Navigating the Choppy Waters of Startup Conflicts: 7 Main Reasons the Co-founders May Tear Apart
Do you know when you would never have a conflict among founders? Only if you are a solo founder. Otherwise, I believe there’s little chance of building a company without ever encountering arguments or disputes that could lead to conflict.
In the past week, anyone remotely connected to the tech and startup ecosystem has undoubtedly heard about Sam Altman and the OpenAI saga. Let’s not dwell on that, though. Instead, I’d like to discuss with you the potential main reasons for startup founders clashing, how to mitigate negative consequences, and how to prevent a breakup between entrepreneurs.
Disclaimer: We might not be privy to all the details and nuances, as openly discussing conflict cases is rare. However, some examples may capture the essence and offer insights into building relationships with your co-founders and your team.
Do you run an innovative tech startup? We are investing in early-stage revenue-generating software startups and would love to hear from you! You can reach us at info@leta.vc or fill in the form here.
1. Strategic Divergences
In the early days of Netflix, Reed Hastings and Marc Randolph had differing views on the business model, leading to a public conflict. While Randolph was focused on DVD sales, Hastings pushed for a rental model. This disagreement eventually shaped Netflix’s future. Hastings’ vision prevailed, turning Netflix into a rental service and later a streaming giant, leading the company to unprecedented success.
- Advice: Regular strategic alignment meetings and open discussions about long-term goals and methods can help mitigate these divergences. It’s crucial for founders to be flexible and consider the potential of adapting their strategies.
2. Blurred Lines of Responsibility
In early-stage startups, founders may wear multiple hats, leading to confusion about who is responsible for what. For example, if two co-founders are both involved in product development and marketing, disagreements may arise about product features or marketing strategies.
- Advice: Defining roles and responsibilities clearly from the beginning and adapting them as the company grows is key. Create a document where you clearly divide the domains between each other.
3. Role Confusion—The Founder Sometimes Forgets Being a Founder
Founders have multiple social roles — they are not only business leaders but also mothers, daughters, brothers, and husbands, in addition to being investors, professors, or simply friends to some. Conflicts particularly arise in businesses started among friends or family, making it crucial to mitigate the negative influence of personal relationships on the business.
- Advice: Establishing professional boundaries. Written agreements detailing each person’s role can provide clarity and prevent disputes. You can also create a process of getting fair feedback–sometimes we need to establish a procedure that allows people to tell you the truth and not be afraid to hurt you.
4. Conflict of Interests
Eat Just (formerly known as Hampton Creek) is a producer of plant-based food products, it was founded by Josh Balk and Josh Tetrick. The company encountered significant controversy under the leadership of its CEO, Josh Tetrick. The company faced accusations that Tetrick orchestrated the purchase of large quantities of its own products from stores. This strategy was allegedly implemented to artificially inflate sales figures, creating a misleading impression of the company’s market performance and growth potential. These actions raised serious concerns about conflicts of interest and the ethical standards of the company’s leadership. Although the co-founders still work together this was a serious reputational issue that the company nevertheless could overcome.
- Advice: Transparency in decision-making and aligning personal goals with the company’s objectives are vital. Involving impartial advisors or board members can help mediate and provide objective perspectives. And remember: the truth will always come up so it’s better not to hide any business-related details from your partner.
5. Varied Management Styles
Management styles are diverse, reflecting the unique personalities of founders. For example, Visionary Leadership, characterized by a strong, future-focused vision, is often led by charismatic individuals who inspire and motivate their teams, though they may sometimes overlook operational details and this may piss off the second co-founder. Laissez-Faire or Delegative Leadership offers a hands-off approach, promoting innovation but risking under-management, which doesn’t suit control freaks. On the other hand, Autocratic or Authoritative Leadership, where decisions are made unilaterally, can be effective in the early stages for quick actions but may dampen morale and innovation if overused or imposed on the other co-founder.
- Advice: In this case, leadership training or team-building exercises can help blend diverse management styles into a cohesive approach.
6. Cultural Differences
Cultural differences can significantly impact the dynamics between co-founders of a tech startup, potentially leading to misunderstandings and conflicts that may tear apart the founding team. These differences can stem from various factors, including national culture, professional background, and personal values.
- Advice: Initiatives to foster cultural understanding and sensitivity are crucial in international startups. This may include cultural training, team-building activities, and creating platforms for open dialogue.
7. Ego Clashes and Psychological Strains
Most of the founders I’ve met are extremely ambitious. While this ambition is advantageous in their quest to conquer the market, it can also present significant internal challenges for their startup. What happens when two or more individuals are unwilling to compromise, each believing they know better than everyone else and are incapable of being wrong? This scenario likely resonates with you even more than it does with me.
- Advice: Fostering a culture of humility and self-awareness is key. Regular team feedback sessions, leadership coaching, and conflict resolution training can help manage and mitigate ego clashes. And personal therapy, IMHO.
A Sad Snapchat Case
The Snapchat conflict involving Reggie Brown, a would-be co-founder, is a bright example of a dispute over contribution and recognition in a startup’s early stages. Snapchat was developed by Evan Spiegel, Bobby Murphy, and Reggie Brown while they were students at Stanford University. The idea was to create a photo messaging app where images would disappear after being viewed.
Brown was credited with coming up with the original idea for Snapchat. He said, “I wish these photos I am sending this girl would disappear,” sparking the concept for the app. He worked on the initial concept and branding, even proposing the app’s iconic ghost logo.
As the app began to gain traction, disputes arose about the direction and ownership of the company. Brown was eventually pushed out of the project. He filed a lawsuit against Spiegel and Murphy in 2013.
The conflict was settled out of court in 2014. Later, in 2017, Ingrid Lunden from TechCrunch reported, that Snapchat paid Reggie Brown $157.5M to settle his ‘ousted founder’ lawsuit.
The Snapchat case became a cautionary tale in the startup world about the importance of clear agreements and equity arrangements among founders. It highlighted how disputes over contributions and recognition can escalate, especially when a startup becomes successful.
In the startup ecosystem, conflicts are more than just obstacles; they’re catalysts for massive changes. By understanding and effectively navigating these challenges, startups can build resilience and adaptability, essential qualities for long-term success. Remember, the ability to manage conflicts can be just as important as the hard skills of the co-founders.
Do you run an innovative tech startup? We are investing in early-stage revenue-generating software startups and would love to hear from you! You can reach us at info@leta.vc or fill in the form here.
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