There are many reasons why start-ups fail. They could run out of money; their product may not function properly; the competition may whip them; or they are not able to find paying customers - it's a long list! However, one of the commonest reasons for a start-up going belly-up is conflict between founders. Unfortunately, this is very rarely discussed, even though it's so prevalent, because this is a taboo topic. Because no one wants to wash their dirty linen in public, it's one of those things which is buried under the carpet.
Friction between founders can be the death sentence for companies which are failing. This is when the blame game starts, and rather than trying to salvage the company, the founders start complaining that the others are slacking. Interestingly, conflict can be an issue even when the company's doing very well! One founder feels that he's putting in all the effort, and though the other one is shirking, he is still being rewarded disproportionately, and he can resent this.
Founders get together to start a company with the best of intentions. They are happy to team up, because there is strength in numbers. They also know that investors prefer funding a team, where the founders complement each other's skills and strengths.
The trouble is that as the company matures and evolves, the demands on the founders change. While some can adapt, not all are able to do so. When one of them fails to recognise that he is no longer contributing to the company's growth, this sets the stage for future conflict.
Thus, a founder will continue thinking of himself as being responsible for birthing the company, and will therefore always believe that he should be treated as an owner, no matter how big the company has become. However, if they are unable to grow with the company, they start acting as a bottleneck which strangles the company's prospects, rather than adding value. This causes all kinds of ego issues, especially if the other founders are able to continue contributing effectively. This becomes an emotional, touchy topic, which no one wants to bring up. This means the founder who's doing all the work has to carry the dead weight of the other co-founder, but is unable to discuss this openly with him. As a result, he gets angry and resentful, but because he can't talk about it, he bottles it all up, until it finally bursts out one fine day.
The founder who's not being able to contribute anymore can continue to delude himself up to a particular point, but at the end of the day, if he's honest, he understands that he's no longer doing his fair share of work. This makes him uncomfortable, and he feels threatened. He may try to over compensate by doing more of the stuff which he understands, but this may not be in the company's best interests. Because he's worried about his future in the company, but can't talk about this to any one, he starts behaving in a completely irrational fashion.
What makes matters worse is that no one is willing to discuss this topic. Board members can sense that all is not well, but they're not sure how to address the problem, because it involves such touchy, personal issues. They feel that it's the founders who should resolve this amongst themselves, and therefore prefer staying silent. Also, they don't want to be seen as taking sides, or precipitating a crisis.
Sadly, founders are often not able to resolve the issue, because of misplaced personal loyalties, based on their past history and friendship. They often don't have the maturity to understand that they need to put the company first, and their personal interests afterwards.
This is why the matter drags on for a long time, and this causes a lot of harm, because they are trying to paper over the cracks, rather than address the issue head on. Unfortunately the resentment keeps on simmering, until it finally blows up, and then the company implodes.
Handling founder conflict is one of those topics which no one wants to take responsibility for. Because no one wants to bell the cat, everyone prefers to turn a blind eye to the problem, and continue pretending all is well. However, when a crisis occurs for some other reason (for example, most commonly when the company finds it is running out of money), this often brings matters to a head, and it makes the crisis much worse. When you need founders to be helping each other in this tight spot, they end up fighting with each other, and they may drag the company down because of their personal ego issues.
The best solution to founder conflict is to prevent it - and this is why selecting the right co-founders is so important. You should spend even more time checking compatibility when selecting a founder, as compared to selecting your spouse! Treating the dispute can be very hard, unless the founders are mature and emotionally self aware. If they have a high EQ, they may be able to resolve the problem, but the reality is that if they had a high EQ in the first place, matters would never had reached this sorry pass!
There are no easy answers, and because each situation is so unique, the founding team needs to resolve it for themselves. You need to remember that other start-ups have dealt with this problem earlier, and unless you find the courage to bring it out into the open and address it head on, it's not going to just magically disappear. Yes, it can be a painful process, but not addressing it causes far more pain.
Step number one is not to jump to a solution, but to spend time trying to identify exactly what the problem is. What's the underlying reason for the conflict? Is it incompetence? Is he out of his depth? Is he burnt out? The truth is that you can try to resolve this - after all, you do share a lot of camaraderie, which is why you decided to start the company together. You can tap into this reservoir of good will, by remembering the good times, and using these to help you resolve the contentious issues amicably.
There are success stories as well, where the founders disagreed with each other, but instead of splitting up, they took time to sit down and make things work out. However, you need to be willing to engage in difficult conversations in good faith. If you are mature enough to be able to disagree intelligently with each other on a daily basis when running your company, it's very likely that problems will never reach a crisis situation.
Founders should sign inter se agreements to deal with some of these tricky issues, to prevent them from blowing up. Yes, when everything is hunky-dory, you may believe that it can never happen to you because you are such close buddies, but it's still important to discuss the possibility. If you do so, at least you have some kind of plan to deal with it, rather than getting completely blindsided.
If you don't have an inter se founder agreement, this itself is a red flag for investors. It means that you are being immature, because you've not thought about this possibility. A much more mature approach is to say if there is a conflict, we do have a plan to deal with it. This will inspire investor confidence, because it shows that you are prepared for all contingencies, and will not let the company go belly up because you are fighting with each other.