Q: What Lessons Should I Draw From A Painful Cofounder Experience?

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, Founder Story, skmurphy

Painful cofounder experiences are more common than happy ones, and especially so when the parties don’t know each well to begin with and the business startup fails. Here is a real email exchange that explores some ways to minimize the risks.

What Lessons Should I Draw From A Painful Cofounder Experience?

Q: I joined a startup 6 months after is was founded and in the next 11 months contributed significantly to the business by building several iterations of the product. I had professional experience in our target industry but this was my first real startup experience and I was surprised when it ended with a series of incredibly insulting conversation with the CEO that prompted me to resign.

I had initially joined as an employee and after three months of intense work and a first product the CEO agreed to make me a cofounder and gave me 30% of the equity in the company. As time went on we were not able to raise money or find customers and the CEO asked me to work longer hours and became more and more abusive. And after a certain point I resigned. I am not sure what to do next. How common are is a painful cofounder experience?

A: Every partnership involves a certain amount of misunderstanding, friction and pain. I am cautious about drawing analogies between marriage and a business partnership but I think this observation by Robert Anderson also applies to a business partnership:

“In every marriage more than a week old, there are grounds for divorce. The trick is to find, and continue to find, grounds for marriage.”  Robert Anderson

It’s more difficult if you have not worked with the other party and don’t know them very well. Painful cofounder experiences are fairly common in my experience: what do you think you have learned from this one?

Q: That’s actually a good question, here is my list:

  1. Do not do business with someone who is not 100% transparent on legal and business matters.
  2. Trust your instinct and do not move forward if you do not see a long term future.
  3. A true cofounder should have a seat on the board.
  4. There should be an exit agreement or buy-sell agreement in place.
  5. Be more clear about deadlines, roles, and expectations and document them writing just to make sure there is a shared understanding.

A: That’s a good list.

I work mainly with bootstrapping teams who tend to start small and focus on near term revenue. There may be much less “money in the pot” to be divided at the end of the month but you get see very quickly if a small product can be developed and sold and even the experience of dividing a small payout can offer tremendous insight into someone’s values.

I personally would not spend too much time trying to “get even” from a painful cofounder experience. I know this is easy to say and hard to do. Your business partner did not handle it well but failure, especially a shared failure does not always bring out the best in people. I do think trying to document what you’ve learned as you have done is a very good idea.

I have had a number of successful and unsuccessful business relationships and have four rules of thumb I would add to your list–there are certainly many more.

  • I would not swing for the fences next time but find ways to start part time with a small project and see if a customer will pay something.
  • Plan for a long journey not a quick payoff.
  • Start with a plain English agreement as a way to get to a meeting of the minds.
  • Count the teeth in every “gift horse” that is offered and always have your own attorney spend an hour or two to review documents to identify key risks and anything that appears substantially non-standard.

The reality is the minority shareholder status in a privately held firm has very little leverage or recourse. It’s better to proceed step by step and allow all parties to demonstrate a track record of delivering on their commitments. That being said it’s a startup and things will go wrong all the time. The question is whether the team pulls together and focuses on fixing the problems or you see dysfunctional behavior.

It’s also a good idea to pay very close attention to how potential business partners treat other suppliers, partners, customers, prospects, and employees. If you see a lack of integrity or abusive remarks or actions it’s likely only a matter of time before you will experience the same treatment. Don’t go “all in” on an opportunity before you have developed a strong working relationship, ensured that you have shared values, and are confident that the other founders are trustworthy.

Find a Cofounder is a Hard Problem
Consider Bootstrapper Breakfast and Cofounder Academy

The “finding a cofounder problem” is a hard one. If there is a Bootstrapper Breakfast  in your area that’s one way to have a low key conversation with a number of other entrepreneurs and get to know them. In Silicon Valley I have seen a number of teams form starting with conversations around the table. In contrast to the common “pitch event’ format where you are asked to pitch your idea to a group of 50 or 100 in a minute or two, a Bootstrapper Breakfast allows you to talk with 8 to 12 people in a roundtable conversation. Look for other meetups and Lean Startup Circle events that cultivate smaller discussions as a way to have conversations with potential co-founders. If you are based in Silicon Valley, check out the Silicon Valley Cofounder Academy  started by Ed Ipser, a serial entrepreneur who was the prime mover behind the Silicon Valley Association of Startup Entrepreneurs in the 90’s.

Related Blog Posts

Trackback from your site.

Comments (2)

Leave a comment

Quick Links

Bootstrappers Breakfast Link Startup Stages Clients In the News Upcoming Events Office Hours Button Newsletter SignUp