The Perils of Founder Fighting

Posted on Jan 4, 2014 | 43 comments


Yesterday I wrote a post about “the politics of startups” in which I asserted that all companies have politics, which in its purest sense is just about understanding human psychology.

I think as a tech industry we have bred a culture that places more emphasis on product excellence than managing human behavior. Of course it makes no sense to have great people management and a crappy product. But I would posit that in order to sustainably build great products in an intensely competitive industry with skills shortages – people management is one of the most critical soft skills organizations need.

I think it’s what Sheryl brought to Facebook when the young Mark Zuckerberg lacked in terms of his age, maturity and probably his lack of inherent people management skills by that phase of his life. The lack of team cohesion and respect for individuals has probably been one of the biggest weaknesses of Zynga – at least from nearly EVERY employee I’ve ever talked to who worked there.

Yet talk with people at Twitter these days and many seem to feel like they are part of a movement – and that doesn’t just come due to product success.

Nowhere is the politics more difficult than with co-founders, which is why for years I’ve spoken publicly about “the co-founder mythology.”

Of course we all go into businesses expecting to be aligned with our co-founders but over time life changes. One founder has more risk tolerance and the other wants to be conservative. One wants to build a company that will be around in 10 years – financial outcome be damned! – while the other might want a quick sale and pocket some bucks while the tech market is hot.

Those are the easy cases.

I have observed from close range many more difficult factors:

  • A co-founder who go through long periods of drinking excessive alcohol
  • A co-founder who started by working hard but gets sucked into the tech party circuit and has more interest in socialize than building cool shit
  • One who wants to commercialize his product and start charging while the other prefers to not charge
  • One founder who gets more attention from a company’s success while one feels slighted and becomes jealous and resentful

At the risk of sounding like a broken record, it’s why I believe executive coaches are so important for startups who have the financial resources to afford them.

I learned these lessons at a very young age and they etched permanently into my psyche. Anybody who follows this blog knows that my mom was the most influential person on my entrepreneurial career. At a young age I watched her open a bakery, which in the early 80’s was ahead of its time in serving croissants, gourmet coffee and high-end, homemade cakes, cheesecakes and french pastries for our small town of Sacramento, California (Carmichael, if you know the area).

She started it with a partner, 50-50. They were close friends, lived down the road and members of our synagogue. We were roughly the same age as their kids and hung out a bit.

And then for whatever reason they had different outlooks about the future of the business and with a 50-50 partnership had very limited ability to deal with the issues you all face:

  • Who should stay and who should go?
  • What should the financial settlement be for the founder leaves be? Cash now? Equity for the future?
  • What mechanisms exist for mediating if you can’t come to a consensus on these issues?
  • If you are the person staying how resentful will you become working your arse off for equity that your co-founder who leaves will get value from
  • etc.

And it is all the harder because if you’ve invested 3-5 years in a business already and can’t agree how to separate you could literally throw out years of hard work on venture where the future is insolvable. I see it all the time.

In my mom’s case she lost a friend permanently that made it awkward in our social interactions in the small Jewish community in Sacramento. I really never pried into the details of why they had a falling out, how they solved it and what the consequences were but as a kid my observation was that it wasn’t pleasant.

I have seen it first-hand in my VC career many, many times.

And, yes, it is politics at its purest.

I worked with two co-founders years ago who knew each other well. When they started their company of course they had to pick one to be CEO and the other to have a different title. In this case it was Chief Product Officer. But they were “the two amigos” and agreed to kind of run everything together.

That worked for two years but then the tensions began. The company hadn’t performed well financially and need to make changes. It either needed to get more aggressive in pricing, pivot to a new business or business model or raise more capital (and take the dilution) in order to have more time to figure things out.

The pressure and the years mounted and I could see strain in the relationship. We sat down the three of us.

It came out in our group discussions that the CPO resented the CEO. He felt that any time there were tech events, tech conferences or press it was always the CEO who got to attend and got his name in the press when it was supposed to a partnership. He felt the CEO was willing to “sell his soul” for revenue and wanted things to be more pure.

