Many entrepreneurs embark on the journey to build a startup with a co-founder or co-founders. These partners share the thrills, excitement, hardships and struggles through the birth and growth of their creation. The relationship between these founders often becomes their most intense, important, and close relationship, providing support through the extreme emotional ups and downs, and sharing in the business successes and failures.
Unfortunately, a significant portion of founders, particularly early-stage, first time founders, underestimate the importance of the relationships in this journey. They fail to invest the necessary effort in selecting the right co-founders, and they do not exert the attention and effort to manage the relationships carefully and regularly to ensure their success.
Once micro-conflicts and disagreements between co-founders are ignored, escalate, and remain unresolved, they can grow into larger issues that create a noticeable gap or “elephant in the room” between them. This can lead to feelings of resentment, mistrust, and disrespect, which can further deteriorate the relationship between them. Over time, this may negatively impact the quality of the vision and strategy of the company, level of agreement on the product directions and go-to-market focuses, and lack of alignment on priorities. Ultimately this causes the inability of the founders to raise capital, leading to the end of the company.
Professor Noam Wasserman wrote in The Founder’s Dilemma, 65% of high-potential startups fail due to unresolved tensions and conflicts among co-founders.
In order to deepen the understanding of co-founder conflicts and gain insights into the psychological drivers and inhibitors that impact startup success, I conducted a study between 2019 and 2021. This study involved in-depth interviews with more than 400 startup founders at different stages of the startup life cycle and across various verticals and industries. Following the initial research I have continued to deepen and enhance the findings through my on-going work as a co-founders therapist, working with founders in my clinic.
This body of work provided a comprehensive examination of the various factors that contribute to conflicts among co-founders and to the impact that these conflicts have on startup success. By combining both qualitative and quantitative data, this exploration aims to provide a holistic understanding of the visible structural reasons for conflicts, as well as a window into the underlying psychological drivers causing the conflicts. By examining both the visible and the underlying factors that contribute to co-founder conflicts, the study provides insights and recommendations for entrepreneurs to proactively address and manage their partnership and these conflicts so that they can enable the business growth and startup scale up and success.
Seven Visible Reasons for Co-Founder Conflict
The first reason is Hierarchical differentiation. The primary reason, found in approximately 25% of cases, for conflicts among co-founders is when one or more of the co-founders struggle to accept the leadership role of the founding CEO and fight against the hierarchical structure of the company with a founding CEO at the top. This often results in power (ego) struggles and disagreements to accept the roles and responsibilities and strategic decisions. Resisting to align to the CEO’s priorities and focus, ultimately harms the startup.
The co-founders who start the company together as equal partners and work extremely hard together find it challenging to adjust to the emergence of a hierarchical structure. This involves the need to report to a founding CEO, accepting the CEO’s integrative decisions and final accountability on the company growth and in front of the board of directors.
At the same time, the founding CEO must grow into the role of the company leader and develop the required skills and capabilities. The CEO must be sensitive to this conflict and create space where the co-founders can collaborate, brainstorm together, debate key issues and make joint decisions about key strategic aspects of the business. The CEO must act out of self-awareness and empathy to engage the co-founders and deal with their resistance.
This requires maturity by the co-founders to embrace the duality and complexity of the relationship between them. They need to embrace partnership while accepting the hierarchical structure; be comfortable with being a CTO or CPO who receives directions, priorities and decisions from the CEO, while being partners.
Successful startups have strong founding teams who are capable of navigating the complex relationship with emotional regulation while keeping the company’s best interests in mind.
The second primary reason for conflict among co-founders, found in approximately 20% of cases is Decision making. Co-founders struggle to agree on how decisions should be made in their startup, and are not able to establish an effective, fast, and collaborative decision-making process, resulting in disagreements, attacking and undermining each other’s decisions.
