Louis Buys is co-founder of education payment start-up Karri. Karri is his second venture. His first failed because the product didn't fit the market. That's a typical start-up scenario. But the business was also affected by another familiar story: university friends start a business on a handshake. Later, outputs differ between partners. Resentments build. Daily battles obscure business realities. The business becomes ungovernable. The team breaks up and spends months wrangling about how to allocate the value each member believes is due to them.
While broken relationships weren't the only factors in the demise of Buys' first business, they did teach him some of the most important lessons about founding teams. "It's not an easy journey," he says.
"Building a start-up is the professional equivalent of getting married, having a baby, and emigrating all at the same time," says start-up attorney and Venture Incubation Program mentor, Steven Ferguson. "It's intense, emotionally taxing. No matter how strong they are, relationships will be constantly tested"
The critical issue is whether the founders can address the conflict in a way that moves the business forward.
Typically, says Ferguson, when conflicts do arise, it is very rarely only about money. Instead, "it usually boils down to one of two things — either a founder doesn't feel valued, or they don't have enough control over key decisions being made." The result is a creeping resentment, which if left unchecked, can escalate into full-blown conflict and eventually the dissolution of the relationship.
To counteract this, says Ferguson, "founders need to have a good idea about who they are and what they want going in. What are their personal motivations for doing this? What do they expect to get out? How much risk are they comfortable with? How long can they go without a salary? Is there anything in their personal lives that might affect the focus and energy they can devote to the startup?"
Armed with some self-awareness, they can then have frank conversations with each other that focus in on the dynamics between the people involved, their respective strengths and weaknesses, and the potential issues that could derail their relationship. This is especially challenging if different skills are required at different times.
In the early days, when the success of the startup is completely dependent on the efforts of the founders, everybody needs to be clear on what is expected from them. What contributions need to be made to the business and when? What will happen if they don't pull their weight? "In a new business, no-one fully understands the scope of the work to be done. It's important to realize that not all skills coming into a team are equal," says Buys. "Each person's role will morph over time. In the early days, for example, the engineering team will have far greater input than the accountants."
Clearly documenting this at the outset helps founders allocate the various roles and responsibility between themselves. Buys is emphatic on this point: "When you're discussing ideas over the dinner table, make sure you write them down. Then work back to what you need to do to achieve the product." Doing so helps to fairly decide who has ultimate authority and accountability for certain key decisions. This also helps founders to lay down the logic of decisions that the team is making — and identifies where the ownership for those decisions lies.
Many partnerships end badly, with acrimonious sentiments and accusations tarnishing the sheen of the business vision and often signaling the demise of the entire venture.
Just like a divorce, there are no winners in extended battles between co-founders who fight tooth and nail for a stake in something that, ironically, often ends up being worth nothing. "Ideas are useless until they are executed," says Ferguson.
To safeguard the business or future working relationships, at the outset, while sanity still prevails, founders can agree on mechanisms to deal with different circumstances and events that may cause a founder to exit stage left. Buys agrees: "The aim is to agree on possible future scenarios, and how to deal with them. These agreements can be brutal, covering bad leavers, good leavers and also how to address poor performance. They can also be softer. But ultimately they help to catch issues early — as they arise. If you're upfront about the process, you can save a lot of stress down the line."
What if the issues are unresolvable? Ferguson says that "a clean break is often the best policy, even if it ends up costing more than you are willing to pay out to a departing co-founder. Carrying the deadweight of a non-performing co-founder or dealing with morale-sapping, ongoing conflict will end up costing far more in the long run. Buys agrees: "If I knew then what I know now, I would have looked for the signs much earlier. As a start-up founder, you can only develop the maturity you need by knowing what it feels like to be completely out of your comfort zone, to have difficult conversations and to reframe problems as learnings." At the end of the day, he says, "you're paying school fees. If it's the right thing for the business, you need to learn how to do it. Even if it means learning the hard way."