The CEO felt that the CPO had gotten lazy and unconfident. He wanted more ability to push the product & engineering teams harder – he was, after all, the CEO. But their co-founder status didn’t really allow it. He felt he was on the hook for company performance without the control he needed to deliver it.

We discussed it as a group. Sort of “marriage counseling for founders” and agreed remedies. I was very impressed with their maturity in being able to talk out loud and openly about their feelings and why they felt they weren’t working well together.

One founder wanted to keep their salaries very low to show solidarity with investors knowing that the business wasn’t working – the other fight financially strapped and didn’t want to make the sacrifice. There were cultural challenges across the board.

They created a new product idea that they thought could get them out of their economic funk. The idea came from the CPO and they both agreed that it would be good for the company and for their relationship. The CPO could be more of the “visible success” of the company if it worked and could feel like he made more of a difference.

They launched. Like most launches they had some success but it wasn’t conclusive.

It’s the norm and why I tell people, “Stop Trying to Catch Lightning in a Bottle.

CPO gave up on the product and wanted to shut it down. CEO thought, “This is just the first hurdle! If you give up after this you’re not an entrepreneur. It was a good idea – we should see it through!”

This set up the straw that broke the camel’s back.

We sat down for the third or fourth time for resolution. It was clear that this was irreconcilable – someone had do go. They both were willing to leave or willing to stay. We hashed out a compromise agreement economically and the CPO left. Again, I was blown away with their maturity in dealing with this and separated as peacefully as c0-founders can.

The CPO went on to found his own company and the CEO went on to grow this business into a success that is now doing North of $25 million in annualized sales.

Of course I’m sure they both look at the past and wish they would have made different choices. The CEO worked his arse off for years created value that would be captured by the now-elsewhere CPO. The CPO probably wished he could have stayed and run the original company which was more successful than his new company.

Regardless, the situation worked out for both in the end. This is the exception, not the rule.

If you struggle through similar issues – which means nearly all of you – please consider how and when to bring in help, to embrace mediation. It’s hard to be open with your co-founders without somebody helping to broker the conversation. In many cases it’s easier if this person isn’t a board member or VC unless you have an extremely close or trusting relationship with them. You want to be able to be open without your board members losing confidence in your future.

Sweeping the issues under the rug and they will fester and pop out down the road when you have invested even more time, money and energy in your businesses.

Elie Seidman wrote in the comments section of my blog post on politics at startups

My father said to me early in life: “definition of politics – two people in a room”

That really resonated with me. Meaning – politics starts with your co-founder. Make sure you continually pay attention to this most important of human relationships in your business. Nurture it. Challenge it. And mediate when you must.

  • jerry3061

    My cofounder and I have a unique relationship; father and son. So far so good but as time progresses, I can foresee our priorities shifting and causing some turmoil. As you suggest, the importance of maturity and open communication becomes paramount for both the company and our family.

  • Daniel Barbosa

    Sir, your wisdom and generosity never cease to amaze and enlighten me. As an aspiring entrepreneur in tech, looking for funding all the way from Portugal (I can think of easier tasks), I deeply thank you for the value you’ve been offering me.
    Best regards and best wishes for 2014,
    Daniel Barbosa

  • Ajay Pal Singh

    what do you think of a husband wife cofounder couple ?

  • http://startuphappiness.com/ Dale Larson

    As an executive coach, I’ve worked with several husband/wife founder teams as well as father/son. You spend more time with a co-founder than you do with a spouse or adult child, and under more difficult conditions. But you’re right that it takes some of the same skills for both, so it tends to just be an amplifier: when it works, it works even better, when it doesn’t, it gets even harder.

  • http://www.justanentrepreneur.com Philip Sugar

    I’ve seen this and I think it is super tough for two reasons. (I am not talking about a Mom and Pop business)

    You are partners by marriage but at work that can’t be. People need to know who to go to get a decision, etc, etc.

    You will discuss work at home. This causes two problems. The first is you never decompress. The second is that if you have a problem with a co-worker you will bitch to your wife, who will then take it out on the co-worker the next day. If you weren’t working together this would be called conversation and decompressing. When you are its called piling on and employees hate it.

