Conflict management between founders at startups

Startups often take birth when a couple or more individuals come together on a common insight to solve a specific problem or create a new space. Typically, co-founders tend to be college mates or professionals who get inspired by an idea and commence on a journey to build a business around it. In this excitement of starting up, key tough questions may be ignored as the business is built up.

As more founders commence new businesses, it is unavoidable that conflicts creep in between them. As new undertakings are often a work of love and sweat, it’s natural that entrepreneurs become emotionally attached to them. This can often result in disagreements between founders on how to run the business, responsibilities to be shared, capital calls, and several more.

Team alignment is essential to running a successful company, says Harvard Business School professor Noam Wasserman in his book ‘The Founder's Dilemma’. In the book, the professor states that conflict among co-founders causes 65% of high-potential firms to fail. While, team and co-founder conflicts are among the most common reasons that startups fail, right up there next to financial problems and a lack of market need/ PMF.

We share some thoughts on what actions early-stage founders can take to avoid this predicament:

• Discuss the hard questions before starting up!
  • Indian founders often tend to avoid conflict and prefer to postpone sticky issues rather than address them. The mindset is that co-founder conflict is bad, so if we minimize how often it happens, that’s the best possible case. This often results in key decisions never being fleshed out in the open. Instead, co-founders should spend quality time deliberating on some of the points below that may help avoid disagreements in the future:
    • Founders’ present financial strength requirements and expectations of salary
    • Make a list of all of the areas needed for your business. Then figure out who is best at each part, and assign one person to it.
    • Personal concerns – Health, family, others
• Enter into an inter-founders’ agreement
• A founders’ agreement is an operating agreement that solidifies the responsibilities/ duties of a company and outlines how the organization will be managed. This contract will depend on the nature, size, and stage of your business but, ideally, a solid agreement codifies the following:
  • Responsibilities/ duties of every founder
  • Founders’ salaries and title
  • The financial stake of every partner
  • Dispute resolution mechanism
  • Procedure to be followed in case a co-founder does not wish to continue/ exit
  • Reverse vesting – This is a key clause often overlooked in the Indian context. Reverse vesting ensures that a stake in a company only vests to a founder if he has spent the requisite time on the business and solves for dead equity on the cap table
• Potential action points during disputes:
  • Despite the best of measures, disputes are inevitable. Experts agree that co-founders should seek to address the issues when they germinate rather than allowing them to fester. Usually, unaddressed points tend to result in rifts between partners which can then potentially derail the business.
  • It is essential to keep communication lines open between co-founders at all times. It usually helps if founders talk to trusted friends, investors & mentors and seek guidance. An unbiased mentor can often provide the best path to conciliation!

Have any other suggestions to address conflict amongst management teams at startups? Write to us with your ideas