7 Disputes all Startup Co-founders Face

For Companies General July 29, 2016


7 Disputes all Startup Co-founders Face

7 Disputes all Startup Co-founders Face

An early stage startup will face many challenges such as funding issues, legal disputes, and finding the general direction of a company. Though these are some conflicts every startup faces, the number one problem that a company should avoid is disputes between co-founders. There are 7 times in early stage startups when best friends and co-founders may become enemies. Hopefully, these will help you take caution.

1. Profits

The main conflict in any business relationship is money. After all, we would not be here if we did not want to make a profit. The argument over the division of profit between co-founders can cause tension and ultimately spoil a business relationship, especially when money starts to color the decisions each co-founder makes. Luckily, resolution can easily be sought via communication. If there were not express agreements made during the founding of the business, now is the time to get expectations of money and profit share on the table.

2. Who does more work

A closely related issue to profits is the share of the workload. When two founders are trying to split up the tasks to be done, there can be what feels like an imbalance of power or time spent on the business. While each of the founders may have different skill sets, the time spent to complete various aspects of the business can vary. When one co-founder feels he/she is carrying more of the weight, resentment can set in, causing a hostile environment for the partnership. The best way to avoid this is to set clear expectations and boundaries about what the work will entail. Preserving the ability for co-founders to prevent burnout will ensure the success of the business long term.

3. The Opinion Conflict

Decision-making in a company is common and comprised of multiple roads to choose from when steering your startup. With these choices being made, co-founders might be having different ideas on the way the company should go. This can cause tensions to rise, especially when two choices are at odds with how a culture, business venture, or mission of a company will continue to develop. In this situation, it is best to defer to the co-founder who has more knowledge in the particular subject matter. After all, you partnered with them for a reason! Arguably their skills in this arena are ones that you admire. If both co-founders have an equal amount of knowledge, or complete lack of knowledge about the subject, it is best to consult with an expert or college whom both of you trust. That way, both partners can evaluate the opinion of a third party.

4. Pushing Out A Co-founder

Although no startup begins with this in mind, it is possible that one of the co-founders will need to be pushed out of the entity. Snapchat tried to push one of the co-founders out of the relationship, and he ended up taking 20% of the company after hiring a lawyer and claiming much of its success was due to his work. Handling this situation delicately is the only way to do it. First try to resolve the issue with communication. If it becomes absolutely necessary to edge out one of the founders, then it is best to hire a lawyer and discuss your options. You never can tell what lengths a founder will go to preserve his stake in a startup.

5. Company Failing

Founders are always happily chugging along when a startup is going great, but when a company is failing, the true colors of business partners will come out. Often, the outside pressure from customers or investors can cause one or more of the founders to break. While one founder might be optimistic and hopeful, ready to roll up her sleeves and get in the trenches, the other might feel the effort is wasted and want to call it quits. At that point, the actions of either founder will dictate where the company goes. If a founder decides she wants to call it quits, the other must decide if doing the startup solo is feasible. Otherwise, when it takes two to make the company work, having only one founder will push the company to dissolution.

6. Vesting shares

Sometimes as a startup is developing, one of the founders will want to stop working because he does not believe in the company anymore. He will walk away still owning shares in the company. A few months later when the company starts to blossom and become profitable, he will call his shares and request to be paid out for them. Vesting shares is a critical part to hedging against this situation. When an unfaithful founder backs out, the equity he has invested will go back to the company beyond any he has actually worked to earn. It is important that any founder of a company not have the capability to liquidate assets later down the line.

7. A company’s future

When starting a company together, the normal course of business can take a company to a completely different place from where both founders initially anticipated. While business might be good for a few years, a founder may decide that he/she wants to take the company in a different direction while the co-founder wants to venture into another market. This can cause disputes and often arises after some success in the business when extra capital needs to be invested. How will this be done? If there have been no issues in the past, it is possible that this could break up a founder relationship. Founders will need to air their desires and discuss where the future of the company will reside.

“Leadership is the activity of influencing people to cooperate toward some goal which they come to find desirable.”

– Ordway Tead

How to solve these problems

Most of these problems are common but also easy to fix. It is key to understand some of these conflicts between co-founders and plan ways to resolve them before they occur. The easiest way to solve 90% of the problems in an early startup is to make sure that communication is the priority for both parties. Disputes can generally be avoided when both parties know the exact expectations of their co-founders. Co-founders can have weekly, if not more often, check-ins to hedge against resentments building or tensions mounting.

Disputes will often happen when building a business, but the most important concept to remember is that both parties entered into this for a reason. As long as sight of the ultimate goal is not lost, the relationship throughout the business should remain strong.

The views and opinions expressed in this article are those of author Hailey Hite. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:https://www.startengine.com/assets/Disclaimer.pdf

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