  • JohnSeiffer

    Noam Wasserman at Harvard has studied thousands of startups. According to him, 60% of failures are due to “people problems”. His book Founder’s Dilemmas documents about 8 or 9 forks in the road decisions that founders have to make to be successful. Often these decisions are made without conscious thought and that can lead to problems down the road.

    Noam’s thesis is that at each decision point, going one way allows the founder to keep more control, and the other way gives up some control. Ironically the ones who give up control end up wealthier. His short cut for this is “You can be rich or you can be king – pick one”

  • Steven Dietz

    From an investors perspective, co-founders who are family is a negative. Their first loyalty, appropriately, is to each other and not to the business or its investors. Team members also have a tough time. How do you disagree with the CPO when his wife is the CEO?

    Problems in the family relationship coming into the office also complicate things. Bottom line: lots of downside, little upside.

  • http://www.onetact.co/ Rishi

    Wow another one within 2 days!! Were you on another long flight and you decided to spend time writing some awesome posts? :)

  • http://www.mentortechventures.com Brett Topche

    I do a lot of talks with student entrepreneurs, where this is especially a problem because there is the issue of what happens at graduation. I always stress that they need to have a co-founder agreement in place and in writing early on and that the agreement should cover dispute resolution/voting power, what happens if someone leaves voluntarily and the process/consequences of firing a co-founder. Deciding those three things in advance, when each co-founder can potentially be on any side of the equation, saves a mountain of headaches later on.

  • Steve

    I am now working on my 3rd tech startup and have experienced co-founder issues in the first 2 of them. The issues were addressed differently in the 2 companies and serve to reinforce the critical messages of Mark’s post.

    In the first company, I was not a co-founder however I was quickly promoted to CEO when the then-CEO and one of the 4 founders left for personal reasons. Despite the initial success of $11M sales in the 2nd year and $15M in the 3rd year, further growth was seriously impeded due to several factors, not the least being continual operating disagreement and jealousies between the remaining founders. A lot of the disagreement stemmed from major cultural differences and goals of the founders. Two of the founders, with an exceptional grasp of customer-needs, came from blue-collar backgrounds and didn’t see eye-to-eye on anything that the other founders did, one of whom had previously been the founding CEO of a company that grew to over a hundred million dollars of revenue on his watch. This lack of common cause led to a lack of market and product focus, and eventual failure of the company. There was no opportunity for mediation due to such a poisoned internal atmosphere.

    In my second company, backed by sizeable investments from major California VCs, I was the CEO and one of the 2 founders. My co-founder, a technical genius but unable to accept any realities of business, grew to regularly disagree with me and with the direction the board wanted to take the company. We were assisted several times by a board member who had the personal trust of both of us. This board member was able to help us find paths that neither of us could find on our own, and allowed the company to move forward. Eventually when continuing the company with my co-founder proved untenable, the one board member was able to mediate a fair settlement and my co-founder left generally satisfied.

    A lot of lessons well learned from these experiences, lessons that all startup managers can gain from.

  • Sam

    This has helped me not feel so alone in my situation. Thank you!

  • Hazza Jay

    Hi Mark, it would be awesome to hear your perspective on this book: http://www.amazon.com/Hatching-Twitter-Story-Friendship-Betrayal/dp/1591846013. It goes along with what you’ve talked about in this blog post. Its scary to young entrepreneurs to hear about these things, as its the complete opposite of what we’re taught in school about work, friends and life. Thanks again for the insights!

  • http://byJess.net/ Jess Bachman

    I think you have wrote before that 50/50 is a bad idea. Its too arbitrary, built for deadlock. Just look at Congress, you need 67% to even get the Capital’s thermostat turned down.

  • Vasu

    @MarkSuster – i’d love to hear about some good methods/stories to manage relationships btw founders and employees. If you were a coach, top 3 lessons?

