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The Perils of Founder Fighting

Great products come only from companies that have superior team cohesion.
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Last week I wrote a post about "the politics of startups" in which I asserted that all companies have politics, which in its purest sense is just about understanding human psychology.

I think as a tech industry we have bred a culture that places more emphasis on product excellence than managing human behavior. Of course it makes no sense to have great people management and a crappy product. But I would posit that in order to sustainably build great products in an intensely competitive industry with skills shortages, people management is one of the most critical soft skills organizations need.

I think it's what Sheryl brought to Facebook when the young Mark Zuckerberg lacked in terms of his age, maturity and probably his lack of inherent people management skills by that phase of his life. The lack of team cohesion and respect for individuals has probably been one of the biggest weaknesses of Zynga -- at least from nearly EVERY employee I've ever talked to who worked there.

Yet talk with people at Twitter these days and many seem to feel like they are part of a movement, and that doesn’t just come due to product success.

Nowhere is the politics more difficult than with co-founders, which is why for years I've spoken publicly about "the co-founder mythology."

Of course we all go into businesses expecting to be aligned with our co-founders but over time life changes. One founder has more risk tolerance and the other wants to be conservative. One wants to build a company that will be around in 10 years -- financial outcome be damned! -- while the other might want a quick sale and pocket some bucks while the tech market is hot.

Those are the easy cases.

I have observed from close range many more difficult factors:

  • A co-founder who goes through long periods of drinking excessive alcohol
  • A co-founder who started by working hard but gets sucked into the tech party circuit and has more interest in socialize than building cool shit
  • One who wants to commercialize his product and start charging while the other prefers to not charge
  • One founder who gets more attention from a company's success while one feels slighted and becomes jealous and resentful

At the risk of sounding like a broken record, it's why I believe executive coaches are so important for startups who have the financial resources to afford them.

I learned these lessons at a very young age and they etched permanently into my psyche. Anybody who follows this blog knows that my mom was the most influential person on my entrepreneurial career. At a young age I watched her open a bakery, which in the early 80s was ahead of its time in serving croissants, gourmet coffee and high-end, homemade cakes, cheesecakes and french pastries for our small town of Sacramento, California (Carmichael, if you know the area).

She started it with a partner, 50-50. They were close friends, lived down the road and members of our synagogue. We were roughly the same age as their kids and hung out a bit.

And then for whatever reason they had different outlooks about the future of the business and with a 50-50 partnership had very limited ability to deal with the issues you all face:

  • Who should stay and who should go?
  • What should the financial settlement be for the founder leaves be? Cash now? Equity for the future?
  • What mechanisms exist for mediating if you can’t come to a consensus on these issues?
  • If you are the person staying how resentful will you become working your arse off for equity that your co-founder who leaves will get value from
  • etc.

And it is all the harder because if you've invested three to five years in a business already and can't agree how to separate, you could literally throw out years of hard work on venture where the future is insolvable. I see it all the time.

In my mom's case she lost a friend permanently that made it awkward in our social interactions in the small Jewish community in Sacramento. I really never pried into the details of why they had a falling out, how they solved it and what the consequences were but as a kid my observation was that it wasn’t pleasant.

I have seen it first-hand in my VC career many, many times.

And, yes, it is politics at its purest.

I worked with two co-founders years ago who knew each other well. When they started their company of course they had to pick one to be CEO and the other to have a different title. In this case it was Chief Product Officer. But they were "the two amigos" and agreed to kind of run everything together.

That worked for two years but then the tensions began. The company hadn’t performed well financially and need to make changes. It either needed to get more aggressive in pricing, pivot to a new business or business model or raise more capital (and take the dilution) in order to have more time to figure things out.

The pressure and the years mounted and I could see strain in the relationship. We sat down the three of us.

It came out in our group discussions that the CPO resented the CEO. He felt that any time there were tech events, tech conferences or press it was always the CEO who got to attend and got his name in the press when it was supposed to a partnership. He felt the CEO was willing to "sell his soul" for revenue and wanted things to be more pure.

The CEO felt that the CPO had gotten lazy and unconfident. He wanted more ability to push the product and engineering teams harder -- he was, after all, the CEO. But their co-founder status didn't really allow it. He felt he was on the hook for company performance without the control he needed to deliver it.

We discussed it as a group. Sort of "marriage counseling for founders" and agreed remedies. I was very impressed with their maturity in being able to talk out loud and openly about their feelings and why they felt they weren't working well together.

One founder wanted to keep their salaries very low to show solidarity with investors knowing that the business wasn't working -- the other fight financially strapped and didn't want to make the sacrifice. There were cultural challenges across the board.

They created a new product idea that they thought could get them out of their economic funk. The idea came from the CPO and they both agreed that it would be good for the company and for their relationship. The CPO could be more of the "visible success" of the company if it worked and could feel like he made more of a difference.

They launched. Like most launches they had some success but it wasn't conclusive.

It's the norm and why I tell people, "Stop Trying to Catch Lightning in a Bottle."

CPO gave up on the product and wanted to shut it down. CEO thought, "This is just the first hurdle! If you give up after this you're not an entrepreneur. It was a good idea. We should see it through!"

This set up the straw that broke the camel's back.

We sat down for the third or fourth time for resolution. It was clear that this was irreconcilable -- someone had do go. They both were willing to leave or willing to stay. We hashed out a compromise agreement economically and the CPO left. Again, I was blown away with their maturity in dealing with this and separated as peacefully as co-founders can.

The CPO went on to found his own company and the CEO went on to grow this business into a success that is now doing North of $25 million in annualized sales.

Of course I'm sure they both look at the past and wish they would have made different choices. The CEO worked his arse off for years created value that would be captured by the now-elsewhere CPO. The CPO probably wished he could have stayed and run the original company which was more successful than his new company.

Regardless, the situation worked out for both in the end. This is the exception, not the rule.

If you struggle through similar issues -- which means nearly all of you -- please consider how and when to bring in help, to embrace mediation. It's hard to be open with your co-founders without somebody helping to broker the conversation. In many cases it's easier if this person isn't a board member or VC unless you have an extremely close or trusting relationship with them. You want to be able to be open without your board members losing confidence in your future.

Sweeping the issues under the rug and they will fester and pop out down the road when you have invested even more time, money and energy in your businesses.

Elie Seidman wrote in the comments section of my blog post on politics at startups:

My father said to me early in life: "definition of politics -- two people in a room"

That really resonated with me. Meaning politics starts with your co-founder. Make sure you continually pay attention to this most important of human relationships in your business. Nurture it. Challenge it. And mediate when you must.

This article was originally published on Mark Suster's blog, Both Sides of the Table. 

Last updated: Jan 6, 2014

MARK SUSTER | Columnist

Mark Suster is a two-time entrepreneur who has gone to "the dark side" of venture capital. He joined GRP Partners in 2007 as a general partner after selling his company to Salesforce.com. He focuses on early-stage technology companies. You can find him on Twitter @msuster.




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