What are the most common reasons startups fail? Sure, many build something no one wants to buy or simply run out of money, but there's also another huge potential stumbling block new businesses need to look out for -- co-founder conflict.
According to Noam Wasserman, a professor at Harvard Business School and author of the book The Founder's Dilemmas, a whopping 65 percent of high-potential startups fail because of conflict among the co-founders.
How can you avoid this fate? Picking the right co-founder is, of course, an essential place to start, but according to a recent FT article from Brian Groom, founders should strongly consider taking an extra precaution. He advises co-founders to draw up and sign a founders' agreement -- "the prenuptial agreements of the start-up world" -- right from the get-go. (You'll definitely have to if you decide to go looking for outside funding.)
Married? You still need a startup pre-nup.
Groom speaks to founders who claim their businesses were saved from destruction and instability by founders' agreements (sometimes at the very brink of disaster), as well as lawyers who help founders draw up the documents who explain the hows and why of the process.
Somewhat surprisingly, these experts most recommend a "pre-nup" to founders who know each other best personally, like good friends, spouses, and other close relations. "According to Prof Wasserman, businesses started by married couples, family members and friends are the most prone to fail because they avoid tough conversations," notes Groom.
What should a founders' agreement include?
"Issues typically covered by a founders' agreement include roles and responsibilities, decision-making, ownership, rewards and how intellectual property is dealt with," Groom explains, and while you can download a template off the internet, working with a professional will ensure you cover all possible flashpoints.
Still, if you're looking to get the ball rolling on an agreement without racking up legal fees, Founder Institute has a fairly exhaustive guide to what to discuss that can get you started.
Don't let the discomfort of the process dissuade you, Founder Institute urges. "Yes, talking about such topics as company roles and vision and equity and the like can be uncomfortable among founders," they note. "However, these discussions are vital to a successful partnership, as well as a successful startup, and must be held before any of you invest too much time, energy, and money into a potential company."