65% of Startup Failures are due to Co-Founder Conflict!

Advice from Annie Garofalo, CEO of Confidante. Confidante studies and supports the interpersonal dynamics of founding teams. Knowing that 65% of companies fail because of co-founder issues, they build preventative programs to create a strong foundation for the long-term partnership and survival of the company.

Confidante helps founders initiate those crucial yet difficult conversations through various services, including a partnership agreement program, founder circles for entrepreneurs to share their experiences, and workshops on how to build a healthy team relationship. They regularly partner with incubators, accelerators, and VC, leading workshops and working directly with early-stage founding teams seeking to build a strong relationship from day one.

More tips and advice on building a strong co-founding team can be found in Confidante's newsletter, podcast, and on her website.

1.Failure Modes

I talk about failure modes a lot. I want to define what failure is, especially from a team lens. The overarching caveat is that I don't view a team splitting up as a failure. It can be a success if it wasn't the right team or wasn't the right time. There are two big failure modes. One is that the wrong team is working together, creating a toxic environment or communication methods, and it is just not a good situation. So if you're sticking together but with the wrong person, that's not great. The second kind of big failure mode I see is if the team when the team finally does split up, it does so in a very explosive manner that has a lot of collateral damage, where there are just all these unmentioned kinds of tensions and wrongdoings coming to the forefront, which is just not productive, not helpful, and can lead to a lot of negative impacts, both personally and on the emotional level, but also financially on the startup. 65% of high-potential startups fail due to co-founder conflict. And it's largely because of one of those two kinds of situations.

2.5 Different Possibilities for Conflict

There are generally five different scenarios. One is the failure of believing you need a co-founder to succeed and defaulting to that. The second is moving too quickly to formalize a partnership. There are a lot of founders who say we needed to start working together on this yesterday. And that kind of mentality does not bode well for creating the right partnership and equity schedules and all those things. The third is believing that conflict is an inherently a bad thing. The story I always hear is my co-founder and I are doing great. We're so healthy. We're always on the same page, and we never disagree. And my reaction to that is that it's actually not great. The fourth is if there's a tendency to avoid the hard conversation. It is similar to believing that conflict is a bad thing. But even if you think conflict is good, you only talk about the easy disagreements and avoid the hard ones, like titles, decision-making structures, and equity splits. The inability to do that, or the avoidance of that, is a big challenge. The fifth one is allowing the co-founder relationship to get bumped down the to-do list. So, as every founder has so many things on their list, it's very easy to bump in the time you've scheduled or, say, let's use our founder check-in time to talk about this operational kind of fire that just came up. That can lead to many undiscussed frustrations or not even taking the time to reflect on your frustrations until they boil up to the surface and become less manageable.

3.Going Solo

If a founder knows that they like to make decisions on their own and move quickly in doing that and feel bogged down by other perspectives, that person should be a solo founder. Amazing companies can be built with a founder who wants to move quickly and be the sole decision-maker. That person needs to know that versus someone who knows they're more of a team player and do their best work when they have someone to bounce ideas off of or want that emotional support within the company of the highs and lows. For example, when a rejection comes, if your coping is commiserating with someone else, that person would benefit from having a co-founder. They don't view the additional time it might take to make shared decisions as a con larger than the benefit of having another person there. Some data shows many benefits to partnerships, but going solo is better than building with the wrong person.

4.Co-founder Compatibility before Formal Startup Structure is Key!

The biggest example here, or the one that captures it the most, is two students I mentor for the Harvard Innovation Lab and see this all the time. They want to start a company together. They had a school project that they think has a great market. They start the company; they incorporate quickly because that is often viewed as the first step of starting a company. And they choose to do a 50/50 equity split. A year later, as they graduate, one person gets a consulting job at BCG, and then the other wants to stay full-time at the startup and put in place a vesting schedule. They haven't talked through what that would look like. The terms they incorporated and their governance structure must reflect where someone leaves after a year. And so there are just so many different specific contexts and things that you need to understand about each other to make sure that you're having the right terms in the first place. So, delay the paperwork as long as possible and instead focus on learning about the company you want to build your potential co-founders and how they respond to certain stressors. Figuring out where this startup fits into their life is key. So, always have the right context before diving in, especially on the legal side. The 50 founder dating questions from the first round are helpful and just understanding motivations. Another way to test how you work together is to do trial projects that specifically put yourself under pressure. So whether it's hosting an event or building a feature by a certain deadline, using this to gather data about each other, and treating this like a marriage, You wouldn't get married to someone after you've been dating them for a month. So take the time to dig and support each other and figure out your compatibilities.

5.Disagreement is Inevitable and Necessary!

There is sometimes a belief that conflict is a bad thing. The thinking that we are always on the same page and never disagree. For some, in those cases, it's either someone's not being honest because the environment isn't psychologically safe for some reason, or your team isn't getting the best outcome because both of you have the same opinions all the time. Both of those are bad outcomes. You do want active disagreement and conflict, but you want that to happen in a very healthy and empathetic way. The one example that's coming to mind is I was working with a team that had been working together for about two years and were co-CEOs. They started that because they both wanted an equal say. Over time, as they approached their series A, investors pushed them to switch to CEO and CTO. And that was a really hard conversation they put off for a long time. They didn't overtly have the conversation, but they both knew that it was something that they needed to talk about. But we're avoiding it because they cared so deeply about each other and didn't want it out of fear of hurting the other person that they didn't want to have that conversation. So they just put it off for about six months until they were about to fundraise. And it became a more contentious topic towards the end because each of them had built these narratives in their head about why they should be the CEO, whereas if they'd had that conversation initially, they could have figured it out. The solution they came up with was to split the CEO and CTO titles, but the CTO would hold on to some of the decision-making power they had as co-CEOs and embed that in the co-founder title.

I unfortunately see this as very common. In the best cases, there's this shared understanding that the co-founder relationship is incredibly important, and there's a commitment to doing that. Those teams usually have time scheduled on their calendar, whether it's weekly or every other week. But then, I see a breakdown in execution, where the time comes to have that conversation. And it's much easier to talk about an operational fire that's arisen or to reschedule that meeting in lieu of other meetings that need to happen that week just because time is such a limited resource. That is when this kind of frustration will build without even that person knowing, even the person experiencing it; they almost don't even allow themselves time to reflect on what their relationship feels like. They may feel undervalued. The other co-founders do not wait because they need more insight into that. They may have frustration with how a team management issue was handled. I recommend you skip one meeting, but if you skip two in a row, that raises a flag. The agenda that I recommend is a four-part agenda. What's one thing I've appreciated about my co-founder in the past two weeks or one week since our last meeting? Two, what's something that's frustrated me or raised my heart rate a little bit? Three is what's a concern that's been on my mind, whether that's around the business model or the company or something personal, but just being vulnerable and sharing something that's been taking up headspace. Then, the fourth is to ask for support from your co-founder and how they can help you over the next week or two weeks.