One of the common reasons for issues in startups is disagreement on the way forward.
These issues and disagreements come up typically at two inflection points –
- Either when the startup is doing very badly and tough decisions are to be taken e.g. to further reduce the already low salary or
- When the startup is doing really well and tough decisions are to be taken e.g. to sell out and take the cash or to stay on and grow even more.
How does one address this? Well, one way is to anticipate it and have a philosophical discussion and agreements with the co-founders on how different situations will be handled. This discussion should happen at the beginning of the journey and NOT when the situation arises.
What will be the decision in case of difficulties? What will be the decision in case there is an option to sell out? It is possible to build some of these agreements into the shareholder agreements or articles.
Some questions I ask our portfolio companies to discuss among themselves are:
- Who among the founders will be the CEO, and why (If you do not decide at the beginning of the journey, this can be a tricky one to settle. If you do not fight over it, your spouses may.). If required, would you be open to a professional CEO.
- If someone offers to buy you out for Rs10cr in a year, what would you do…
- What will be your measure to say that the venture as ‘failed’ and give up
- What is your plan B?
- How long can you go without a salary (or survival salary)?
One way to protect the venture in case of conflict is to vest the shares of the founders. I.e. If there are 4 founders in a company with 25% shares each, they may decide that this 25% will ‘vest’ over a 5 year period. This means that if one of them leaves at the end of the 3rd year, he/she will get only 15% equity and the rest will be shared between the remaining founders. This can be documented and formalized.
Alok Rodinhood Kejriwal
vesting is a great idea.
also have a common, mutually agreed arbitrator between the founders agreed and decided BEFORE anything starts
Prajakt Raut
I agree… deciding on what the response to different situations would be should be decided before you start up
Alok Rodinhood Kejriwal
Prajakt, you may like what I wrote in Entrepreneur Magazine on this subject too!
As featured in the December issue of Entrepreneur Magazine:
Mr. and Mrs. Co-Founder – How do you do?
I have been married for the past 21 years (I am 43 years old) and I think I’ve done pretty well so far ☺. Yeah, I bet I got a better deal than my wife (I mean, who wants to be married to a crazy entrepreneur?), but that’s the way life is.
In this month’s column, I want to explore the fine and delicate relationship of Co-Founders, using the metaphor of Marriage.
Marriage is right there in your face. You are either married or you aren’t. Everyone knows folks who wish they were married or wish they weren’t. Marriage ‘Aunties’ abound. Those who have had terrible marriages become marriage counselors! Everyone knows something about being married!
So, what’s the connection between Marriage and Co-Founders?
1. It’s about surviving, really.
I meet a lot of people. That’s my job and also my passion. I’ve noticed how young people go on and on about how they met each other, who smiled at whom and how they shared their first train ride, etc. A couple of years later, those stories seem to vanish.
On the other hand, when I go for spiritual treks, I meet couples married for over 30 years, who barely speak to each other. But they are supremely happy and completely in sync with other!
Co-founders essentially need to last. And last for a long time. If you look around at the biggest entrepreneur success stories – Microsoft, Google, Hewlett Packard, Infosys, Naukri.com, etc… they all share a common theme of long-term co-founder survival.
Good things take time. Great things take forever.
If you want to build long-term and great entrepreneurial value, you must partner with a co-founder with whom you can last forever.
2. It’s about what’s common – not uncommon!
Many entrepreneurs, VCs and management experts believe that great co-founders are those who have distinct complimentary skills. If one co-founder is aggressive, outspoken and extroverted, the other co-founder could be soft spoken, introverted and mild. From a skill set point of view, having a co-founder who is great at Business and Finance is a perfect match with someone highly skilled at Technology and Operations.
All this is common sense and makes good theory.
What really matters is not how many ‘uncommon’ skills and idiosyncrasies co-founders have between them, but rather how many ‘common’ traits they share.
I say this because of my experience in marriage. I believe that if husband and wife have to really get along, they must share a common set of values, morals and outlook towards life. Yeah, it’s fun to have a wife who likes Air Supply while the husband likes ACDC but the point is, they both enjoy music!
When difficult and personal decisions come up, couples who ‘think alike’ pass through well.
In business, finding people who can fill up your lack of skills is difficult, but not impossible. Lots of great professionals are available on hire. If you are an accountant building a website that predicts the weather, it’s easy for you to hire a meteorologist and a technologist.
But if you want to make it the most successful weather forecasting business on the planet, then you need a co-founder who is more ‘like’ you than ‘unlike’ you. You need another twin, a photocopy of yourself, someone who shares the same DNA as you.
The reason being like in life and marriage, business also imposes a set of values, rules, morals and character expectations on its owners. It’s best if co-founders share a common set, so that when critical decisions arise, both co-founders think alike.
3. The Citizenship Test is passé – Try my Conference Room Test
I’ve heard in the US, when disparate people get married and claim Citizenship benefits (automatic grant of citizenship because the spouse is an American citizen), these couples are put through a rigorous test! They are asked questions about which partner snores, what is the wife’s shoe size and whether the husband lifts the toilet seat up when he takes a leak or not?!
The test is to conclusively prove that the marriage is not a commercial one (‘marriage for convenience’) where the couples happily separate after gaining citizenship.
For co-founders, I have a similar test. It’s called the ‘Conference Room Test’. To check if co-founders are really compatible and will last long-term, do this:
Separate the 2 or 3 co-founders into separate conference rooms and ask them a really tough question. Eg: “Your brilliant CFO has secretly borrowed some money from the Company and is secretly planning to return it. Now that you know, will you tell the board? Will you fire the CFO? Or, will you just let it pass?”
Trust me, truly compatible co-founders will answer this difficult and tricky question almost identically.
It’s this sync that makes them successful.
4. Being Nasty is being good
I have terrible fights with my co-founders. To one of them I said, “You are my partner; I have the right to tell you anything I want, and expect you to do the same.”
Co-founders can tell each other what no one else can. That’s exactly what great marriages are about. And the reason it works is because it needs a heart of steel to tell the truth and another heart of steel to listen and accept it.
When you know that the other person is truly being genuine, that steel melts and becomes gold.
So if you are planning to build a great business, find a great Co-Founder. If you are happily married, use the same principles. If you are not, get counseled, fix your marriage and settle in.
All so that when someone asks the both of you, “Mr. and Mrs. Co-Founder … how do you do?” – you don’t fumble or merely look at each other or keep so quiet that a star can be heard twinkling! Instead, you will smile (and show your newly polished teeth) and answer in unison, “Very well, thank you…!”
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Prajakt Raut
Thank you Alok. Great article. You really do write well.
The conference room test is a great idea. When we accept companies in our accelerator program, we do ask them to have a philosophical discussion on various aspects on which they may have tough decisions to take. This is to help them think through what their response could be when those situations arise. Often we notice that founders are not aligned on the scale of aspiration, just because they had not discussed it earlier.
Here’s a link to a piece that I had written on what an ideal founding team should look like. https://thehatch.in/what-should-an-ideal-founding-team-look-like/
Aditya Gupta
Hi Prajakt,
Thanks for sharing your 2 cents.
Hi Alok,
Great article. Would you mind sharing some more questions for the conference room test?
Thanks in advance.