-founder in many ways. However, solo founders can only make it with their co-creators.
A startup’s co-creators can be its earliest employees, supportive investors, and business partners. They are not co-founders in a true sense but of parallel importance as they can provide significant resources, networks, and initiatives for a startup in its early stage.
Jeff Bezos is widely known as the sole founder of Amazon, but the company indeed had a forgotten founder who was also its first employee, Shel Kaphan. He joined the company in 1994, right after its existence, and served as its chief technology officer. Though not in the spotlight and having no founder’s stock, he was once described by Jeff Bezos as “the most important person ever in the history of Amazon.com.”
Sign a co-founders’ agreement
Many early-stage startups in Vietnam often ignore this practice as the co-founding team operates based on mutual trust and needs to be more confident about the new-found partnership. In fact, a co-founders’ agreement is among the earliest things to be drawn up and signed when co-founders decide to embark on the startup journey together.
In our recent conversation, lawyer Nguyen Tuan Phat, who is currently in charge of the Startup Support Program initiated by Vietnam International Commercial Mediation Center (VICMC), said:
“It is essential for co-founders to draw up a co-founders’ agreement carefully and thoughtfully, which includes leaver clauses considering the worst-case scenarios when a co-founder leaves the company to protect themselves and their young startups.”
Huynh Minh Tuan, a partner at Genesia Ventures Vietnam, has also written an in-depth blog post on how to manage co-founders’ equity when they leave the startup in two common scenarios: Good Leaver and Bad Leaver. (As the names suggest, a good or bad leaver is defined based on their positive or negative impact on the company.)
Some rules of thumb are also laid out in his post. First, the leaver shall not retain a substantial stake in the company. Second, the leaver shall motivate whoever stays to continue making efforts, creating sustainable values, and contributing to the startup’s growth.
Clarify your roles
After signing the Co-founders’ Agreement, all co-founders should discuss their startup’s core functions, roles, and responsibilities, divide the work based on their strengths and choose the right person to take the lead in each area.
For instance, a co-founder & CTO will typically be in charge of technology and product infrastructure, while a co-founder & CFO shall be responsible for financial management and support the CEO in working with investors for funding.
It is important that the co-founding team speaks the same language and consults with each other before making a decision. However, when a co-founder has the final say in their area, the rest must follow based on mutual trust.
Prepare for a rainy day
All co-founders must make a joint effort to create effective decision-making processes that ensure mutual respect and consensus as soon as possible. They should be articulated and serve as a guidebook to be quickly referred to when a problem pops up.
Vo Hoang Nam, Co-founder & CTO of Fundiin, and Nguyen Anh Cuong, Co-founder & CEO of Fundiin, have created a “playbook” clarifying a problem-solving process.
When a problem arises and needs discussing, all co-founders will speak their minds and explain what should or should not be done. Then, they will focus on identifying the nature of the problem by asking many crucial questions. Alternative solutions will be proposed and discussed to select the best, if necessary.
If a co-founder can convince the other with their explanations, they will agree and start implementation. Meanwhile, if either of them is still dissatisfied with a proposal, they should consider other feasible solutions to identify which works better.
“Frame of reference is the key here. Each person often has a unique frame of reference. When the co-founding team is not on the same page, it is essential that they understand the nature of the problem, which will lay the groundwork for a common frame of reference and lead to a consensus in the end,” Nam added.
As in any human relationship, a co-founder should be open-minded and respect others’ opinions while ensuring information transparency by maintaining timely and effective communication.
When the co-founding team does not see eye to eye on something, do not walk away until persuasive solutions and concrete actions are come up with. If you are too occupied to have effective interactions and in-depth conversations with each other, a weekend for joint sports activities such as swimming, running, or mountain climbing will be of great help.
As an early-stage startup investor, companion and co-creator, I always pay special attention to any symptoms potentially affecting the health of a co-founder relationship that can make or break a startup. Any co-founders should be able to make the right decisions and manage conflicts to accelerate and lead their startups into the future.