Two thirds of startups fail because the co-founders fall out. Here’s how to avoid divorce, and what to do if it really is all over.
Many startups fail when the relationship between the co-founders sours. Writing for Forbes, Sergei Revzin and Vadim Revzin explain that “a lot of founder disagreements come down to… decision making, control, and ownership”, but that by addressing these issues early on, your startup team stands a much better chance of going the distance.
HOW TO AVOID CONFLICT
Can you say what you think without it being taken the wrong way? If you can’t express dissatisfaction with say your co-founder’s work ethic or performance, that’s a sure indication of an unhealthy power dynamic at work.
Equally, you need to recognise that in any partnership, sometimes one co-founder will shoulder more of the load than the other; mutual support and encouragement are just as important to your business relationship as the ability to have frank discussions.
As soon as you know you’ll be building a business together, you need to have conversations with your co-founder(s) about the decision-making process, and who owns what percentage of the company: “communicating openly about these things early on will make you more aligned with your partner as the company grows”.
HOW TO PROTECT YOUR STARTUP
1) Create a vesting schedule. A vesting schedule is the best way to protect yourself and your fledgling business in the event that one or more of the co-founders decides to pull out of the business.
Normally if a partner leaves the business within the first year of its incorporation, they forfeit their share of the company. For a five-year schedule, the partner gets 20% of their stake in the business after completing year one, and for every year of service thereafter, up to their original percentage holding.
2) Protect intellectual property. It’s also very important to protect your startup’s intellectual property. As soon as you have a product or service with customers, you need to formalise your business and protect its IP rights by assigning all the intellectual property to the company and not to any individual(s).
3) Document everything. If you or your co-founder was run over by a bus tomorrow, would the other be able to pick up the reigns without a hitch? Do you have a mutual understanding of what you’re working on, and what you do? Insist on documenting everything because not only will it help you survive if your business partner suddenly quits, it also makes training new staff a lot quicker, and means you can easily delegate non-critical jobs: “When your employees know how to take over some of your daily functions, the ship will continue to sail smoothly in your absence.”
Communicate, formalise, and document, and with luck, you’ll avoid the kind of conflict that leads to co-founders parting company, and if the worst happens, remember, entrepreneurs adapt and move forward.