Cofounders

Whenever co-founders bust up, there is inevitable trauma to the business of the startup no matter what mechanism is in place to assure that one particular founder (or a faction) has the final say. In this sense (as recognized in this post), it is the people who matter more than any particular mechanism.

Having represented countless founders over many years, I have seen all sorts of startups succeed even though they lacked a mechanism for ultimately determining control and relied instead on shared governance. This is by far the norm and not the exception and simply signifies that most people manage to get along and tend to resolve their issues most of the time when it matters even though they theoretically could get ensnared in deadlocks.

I have also seen the classic bust-ups and fights over control, and these truly are a mess - hence the advice in this post to put a control mechanism in place if possible can prove helpful, at least if co-founders are willing to cede final authority to one among their group. The bottom line in this respect, though, is that most founding groups are not willing to cede such authority in this manner - I think this has less to do with founders failing to think the issues through than it has to do with basic human psychology. It simply is not easy for those starting a venture on comparatively equal footing to elevate the status of one above the others. In turn, in cases where it is obvious that there is one dominant founder, this normally is reflected in that founder's getting a disproportionate share of the equity and unilaterally controlling the company in that manner.

That said, this is a thoughtful post that will help founders to think through and deal with this issue.

By the way, a common method used by a still small minority of founders to give control to some over others is the Class A/Class B common stock approach (popularized by Google) by which all common shareholders have identical rights except that the B holders get a 10x voting advantage for their shares (or any similar variation on this theme).

There are many ways to skin a cat. Assuming the equity amongst the co-founders is equal, I think the methods used to resolve conflicts are mainly dependent on the co-founders dispositions.

For me personally, I believe there has to be a willingness from the founders to put the customers' needs first. If I truly believe I'm working with my equals, then their opposing views are just as important as my own.

Assuming there are four founders and there is a conflict then I'd suggest the founders get in the same room and talk about the problem first. Make sure everyone agrees on what the exact problem is. Assuming there is still a conflict then brainstorm on possible solutions. At this point if there is still a conflict and the vote is 2-2 then I'd suggest flipping a coin. Trying one of the solutions is more valuable than both ideas combined. The insights the founders will receive from attempting the solution should make it obvious which solution is best.

Lastly if conflicts are cropping up on a consistent basis, if the general mood of the group is negative, if people are going off on their own and/or if there is a strong belief in the group that not everyone has the customer needs as the primary focus, then quit. Use a shot-gun[1] clause to resolve the issue of how to buy out a partner and move on. It is easier said than done.

[1] http://en.wikipedia.org/wiki/Shotgun_clause

This makes me think that the advice about 50/50 cofounders -- that you want somebody who complements you, not somebody like you -- is especially good.

If you're the tech guy and the other guy is the business guy, you have a conflict-resolution method in place for most things. You have final say on tech, he has final say on business. So you'd expect the difficult/troublesome decisions to be the ones where you've got equal say, like "do we sell for this amount of money?"

I'm still trying to work out how two people can bring the same passion and direction to a project. I can find people with similar worldviews and complimentary skillsets but with cofounders having the same goal and the same energy seems the most critical point.

OT but I like how this blog gives a clear link and description to their product (something which annoys me on other product blogs where all links point back to the blog itself). I actually clicked through and am interested in using their product thanks to this good post and the easy link + description. I still need to investigate further but the reasonable price to take the hassle of subscriptions off my mind sounds good.

50/50 is the worst ratio in business.

Sounds like the article reinforces the same checks and balances that the U.S. government is based upon, why the supreme court has all those judges and terms of elected officials are staggered. The founders force themselves to seek the middle ground. Pretty Good.

This part resonates: "having a known resolution mechanism in place encourages everyone to resolve disputes informally"