With myriad challenges and obstacles faced by entrepreneurs, it’s a shame that the common theme behind startup failures isn’t financial, political, or organizational: it’s relational.
Partner issues, disagreements, and breakups are one of the most common reasons that companies, especially burgeoning companies, fail. In fact, even successful companies that survive the turbulent early years often nurse major partner issues that stymie further growth of the business.
It makes sense: by nature, early-stage businesses need to pivot. A lot. Because of that, it’s difficult for partners to stay aligned on vision, to remain in sync on what the right steps forward are. Company visions evolve (or not) as circumstances change, and the result can be major strife between business partners who were once on the same page every step of the way.
Research shows that few business partner relationships can survive the pressure—in fact, above any other obstacle, interpersonal tensions within the founding team are the main reason startups fail. In this article, we’ll take a look at partnerships in early-stage startups to discover why a co-founder may not be the ideal business partner.
Bad relationships can destroy even the most promising startups: take Reddit, for example
Recall the famous story about the founders of Reddit going to therapy to resolve their interpersonal conflicts, which nearly led to the demise of one of the most popular sites on the internet.
Alexis Ohanian and Steve Huffman were both just 22—and had worked on Reddit for only two years—when they sold it to Condé Nast for $10-$20 million. Sounds like a pretty successful exit, but not when you consider the fact that today, Reddit is worth more than $1.8 billion (yes, billion with a B). Their first sale was mere pocket change.
The pair began as college best friends but their relationship soured in negative correlation with the rise of Reddit. As the company continued to spiral down while they went their separate ways, they decided to meet for dinner. They discussed where things had gone wrong and worked on patching their friendship, even seeing Huffman’s therapist together before eventually reuniting—and successfully reviving Reddit in the process, bringing the company back from the brink of ruin.
Why is the co-founder relationship so important to a startup?
In Why Startups Fail: Deadly Mistakes of Business Startup Founders Explained, author Can Akdeniz cites Noam Wasserman’s The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, one of the top resources on the subject.
“According to Kirsner/Wasserman, interpersonal issues, frictions, divergent opinions and poor team cohesion are the main culprits for business failures in otherwise promising startups. A couple of studies among startup investors revealed that, according to the respondents included in the sample, up to 65% of business failures are linked to disagreement within the management team.”
In most cases, they explain, these co-founder conflicts are the result of poor communication, deficient planning, or misalignment in pursuing a common goal.
In The Founder’s Dilemmas, Wasserman examines the early decisions faced by entrepreneurs that can make or break their startup, including the decision to bring in co-founders, investors, and employees (or go it alone as far as possible). He points out that it’s not just money at stake: these decisions can make or break friendships and familial relationships, too.
The damage and trauma of navigating bad partnerships can be so bad that promising entrepreneurs never go back, never build their dreams or achieve the success they could have.
Business partnerships should be approached (almost) as carefully as marriage
Think of it like marriage: you should either pick your business partner as carefully as you would a forever spouse or stay single. Anything below that level of consideration is signing yourself up for preventable heartache.
There’s a honeymoon phase before the real world comes crashing in, and while you should enjoy every moment of that golden-hued fantasyland, make sure you’ve also got deep roots planted to be able to weather life’s inevitable storms.
Once you’ve joined forces both verbally and on paper, dividing assets is a painstaking process—better to keep things safely separate if you’re not sure whether you can stick it out for the long haul no matter what.
Hear it from the 1909 family:
- “I went into business with two really close friends. When it was just an idea on a whiteboard, everything was amazing, but when we started to try things and realized all our ideas didn’t go as planned and we’d have to pivot, things started to get rough. Agreeing on how to pivot was not easy. Then money started running out and things got worse. Every idea felt like it was life or death for the business and we couldn’t agree on anything. Our relationships ended up getting really bad and we ultimately couldn’t work things out. The experience was draining and devastating because we lost both our business and our friendship in the process.” -Anonymous
- “Startup partnership is nothing to take lightly—I’ve heard it said the second most important partner after your spouse is your business partner. I’ve experienced this firsthand and have learned the hard way how critical it is to do your due diligence before jumping into a partnership. If you and your partner don’t know each other well before you join forces, or are not clearly aligned on roles, responsibilities, and goals, then the partnership could be the death of your startup (and wreak havoc on your personal life in the process). Losing friends, time, and good ideas on an impulse to work with anyone who seems to see your vision isn’t worth it.” – Aaron Nosbisch
And, of course, a contrarian perspective because we like to keep it balanced around here 😉
- “I can provide plenty of examples of when co-founder relationships were hard, but I honestly think co-founders are a great option. With my previous business partners, we had all worked with each other for over ten years, and were friends well before starting a business together. We certainly had our ups and downs, and our friendships have changed over the years, but today, we remain great friends and valuable sounding-boards for our new ventures, which we are pursuing individually. With my latest startup, I began without a co-founder, but if the right person comes along and the timing is right, I am more than open to bringing someone on board as a cofounder. With co-founder(s), you get more output, diversity, perspective, strengths, and counterbalances. Over time, you build a level of trust and respect that is hard to replicate with a typical employee—even if you don’t always agree. Importantly, be sure you know who you are getting into a close working relationship with and discuss terms early and expectations often. Finally, consider protections (such as vesting) in case things don’t work out.” -Anonymous
At 1909, we’re not afraid to diverge from the norm: we don’t push acquiring business partners. We encourage collaboration within the 1909 family—both giving to and receiving from the rich resource we have in our community members without having to entangle yourself in complicated legal bonds before you’re ready. We find this approach gives founders access to the talent and help they need to get started while also providing them time to nail down their business model and discover who they work well with (the answer may surprise you: check out our article on the many business benefits of diversity).
We encourage members to take a careful look at the well trodden path laid by startups before us, to consider whether the best path forward is to learn from the mishaps and major wins of your predecessors and proceed with caution—or to pave your own path entirely.
Check out this member testimonial for a peek at the kind of community we’re cultivating here:
- “Having started companies before and lived through the emotionally painful and financially costly process of partnerships gone bad, having a resource like 1909 is vital. You have not only a whole community that can help you in your project, but you can also avoid taking on partners too early and giving away too much equity and company direction (which can be a major pitfall of a startup). This could save a founder millions of dollars in the long run—and tons of headaches. I could not be more happy to be a member of 1909 and this awesome community.” – Ryan Poole
For more on this topic, check out How to Fix the Co-Founder Fights You’re Sick of Having — Lessons from Couples Therapist Esther Perel