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Managing co-founder relationships

Managing co-founder relationships

Published: 
November 17, 2021
 by 
Matt Johnson
, Last updated: 
November 17, 2021

Co-founder resources, including managing relationships, getting started on the right foot, and much more.

The relationship between co-founders is perhaps the most critical element of success for startups. Unless you are a solo founder, managing the relationship between you and your partner is something in which you should invest significant time and effort. If your relationship goes sour, then it’s almost impossible to continue working together, and one of you will end up leaving. Or worse, the company is no longer viable.

Like any relationship, you’ll have your ups and downs as you go through the stresses of building something from nothing. Here are some tips and resources to help you manage this relationship and keep it all together as you grow your startup.

Have the talk

Start on the right foot, and make sure you and your new co-founder have the talk. Be on the same page regarding vision. Is this a lifestyle business, or are you looking to be venture-backed? What sorts of roles and responsibilities are you each looking to take on? What happens when you can’t agree on something and need a tiebreaker? What kinds of hours do you plan on putting into work?

The more transparent and open, the fewer surprises as you go.

Get your docs in order

No one thinks at the beginning of their journey that they’ll fall out with their co-founder.  Otherwise, you probably wouldn’t start a company with that person. But it happens. According to Harvard professor Noam Wasserman’s research, 65% of startups fail due to co-founder conflict.

Speaking from experience, make sure you get all the legal docs and agreements in place. This includes equity split and vesting schedules, assignment of intellectual property, and other items you’ll need on incorporation, and certainly before any fundraising.

If things go south, you’ll need these to ensure a co-founder exit doesn’t sink the whole ship. For example, the vesting schedule prevents a co-founder who leaves after a year or two from keeping all their equity and makes the split easier.

Splitting equity with your co-founder

A common question you’ll see in startup forums is regarding how to split equity among co-founders. Often there will be a justification for why one co-founder should get 80%, and the other should get 20%. It could be that one has the idea, or the industry expertise, or the technical background. All those things seem significant in the very early days of starting a company. But, as time goes on, that becomes less important, and hard work and execution between all founders will make a company successful. If all co-founders put in the hours and sweat into the startup, and one has significantly more equity, that’s a recipe for conflict.

Many investors and accelerators avoid investing in startups where there are big disparities in co-founder equity. I know of at least two startups who had a term sheet but didn’t get through due diligence because of an equity split issue.

Co-founder relationships should be partnerships. Make sure you don’t breed resentment and try and keep things as equal as possible early on.

Open lines of communication

As you go, make sure to keep open lines of communication. Don’t let things fester and don’t ignore schisms. Respectfully address these things head-on. It might seem easier to avoid confronting something because it seems small or insignificant now, but it might compound, and before you know it, the minor issue has snowballed into a huge problem.

Bond beyond work

A great way to build trust with your co-founder is to find ways to bond beyond just work. With Tom and me, we make sure to spend plenty of time talking about things beyond work. We’ve gotten up early to watch F1 races together on the weekends, and every Friday, we play Fortnite for a couple of hours. While it might seem like a distraction from work, those hours might be among the most important of the week. We get to have fun together, take our minds off work, and even practice a bit of teamwork. We’ve even won a few matches.

Check out these other co-founder resources

Pete Flint, a general partner at NFX, has a great article on the pyramid of co-founder success, where he juxtaposes sound operating principles with failure mode.

We recently wrote resources on starting up remote and how to find co-founders.

November 17, 2021
by
Matt Johnson

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