Fluidity might feel crucial to idea generation throughout the garage-stage and Zoom-room stages of a company’s life. The lack of contractual responsibilities baked into our understanding of the most renowned businesses’ founding tales. We applaud quick pivots, preferring shabby MVPs to polished platforms, and paying attention to repeat entrepreneurs who seek money for their next concept before they even know what it is, the capacity to swiftly assemble a team and create a product unquestionably at the heart of what makes startupland unique (and, candidly, fun to write and talk about).
Despite the fact that the unstructured beginnings of a business might feel exhilarating beyond imagination, formality is important. A founder, a founding team member, an adviser, an investor, an angel investor, and an early employee are all different in terms of ownership and weight. As the Winklevoss twins vs. Facebook, Reggie Brown vs. Snapchat, and, most recently, Avi Dorfman vs. Compass have demonstrated, disagreements can develop merely due to divergent definitions on all of the above.
While a spate of high-profile court cases demonstrates how prevalent and regular founder conflicts have been for years, the present startup climate makes me believe that we may be in for a new round of fights. Several elements, like frenzied finance, a chaotic startup formation climate, and the exaltation of being a disconnected team with no titles — just enthusiasm and whiteboards — might kindle a fire right now. To manage expectations and avoid late-stage conflict, startups and movements must create clear governance. While formalization easier said than done, it is frequently a process governed by your capacity to confront, converse, and, most importantly, be honest.
Former Ladder co-founder Akshaya Dinesh previously rejected from an accelerator program because she could not explain who the CEO was. “It was just the two of us working on it before we had even raised any money,” she explained. “We said something along the lines of, ‘we’re really early and we’re both technical, so we’re kind of doing everything together,’ but if we had to pick, we’d pick X.” Later, she discovered that the “correct answer” boldly offer a name and a clear differentiation of what each person’s emphasis areas at the firm are and will be, according to the entrepreneur.
“Titles are one of the most common causes of co-founder dispute,” she explained, “so they’re trying to gauge how comfortable you are having difficulty talks early on.” One of the most common YC interview questions is “Who’s the CEO?” This is most likely due to the stress test. (Alexis Ohanian’s Seven Seven Six Ventures, DoorDash, Harry Stebbings, Pear VC, and Forerunner later invested in Dinesh.)
Saba Karim, a Techstars investor, concurred that co-founder rivalry is the largest company killer, following lack of product-market fit. “And other money and power, what else do you believe causes a schism?” he said.
“What you determine now may not be true in two years, or even two months,” he added, “so it’s critical to have cliffs and vesting timelines in place.” While the investor has not witnessed an increase in founder disagreements or title inflation in the present context, he believes that once money or income is in the picture, formal agreements should prioritized. In addition, rather counterintuitively, Karim believes that an equal share of stock among the original team members is a bad omen.