In conflicted and split situations, many founding teams will take extreme positions, stepping into the “polarities zone”. As they experience the argument and conflict as survival mode and unconsciously take the fight or flight mode: siloed decision making, controlled and centric processes, reacting in avoidance or via direct fight in order to diminish the other side’s opinion. At this point they are stuck in the loop and need an external professional expert to help them listen to each other, bridging the “conflict dance” between them.
Moreover, the content of the decisions is often not the true issue. I call it a “hanger” because it’s the visible reason for the conflict which hides deeper psychological drivers that trigger the dynamic between the founders. The real problem, the essence of the conflict, is a lack of trust and not accepting each other’s expertise capabilities, and knowledge.
Founding teams should embrace the opportunity to be in dialogue and collaborative thinking because they acknowledge their differences and perceive different perspectives and opinions as a leverage and not as a threat.
Co-founders that disagree on how to reach agreement and make the needed decisions to drive the company forward, often do the opposite and bring the company to stagnation. This happens as a result of critical, time sensitive decisions not being made, or as a result of the leaders not speaking in the same voice and spreading conflicting / misaligned directions and messages in the organization, creating tensions between different functions.
At this stage an intervention led by a professional or by one of the co-founders should facilitate a process to ensure that each co-founder listens to the others and at the same time strongly feels that his voice is heard and appreciated. They then should agree upon an organizing framework and mechanism for decision making. Many models clearly delineate between decisions that fall under a specific functional area and can be decided by a specific founder, and decisions that are strategic or principle and need to be made together. Other models define when members have a veto right over decisions, whether this is actually exercised or not. These frameworks should take into account all parameters: role and responsibilities, expertise, perspectives, market and customers data.
The third root cause of conflicts among co-founders their divergent views on the product or business strategy and priorities. This was found in 15% of cases. This often stems from differences in their motivations, beliefs, and perceptions of the startup’s future vision and strategy.
Co-founders engage in constant debate on significant business questions such as Exit or IPO strategy, Product market fit, Go-to-market strategy, as well as on smaller weekly priorities in the product roadmap and R&D plan. In such conflicts and disagreements, co-founders tend to approach discussions with a personal motivation to win the debate rather than engage in quality dialogue. They rely on their intuitions, self-perceptions, and agendas rather than considering data, signals from the market, and user or customer requests. They become enamored with their own ideas and seek out hypotheses to strengthen and prove them, rather than engaging in inside-out critical thinking.
The product roadmap and prioritized plan is often a central magnet for tension between the co-founders. The Product is a critical junction for startup growth. In order to work smoothly it requires healthy collaboration and alignment between Sales, R&D and Product units. Navigating between ad-hoc requests, tech debt, new infrastructure for scalability or new features for growth and being able to find the way of balance is not an easy task. Lots of changes, surprises, disappointments, stress and pressure that make it very difficult to handle. Many times, I will see the tension and disagreement spreading beyond the co-founders to the management level and even the different departments which impacts the company velocity, time-to-market and eventually its revenue.
The fourth, and often one of the most challenging and painful reasons for founding team tension, occurs when one of the co-founders is not scalable and doesn’t grow rapidly to meet the business requirements. This occurs in approximately 15% of cases. This usually happens as the company scales and the business becomes more complex with higher expectations from employees, customers and investors. In this case one of the co-founders or the founding CEO lacks the necessary skills, performance, and capabilities to effectively lead the company forward in a senior leadership role.
As a result, it may be inevitable to bring in a new leader with proven skills to drive the company forward and replace the unscalable founder.
Here we experience the founder’s dilemma to be a king or be a rich person – power vs success/money. Does the founder want to keep the leadership position driven by status and control or let go based on self-awareness and let someone else take the company to higher level.
In many cases, the unscalable founder may refuse to accept the reality of the situation, feeling humiliated and excluded, leading to further complications and resistance.
This often happens when feedback is not provided to the unscalable founder, and when there is not enough genuine conversation among the co-founders. Avoiding uncomfortable conversations, because of fear to hurt/offend the other partner can exacerbate the situation and make it more difficult to resolve. This can result in pain and surprise for all parties, particularly when the message involves questioning the founder’s ability to stay in leadership role.