  • Mahendra

    I believe ‘Politics is when there are 3+ people in room.’ Generally, things goes fine till things needs to be managed between two. The dynamics changes when there are more. In this materialistic world, where relationship is becoming a scared word; these kinds of problems are going to be norm of life. I believe we would see more Solo entrepreneurs or couples as entrepreneurs in coming days. There are very few leaders who can take people along with them and also have got fantastic skill sets. Weakness of each other become transparent when they work so closely and it is not easy for an average human to accept these. I also believe this is one of the key reasons for high failure rate of start-ups..

  • http://zivazmanov.blogspot.com/ Ziv Azmanov

    Hi Mark,

    Thank you for the good post. This is a very important topic indeed.

    I think that picking a co-founder is almost as important as choosing a spouse (okay, I exaggerated a bit). Therefore, one should know what it is they are looking for in their co-founders.

    In fact, I’ve recently written about it based on my own experience, and would welcome your feedback (see: http://zivazmanov.blogspot.co.il/2013/10/what-makes-successful-founding-team.html).

    Best Regards,
    Ziv.

  • http://www.bluecoastrecords.com/ Cookie Marenco

    The last two posts were great, Mark. After several businesses without a mentor/coach the last 4 years I’ve had the opportunity to experience running a business with a coach. I don’t think we would have survived without him.

    I have always bought out my co-founders and never regretted the over payment to them in exchange for the long term relationship. Those relationships have become important contacts for our current business.

    I found a mentor by accident. I didn’t even know I needed one until we started working together. When he’s not around, I read you columns. :)

  • CMKelly

    This sort of thing has probably happened since the first wheel factory back in the stone age. An ancient consultant once told me about a company where the two founders refused to talk to each other. They would send a message with their secretary to carry over to the other’s secretary, who would get an answer and carry it back to the first secretary. This was before e-mail, but I got the sense that the situation would have been the same today.

    Two guys who worked with those founders went on to start their own company. They told me they had vowed never to let anything like that happen to them, even though they each owned 50% of their company. They agreed to alternate between being CEO and Chairman so one was always definitely in charge, but not always the same one. And they also hired that consultant to act as a kind of coach and help them get past any disagreements. It must have worked because they both became billionaires and were still friends decades later.

  • http://www.freddestin.com Fred Destin

    If you come across a good management coach who’s not Jerry Colonna let me know. Rarer unicorn than a $1bn exit :-)

  • http://www.tbkconsult.com/ Hans Peter Bech

    Different agendas are not the big issue – hidden agendas are.

  • http://bothsidesofthetable.com msuster

    Yes. For sure. And because “family run businesses” are a very unique class of company there are whole practices set up to help family founders. If you struggle make sure to research and find support groups, etc.

  • http://bothsidesofthetable.com msuster

    thanks, daniel. I’m sure it’s harder from portugal with less access than if you lived in the Bay Area or New York. It’s one of the primary reasons I blog. Happy New Year.

  • http://bothsidesofthetable.com msuster

    It’s hard. But there are many successful examples including Buddy Media. To each their own.

  • http://bothsidesofthetable.com msuster

    Thanks for adding that! Awesome. And yes, I always loved that quote.

  • http://bothsidesofthetable.com msuster

    Ha. No. I just got in a rut in Q4 because I had too much work so I couldn’t write as frequently. And thank you.

  • http://bothsidesofthetable.com msuster

    For sure. Especially at the end of school because it’s such a transitional period.

  • http://bothsidesofthetable.com msuster

    thanks for adding your story. Not atypical at all.

  • http://bothsidesofthetable.com msuster
  • http://bothsidesofthetable.com msuster

    Yes. I don’t like the instability of it all.

  • http://bothsidesofthetable.com msuster

    1. Open communications
    2. Clear roles, responsibilities & measurable targets
    3. An external coach

  • http://bothsidesofthetable.com msuster

    That’s great to hear. Feel free to mention his name here if you feel like it.

  • JohnSeiffer

    Having heard Noam speak on the topic a couple times, he doesn’t make a judgement about which is better (rich or king) just that things go smoother if founders make the choices consciously.

