Most founders, myself included, are optimists by nature. The odds of success are stacked against us--more than two-thirds of startups fail, according to the Harvard Business Review. Still, Despite the odds, we risk everything from financial stability to health to make something people want.
We're so often focusing on building, it can seem like a waste of time and even a buzz kill to prepare for what can go wrong in the future. However, over the course of starting companies and advising many others, I can't stress enough the importance of setting yourself up personally to weather often unforeseen and painful challenges.
Founders start companies planning to dedicate 10-plus years of their lives to the business, longer than the duration of the average marriage in the United States. You will spend most if not all of your waking hours on your company, and probably spend more time with your co-founders than anyone else in your life. Since Silicon Valley is the epicenter of ridiculous wealth creation, it tends to attract short-term opportunists and fraudsters looking to make a quick buck.
When you enter into any kind of business relationship--whether it's co-founders, investors, or partners, you need to trust but verify from day one. Reach out to founder friends you trust, or reach out to founders you respect who are strangers, and ask for referrals to lawyers with employment and corporate expertise.
To protect all of the hard work and time put into your startup, even if you are CEO, you need to hire a personal lawyer with employment and corporate law expertise to review your employment contract, the company's bylaws, articles of incorporation, among other important documents. The company's lawyer has the startup's best interests in mind, not yours. Hiring your own counsel is invaluable in helping you protect your stock and mitigating potential future legal issues.
The ousting of co-founders is shockingly common in Silicon Valley. When startups start becoming successful even at the earliest stages, people get greedy and fire their co-founders for a larger share of the pie. There is a particularly egregious type of ousting that's not publicly talked about because of founders signing nondisclosure agreements or "gag orders." Through startup whisper networks, many share the opinion that women, minorities, and founders from low socioeconomic backgrounds disproportionately suffer from these immoral power grabs.
Too often, founders are told the sexist conventional wisdom that they must have a co-founder to raise venture capital. The reasoning is that startups are extremely difficult and you need someone with a complementary skill set who is as dedicated as you are helping make the company a success.
However, you should never start a business with someone you don't deeply trust--hopefully it should be someone you've worked with in the past or went to school with, and ideally have known for at least a decade. This co-founder bias is a huge obstacle for people from less privileged backgrounds, because the tech industry is overwhelmingly male and white. Founders feel they are forced into these co-founding relationships with people they believe have complementary skill sets, but they barely know. It's a recipe for disaster.
I've heard many deplorable stories about founders adding a person of color or woman to their founding team so they can more easily raise money from diversity-focused venture capital funds, only to oust the diverse founder shortly after their fundraise.
When a founder is being ousted, they are presented with a separation agreement, nondisclosure agreement, and typically a cash offer for signing and giving their equity back to the company, and told to sign immediately or given a tight deadline. If you don't readily have a few thousand dollars available to pay a lawyer hourly to help you navigate the situation, you may sign a terrible agreement not knowing what options for recourse are available to you. If this worst case scenario happens to you, know that you are not under any real time constraint, and don't sign anything until you have legal representation.