I worked with several founding teams that couldn’t manage this conflict by themselves and involved the board behind the back of the unscalable founder. This was perceived as a betrayal and makes it almost impossible to maintain the partnership through trustworthy dialogue, finally leading to “co-founders divorce”, a situation that I will explain further at the end of this article.
When the situation is managed with emotional intelligence, quality dialogue and transparency, the unscalable founder is likely to stay in the company in a different role which maximizes his/her talent and potential without feeling demoted or fired.
The fifth reason for co-founder conflict is equity split and financial management (10%). Deciding how to allocate equity (at the founders’ agreement) is a significant contributor to founders’ conflict for a couple of reasons. Firstly, dissatisfaction with the equity split among founders tends to magnify by a factor of 2.5 as the startup grows and matures, leading to an uncomfortable discussion that many founders don’t know how to handle. Secondly, an unequal distribution of equity can lead to class divisions in daily life and create a sense of hierarchy among the founders, where those with more equity feel they have greater value and decision-making power, while those with less equity are seen as having weaker and less valuable ideas.
Experienced founders and investors recommend to early-stage founders to split the equity equally to avoid fights over informal leveling and personal hierarchy, but even this recommendation can’t prevent this subject from being a key reason for co-founders’ conflict. We each have our own relationship with money. Conversations surrounding money, salary, funding, and budget can often be influenced by people’s deep-seated feelings, memories, and personal experiences with money from their upbringing and families. What we heard and experienced with our parents and home impacts and shape our beliefs and perceptions on money: “money is dirty”; “money destroys families and friendships”; “never let anyone decide and control your money”; “save your money, don’t spend it on luxury” and more.
These different subconscious triggers and memories that are rooted in each founders’ beliefs system can potentially lead to conflicts during discussions around money. In this case, co-founders get into a negative conflicted cycle: for example one is perceived as cheap and the second is perceived as a spender or in another example one is categorized as wanting to get preferential treatment and the second feels that equal treatment should prevail.
Approaching dialogues and decision-making processes on financial topics with a self-awareness of their own perceptions and patterns towards money can make the outcome more effective for the founders. By acknowledging and understanding their own biases and triggers, and sensitivity to the others, founders can communicate more clearly and make decisions that are in the best interest of the company.
After several years during which the startups eco system was blooming, the current global business reality puts many founding teams in a real challenge to raise funding and scaling their businesses. Lack of funding, decisions around layoffs, calculation of burn rate, counting the # of months of runway pushes many co-founders to tough conversations and decisions which need to be managed carefully and with a high level of interpersonal communication but also with awareness and accountability to the business status and implications.
The sixth reason for co-founder conflict is interpersonal misfit or mismatched personalities (10% of cases). This factor relates to cases where co-founders don’t share the same values, motivations and drivers. It also occurs when the co-founders don’t share the same level of commitment to the company or do not meet each other’s personal and behavioral expectations.
This usually transpires as a result of most founders searching and matching their co-founder only based on professional skills and experience without deeply exploring their relational resume. Relational resume is the history of relationships that we all have, our dynamic in relationships and how we interact, communicate with others. In the process of co-founders matching, it is essential to have a clear understanding of your co founder’s communication style, approach to trusting others, work dynamic, conflict resolution skills, ability to handle stress and uncertainty, and self-regulation in difficult emotional situations that involve disagreements and disappointments. Furthermore, it is crucial to embed the psychological contract elements in the founders’ agreement, once the company establishes.