    It’s my contention that the press has done inexperienced entrepreneurs a disservice by constant promotion of funding as if it were the goal rather than a burden. This fosters the impression that entrepreneurial success always has to be defined by external funding and an exit.

  • http://bothsidesofthetable.com msuster

    Billionaires. Hmmm. I’ll say that sounds like it was pretty successful! ;-)

    The “not talking to each other” is surprisingly more common than you might think. Even in today’s world. Probably not zero discussion but almost none except perfunctory information exchange.

  • http://bothsidesofthetable.com msuster

    Ha. That’s probably true. I wish people would list some other names but maybe people don’t like to give up their coaches names!

  • http://bothsidesofthetable.com msuster

    Agreed.

  • JohnSeiffer

    @Fred Destin. Speaking as a past president of the International Coach Federation I’ll agree with you. Good ones are rare. Not everyone who claims to be a coach actually is one – let alone a good one. And even among good ones, the chemistry has to be right for everyone involved. And there are people who can serve that function very well who might not have considered themselves doing it till you ask.

    You don’t find what you don’t ask for. Just like finding good investors you probably need a referral and/ or introduction. Start asking around who knows someone who you could talk to about this.

  • http://www.bluecoastrecords.com/ Cookie Marenco

    My mentor’s name is Harold Fethe. He was a Sr VP of Human Resources at Alza Corp before and during the sale to Johnson and Johnson. He’s recently taken on VP gig for another bio-tech startup. Harold brings incredible insight, strategy, stats on human nature and personal interactions from his experience.

    Even though it would seem like advice to a small Hi Resolution Audio startup from someone from biotech and thousands of employees might be odd, but, human problems are human problems. He’s kept me from giving up more than once on those days when you can’t talk to investors or staff. Or the days when everyone seems to be on different paths.

    Harold’s taught me the word “no” in several languages. :)

    Recently, he’s been teaching us how to have “meetings”. Now, my staff won’t have meetings without him. We all want more Harold. We are very lucky to have him.

  • Shaunie

    My mother told me never to go into business with good friends or family. If you have a falling out, you not only lose a business partner but also a close friend or family member. She was a smart cookie!

  • Hazza Jay

    That post was the first time I became aware of this book. I am so silly.

  • http://clipppr.com/tk thomasknoll

    That whole “like a marriage” thing is so true.

    My wife is a Licensed Marriage and Family Therapist, who has worked with hundreds of clients. And, she has also helped me out with my last two startups.

    A couple of years ago, we got home after a particularly rough day between my cofounder and myself, and she had an epiphany. “Wow, startups are *so* much like the disfunctional families I work with.”

    She has spent years working on:
    Trust
    Fear and anxiety
    Interpersonal communication
    Power dynamics 
    Influence & dependence
    Any of this ring a bell? :)

    So, now she works with entrepreneurs.

    Clearly I am biased, because she’s my wife, but I am also lucky because she’s *really* good and I’ve been learning from her for years. But, her discovery sessions are free, so you can find out if there is a fit yourself.

    Site is on the way (been more focused on clients) but you can email KimberlyKnoll at gmail.

  • dskaletsky

    You had me at Larry Legend!

    Great and very important post, Mark. This is why a guy like Bill Campbell is so, so valuable in the Valley…

  • http://www.economicimpactrating.com/ d_politzEiE

    Finding the line between confidence and arrogance is imperative. 60% of startups failing due to “people problems” shows how important communication is far beyond just the business world. Our personal politics and nature leads us to feel we are infallible but stepping back requires that objective consciousness necessary to any relationship.

  • dookerj

    I don’t doubt that there’s wisdom in some of these posts, but it seems like nearly every entrepreneur-turned-VC HAS to write a blog, and reading them, I never take away anything useful. Just VC rant. Makes you lose faith in VC in general as a party to their transactions. Business isn’t about bad feelings, bad deals, skepticism, etc. Obviously it’s not about being dumb or overly risky either. John Doerr just has a Twitter account, and manages to get enough said in a few characters, and a few interviews, and it seems to all be good nuggets of knowledge vs these younger investors, talking about prestigious degrees and other stuff that doesn’t really matter.