Over the course of the last 20 years, I have met many founders and founding teams.
What is common to all of them is a passion and vision to achieve something different that makes things better.
Either to bring a change in the way a business operates, or how to bridge for consumer needs that are missed — patterns that will change the future over the course of next decade.
We are committed to sharing our learnings from Kalaari that might be helpful to entrepreneurs in ‘Decoding’ their startup journey.
Starting up is hard, and that is a fact.
Hence, the keystone question that all founders need to establish is, “Why do I want to focus on this idea and sign up for the journey of entrepreneurship?”
Write this down, reflect, and refine before you fully jump on a path of no return.
An idea is a hypothesis that then needs to be proven. The need of a certain product or service in the market is usually clear only in the founder’s insight. But many things remain uncertain in the execution of an idea. New open questions challenge our thinking and changing variables is a given constant.
For a company to be successful over a course of 10-15 years, the entrepreneur must go through the process of finding the right product-founder-distribution-capital-team-market fit.
And the list does not end here.
This is the reason why the success rate of startups is <1%.
However, what’s often spoken about is the timing of a market, strategy, or business model. We will get to these in future topics.
What’s not spoken about is the lost opportunity due to founder conflicts. We will focus on that in this blog.
Conflicts are not new, where there is power and money, conflicts are inevitable.
Situations become emotionally charged very quickly, and all reasonableness and logic are out of the window. Sensible and reasonable solutions keeping long-term benefits are rarely the norm, and it’s too late perhaps when there is reflection of the cost of conflict and the lost value.
Sadly, I have been a witness to many conflicts over the course of my journey.
A good idea, a good product, a great market opportunity — they fail to achieve the potential of success if internal founder conflicts are not amicably resolved.
Generally, entrepreneurs form teams with people who have been friends, college batchmates, ex-colleagues or long-term acquaintances — someone they know personally. Hence, there is an implicit assumption that there would be minimal conflicts.
What should founders consider at the very beginnings of their journey?
Even if the co-founders are very familiar with each other and have a deep past relationship, it is good to start the journey keeping in mind that there will be disagreements and conflicts down the road.
There can be numerous reasons for a founder conflict: misalignment of the vision or roles & responsibilities, co-founders may not equally skill-up as the startup scales, many people who are extremely good at 0-1 of a company may not level up as the company goes to 10-100 or beyond, and so on.
While there can be a lot of potential points to discuss, I have tried to summarise them in these bullet points with some questions one can reflect on:
- Establish Clear Roles: Who is the CEO? Who is responsible for what functions of the company? If there is under-performance in any area, how do we address it? Who is responsible for dealing with external stakeholders? If one founder gets more external visibility, how do others feel? Who is responsible for maintaining the morale for internal employees? If co-founders have similar skill sets, how to ensure the organisation doesn’t get misdirections and bear the burden of favouring one or the other founders?
- Conflict resolution frameworks: If you disagree on anything, who calls out the issues? What is the protocol for discussion towards consensus? And who gets the last vote to align to a decision?
- Company above any individual: Have this established as core value at the start. Everyone involved needs to be very certain that their personal goals are not above the company’s goals. And the employment contracts signed amongst the co-founders need to reflect this. If a co-founder chooses to leave, what happens? Document this.
- Skilling Up: As the company grows, what if your personal growth isn’t aligned? For example, not everyone is a good manager, even if they like the notion of the title. What if you are a superb individual performer? What happens as the company scales, will you be willing to bring in others who can run that function better? How will each of you self-evolve as the company grows but also be reflective of self limitations even if it is self choice? For example, you might not be a great engineering manager even if you are a great technology architect. Perhaps bringing in someone who runs engineering, and the founder being CTO is better for the business? Some of the skill set gaps do not emerge until the company starts scaling.
- Equity Split: Who gets what? Are the incentives aligned for all co-founders? Ideally, this split should reflect the unique contributions, skills, and commitments of each founder not just at the beginning but over the long term, based on how the roles of each co-founder will evolve as the business scales. It is inevitable, over time, someone feels someone has too much or too little equity in the game. Consider a situation where a co-founder joins you with lower equity at the start: let’s say maybe the reason was that it was you who came up with the idea. But as the startup begins to scale, his/her role becomes even more critical, and they may bring better expertise in the expansion of the business. Do you have provisions in place that can enable your co-founder to get more equity in the business? If not, why would they decide to stick around when your company needs them the most, if their incentives are not aligned? Conversely, a co-founder has significant equity, but after a couple of years decides to not pursue the hard road of the startup, what happens to this equity?
- Trusted Board: Cultivate people that you collectively respect and trust to go to for advice, especially when a conflict is in place. Who is your go to advisor? If you don’t have one, put it in place before you need such help.
- Legal Structures: Form a structure that is legally strong to handle conflict management. Leave aside the personal relations, a business is strictly professional — there must be contracts placed to handle conflicts and misalignments. Majority of startups fail because that is not the case. A co-founder leaves in one year, but there is no way to remove them from the board of directors. Perhaps this person is angry and hence does not act as a Director responsible for all stakeholders. If you cannot remove them, the company has no way to move forward.
- Limelight: If the startup continues to scale and reaches a high point, the founders do get a lot of limelight, from media to fellow founders to even employees. Often, one founder gets more limelight than the other, which may result in one of the founders feeling left out, and it inevitably happens. Have that conversation earlier — who gets to be the face of the company?
These points have helped quite a few of our startups, and I hope more founders come forward to embrace these and other discussions as early as possible.
To reaffirm, personal relationships do not preclude conflicts.
Focusing on conflict management from day 0 of the business through open communication and transparency is essential to ensure fairness and alignment among co-founders and the eventual success of the company.
Often when you look at the company that is phenomenally successful, you can point to a cohesive co-founding group.
Rarely, a company is successful when founders are mired in conflicts.