The mismatch of personalities doesn’t occur only with early-stage co-founders but also between growth and scale up founders. Imagine 3 co-founders that start their company when they are in their late 20s.; CEO, CTO & COO who were great friends from the university, where they met, bonded and succeeded to graduate with great results based on their complementary skills in learning, working together and having fun. They built their startup together, dedicated their life to their joint “baby” and drove the business through to its B round. A few months after the closing of the round, one of them celebrated the birth of his first son, a milestone in his personal life, becoming a dad. Unfortunately, here things start to shake with his co-founders: the need to be at home early, difficulty to travel abroad, the commitment to his wife and baby causes conflict with his commitment to their joint venture. Things escalate and tension arise as a result of blaming, guilt and measurement of who is doing more.
Throughout the lifecycle of the startup the co-founders experience burnout, personal changes, health issues, kids, divorce, financial problems, marriage, mental issues and more. These events impact the psychological contract between the co-founders that need to be discussed and reframed over and over as time goes by.
A negative cycle or negative dance between co-founders occurs when the interpersonal dynamic is stuck in a loop. The default behaviors trigger each-other and echos into escalations. For example: A CEO who’s natural, preferred work method is to process information, consider options and make decisions on his own, with little interactions or consultations with others. This triggers his CTO co-founder who feels left out, ignored. This feeling that she is not consulted on the important decisions caused the CTO to speak out critically and vocally. The vocal criticism by the CTO causes the CEO to close off even more and avoid communication and collaboration. And so, the negative cycle escalates.
In situations of interpersonal misfit, we will observe tense interaction, sometimes toxic between the co-founders that will infiltrate to the leadership team and the company culture, leading to unhealthy and an unproductive environment and potential business failure.
The seventh cause for co-founder conflict is the relocation of one of the founders. (5% of cases)
Relocation abroad usually represents growth, expansion, and readiness to scale. Expansion abroad, across regions and into new geographies is a very meaningful and exciting event in the lifecycle of the startup. It means there is growth in the number of clients, in revenue. There is the thrill of building a new site and expansion of the global eco-system.
We all know that long distance relationships can be challenging to manage. The physical distance compounded by the time zone differences, make it much difficult to stay connected and maintain strong alignment and trustworthy communication.
Small misunderstandings or disagreements that could be resolved easily during lunch or coffee in the office may become larger issues. When interaction is limited to digital channels
it can be easier to misinterpret each other’s intentions or jump to conclusions and develop the wrong assumptions on each other.
When one of the co-founders relocates abroad, it can alter the psychological contract between them, necessitating the creation of new communication norms and working methods. It’s crucial to recognize and appreciate that maintaining a strong relationship will require twice the effort, which in turn will contribute to the strength of the company.
Closing thoughts
This is the first research that combines qualitative data and statistics and defines the seven key visible reasons for co-founders’ conflicts. Each of these conflicts can be addressed and resolved before becoming a huge unmitigated risk for the relationships and the continuity of the startup. Most founders unfortunately don’t have the awareness or the openness to take care of their partnership once they start experiencing the tension, vocal arguments or silence treatment.
This research and article are meant to help founders of all genders, ages, cultures and industries (because there are no differences) to make sure they invest in this growth engine and take care of their relationship with the same priority and attention that they take care of their business strategy. To ensure they embrace conflicts and disagreements as a source for brainstorming and collaborative thinking – they must learn how to do it right.
As I stated in the opening of this article, 65% of startup failures are due to toxic co-founder relationships and end with co-founder “divorce”. 10 percent of co-founders end their relationship within a year of starting a business and an additional 45 percent breakup within four years.
Co-founders divorce is very much similar to couple deciding to break up their marriage. It has similar emotional, financial and mental implications. And just like couples in a divorce process, co-founders also need to consider how to keep their “baby” healthy and well cared for, ensuring their split won’t destroy the potential of the startup to stay alive, grow and flourish.
As a co-founder therapist who works with many founding teams I have experienced the depth and magnitude of emotion when the conflicts evolve and co-founders find it inevitable to break up their agreement and in this process kill their startup: anger, frustration, envy, personality attack, blame, rage and fear, loss of many elements in each identity are manifested and leading to failure of their joint venture.
My next article will explain the hidden psychological reasons for co-founders’ fight.
Stay tuned.