Alex, John, and Steve were best friends. They all went to college together, and got along great. One day, Alex approached John and Steve with an idea:
“Let’s create an app that gives users the ability to see is going to concerts in their area and gather points for how many concerts they attend and get cash back.”
John and Steve loved it — they were avid concerts goers themselves.
They called it ConZert. They got some investment. The business grew. Alex became CEO. John CTO. Steve CPO.
As the money dried up, and their initial success starting fading, the guys started having disagreements about what options to pursue and how to scale. They started to avoid each other and making their own decisions to make sure the startup survived.
As a 2001 study showed, this type of avoidance deteriorates team performance, which over time results in a polarizing dynamics between team members.
As first-time founders know, maintaining a collaborative high-performing co-founder team can be difficult when things start getting rough. Without a clear decision-making process, founders become deadlocked. Couple that with Founder’s Syndrome, with each founder believing they are in the right, and the founder relationship can descend into chaos. Creating and maintaining a high-performing collaborative co-founder team, however, is all in the details. And those details should be hashed out early-on so the founders set up their co-founder team for success.
Too many handshake deals lead to early startup divorce.
Bo Yaghmaie, Head of New York Business & Finance Group, Cooley LLP, lists three reasons why co-founders should sign an operating agreement:
“You are going to want to make sure you have a clear understanding around roles and responsibilities up front. Yes, it is critical [for] a co-founding team [to] collaborate and… create an open and shared culture amongst themselves but… too many startups make the mistake of thinking that every decision has to be made collectively and every founder has control over every decision. That will inevitably create confusion and frustration. [Y]ou should [instead] strive to establish… a functional management system that enables each of the co-founders to have clear responsibilities and reporting obligations.”“[I]t is imperative that you nail down how you will split up the equity between the founder team upfront to make sure there are no misunderstandings or hurt feelings once things get off the ground… You may have to tell your co-founders they are not your co-equal[s]. But it’s always better to have that conversation on day one [rather than] move forward with a new enterprise and then get stuck on [questioning] who owns what.”
“When you and your co-founders being to iterate on an idea and… build a product or a platform, you are creating intellectual (IP)… [M]ake sure that whatever IP is being developed for your new enterprise belongs to the entity and not the individuals behind the development of the IP… [T]here are many forms available online that get this basic assignment accomplished. Do it on day one and don’t wait too long.”
If founders don’t have clarity on these issues from day one, a high-performing collaborative co-founder team will never manifest.
Your operating agreement should include at a minimum:
The basis for how decisions are to be made, reporting structures and mechanisms, and who gets final say on whatHow the team will move forward should a deadlock occurEquity splits, vesting, and changes in capital contributions
An exit strategy should a startup founder want out (or another one is brought in)IP issues, who owns what, and what should happen should an ICO occur or acquisitionA mission statement for why the partners are getting into business with one anotherValues that will ground the co-founder team (e.g., transparency, respect, perseverance, etc.)
Founders will have moments where a decision has no clear black and white answer.
How to pivot, which market-position to concentrate on, quality control issues, etc. that left unresolved breed resentment and acrimony. These types of disagreements are not rare. As Harvard Business Review stated back in 1986(which tells you the timelessness of the advice):
“[T]he emphasis [on partnership disputes] should be on achieving a win-win solution and on avoiding greed and vindictiveness. The plan is to optimize the gain for both [partners].”
Founders should learn how to have win-win disagreements known as Collaborative Disagreement that puts everyone’s cards on the table.
Use F.I.R.E. to transform the discussion and collaboratively disagree:
First Validate — create rapport by validating what was just said or acknowledging the other side respectfully.Identify the Issue — make sure the issue you’re fighting about is business-related and is not personalized (i.e., don’t name call or insult)Reframe the Issue — take the bite out of the issue and use a business interest to showcase what is occurring because of the other side’s actions.End with a Request — invite the side into a joint problem-solving process or dialogue.
Back to the ConZert co-founder team. Alex made an announcement to the entire company that they would be shifting their market strategy in the coming weeks without telling John or Steve about it. They felt blindsided. And had had enough of Alex’s unilateral decisions; they threatened to oust him as CEO.
If John and Steve wanted to find out why Alex did this, from a collaborative disagreement standpoint, the opening line would go something like this:
John/Steve: “Alex, I know as CEO you have the power to make these types of decisions [VALIDATION]. But leaving us out of the equation means we don’t have the adequate information on how to move forward with our teams proactively [IDENTIFY]. This doesn’t help our company in the long run [REFRAME]. Don’t you think it would help if we knew about this ahead of time [REQUEST]?
Instead of attacking Alex, John and Steven open the conversation into a collaborative dialogue. They all discuss steps forward together, and preserve the working relationship in the long-term.
“Discussing these issues with your co-founder could get uncomfortable, create rifts, or even uncover deal-breakers. If you are able to successfully have these difficult conversations, this is a testament to your partnership and to the strength of your relationship — and will serve as a solid foundation from which to grow your business.”
— David Ehrenberg
Ultimately it’s about being able to hash out these differences openly, together.
There are different types of leadership styles. Not every founder should be a top-down, take control and command type of leader. Or even the visionary type. Instead, founders should specify exactly what each person is responsible for.
“Building your team demands matching jobs to people’s strengths. That means giving people responsibilities according to skill level, not based on how close a friend they are, or how closely related they are to you, or whether you just like their sunny personality. That includes you as well — don’t give yourself an impressive title and job unless you’re right for the job.”
— Steven Robbins
If the founders cannot agree early on which duties and roles each would like, write out all the supposed roles in a google sheet and have each founder privately indicate which one they would like.
If overlap occurs, or founders cannot agree, collaboratively disagree. But an even distribution that plays to each founder’s strength will provide the basis for a collaborative high-performing team.
Bottom Line: startups that thrive have strong co-founder relationships built early on. Clarity, confidence, and an equal share of responsibilities is what drives co-founders team toward maintaining a collaborative high-performing co-founder team.