Startmate
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Startmate

Co-founder Breakups

Alignment as founders, prevention and management of breakups + cofounder alignment template

Find the cofounder alignment template — here.

In my (just over) one year at Startmate, I’ve helped out with and observed six cofounder breakups and they’re almost always emotionally laden.

You’ve poured your life and soul into the company and suddenly you have to leave.

Understandably, this can be a very hard journey — as many founders see the startup as their “baby”.

As a result, breakups are often

  • managed badly in the moment,
  • not discussed after they’re over,
  • then seen as shameful failures by everyone involved.

Let me shed some light on the topic to show why these perspectives are incorrect and unhelpful.

Cofounder breakups are “normal” 👌

  • ~ 35% of companies have cofounder breakups (source)
  • ~20% of companies break up during YC (source)

Entrepreneurs work in an inherently tough world — constantly under-resourced, time-pressured and an unpredictable future. Cofounders spend more time with each other than with their partner, family and friends (often combined). The startup journey has constant highs and lows and it’s not surprising that personalities will be clashing.

This pressure-cooker environment is also one of constant change and evolution. Founders may see one skillset as essential when starting out only to find it’s completely superfluous when they pivot. A personality trait or style that was critical to get through the early milestones might be making the next challenge impossible.

Sometimes the only way forward is for one (or more) of the cofounders to leave.

Entrepreneurs often see it as a failure.

They fear they disappointed themselves, family, friends and their investors.

But what they often don’t realise is:

It is for the best of the company, for investors and ultimately for everyone as things can’t continue the way they are now. The sooner you realise it the better for all parties.

Why does it usually happen? 🤔

There can be many reasons why the founding team splits up.

At its core, it comes back to the loss of trust.

This can be for a variety of reasons:

Unequal equity split 💣

This happens way too often, founders split equity unevenly based on who had the idea / early work, what many don’t take into consideration is that there’s still, at least 10–15 years of work ahead of them. You’ll most likely raise a couple more VC rounds diluting you 25% each time. At some stage, the cofounder with the least equity will ask themselves if it’s worth all the sweat and tears.

Not the right jobs 👔

A loss of trust into the person’s ability to execute on their position, this often happens as the company and team scales and one of the cofounders doesn’t grow into that role. A common example is when the leadership team doesn’t believe in the CEO any longer.

Conflicting working styles ⚔️

In a large organisation you can get away with conflict, in small teams you have full alignment or a huge amount of trust and tolerance — ideally all three

How to prevent it before it happens? 🌱

There are four things you can do to minimise the risk of a cofounder breakup.

Overall, most problems’ root cause is some sort of under- or miscommunication.

1) Align with your cofounder 👫

The first thing you have to do is be honest with yourself and fill out these founder alignment questions.

All cofounders should do it, by themselves and in their own time.

This will prepare your mind for the journey ahead. Next all sit down and have a conversation going through each question and your respective answers.

Discuss.

See where you land and have a long hard conversation about the things you don’t align on.

2) Love the problem, not the solution 💕

It might become apparent during the founder alignment exercise, but it’s worth mentioning it again. Make sure that all cofounders are in love with the problem. They love the problem space and would do anything to solve it. “Would do anything to solve it” means even completely scrap the current solution and go with something completely different. Your solution will keep changing and pivoting — make sure nobody is stubbornly committed to the way you do things now.

Problem > Solution

3) Define your roles 💬

Have a clear alignment on what each one of you does and is responsible for.

All roles should be covering areas which are MECE (mutually exclusive and collectively exhaustive).

Don’t worry about them changing over time, but if they change too much, go through the exercise again.

4) Get your legal documents done 💼

It’s often the last things founders want to do — spend time and money on legal documents. We’re alignment, we know what we agree on, there’s no rush to sign the documents yet. Signing a shareholders agreement, employment letters and transferring IP should be done from the very start. It may sound like overkill, but it’s not. You never know what will happen in a high-pressure environment, so better to be safe than sorry.

All founders should be on a vesting schedule.

A schedule of 4 years with a 1-year cliff and monthly vesting thereafter is an industry standard. Sometimes we hear that they are there to protect the investor, yes — they do protect the investor, but much more importantly they protect the cofounders from each other.

We’re breaking up — how do I deal with it? 💥

1. Try to remain calm and rational 🤬

Don’t let emotions get in your way.

This is easier said than done but absolutely crucial. As soon as you realise emotions are getting the best of you, take a breath, speak out that at the moment emotions are running high and return to a place of reason.

2. Get a mediator 👤

Even if you’re great at Step #1, which most entrepreneurs won’t be, get a mediator — somebody who both parties equally respect and who can be impartial.

A good mediator will listen to all parties, help navigate the conversation, but doesn’t have an agenda of their own.

The mediator has to understand that their most important job is to manage cofounders’ emotions — they are solving for the humans in the business — and their second priority is to keep the company alive.

3. Decide who takes the company forward ⏩

The next step is for all cofounders to outline what the two scenarios of either staying or leading the company would need to look like to make them do either.

Ideally, the mediator gets them all in writing before the first meeting to be able to find the commonalities everyone aligns on.

In my experience, this quickly becomes apparent after a first alignment conversation.

4. Talk 💬

This stage is the hardest — talk it out with the mediator in the room. The mediator should know the things you all agreed on — ie who is leaving, what happens to the IP/patent, how much equity each founder wants to keep.

5. Focus on preserving value 🏛

Two things which you need to remember.

Firstly, there’s no point of having parts of a worthless business, so whatever equity the cofounders who are leaving take with them, the company still needs to be attractive to future investors.

Secondly, you might have spent 1–4 years building the company, but especially when you’re at a seed stage, the longest and most difficult part of the journey is still ahead.

6. Align on external communication 🗣️

At this stage you’ve hopefully reached an amicable breakup, the last thing left is to allow all cofounders to walk away with dignity. You should all align how to communicate the change to family, friends, employees and investors.

Startups and accelerators are super high-pressure environments. They accelerate everything — growth, emotions, feedback cycles, but also, hard conversations and cofounder breakups.

Cofounder breakups are, of course, less than ideal, but not a bad thing by any means.

What you have to remember is that you’re doing it for the best of the company as it wouldn’t have worked in the long term.

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