Co-Founder Nightmares: Two Cautionary Tales

Some of the world’s greatest companies are best identified by incredibly symbiotic co-founder partnerships. Bill Gates and Steve Allen at Microsoft. Larry Page and Sergey Brin at Google. The PayPal Mafia of Peter Thiel, Elon Musk, Max Levchin, Luke Nosek, and Ken Howery. All of those founding teams — and countless others — benefited from being mostly sympatico.

Then again, the road to startup success is also littered with businesses whose founding team was a disastrous match. Here are two examples of successful entrepreneurs whose first attempts at entrepreneurial success were cut short due to co-founder conflict, along with the lessons they learned from those experiences.

Kathryn Minshew, Founder of The Muse

When Handshake Agreements Go Awry

The Fail: Seeing her founding team self-destruct

Background: Kathryn Minshew had worked hard to get to her position at a management consulting firm when she realized the culture wasn’t a great fit. Wanting to do something completely different, she launched women’s networking site Pretty Young Professional (PYP), but culture was still a problem with her new team. Ultimately, the founding team combusted and Minshew headed out on her own once again.

Reason for the fail: Minshew and her co-founders tried to put off difficult conversations around who made what decisions and how equity would be distributed. Everything was discussed informally and without legal documentation. As a result, when in-fighting broke out, things turned ugly.

Key to bouncing back: Learning from PYP’s mistakes helped Minshew and her newly-formed team stage a successful do-over with The Muse, which was accepted to Y Combinator and now boasts over 1 million active visitors a month. “We had to lose everything in order to realize some of the core things,” explains Minshew.

Parker Conrad, Founder & CEO of Zenefits

When Friends Don’t Make Good Co-Founders

The Fail: Getting ousted by his co-founder

Background: There’s a reason why you don’t see co-CEOs very often — it almost never works out. Yet that’s exactly the situation Parker Conrad put himself in when he left a stable job at biotech firm Amgen to found a startup (eventually called SigFig) with his old college roommate, Mike Sha. After several years of scraping by, their relationship soured, and Conrad was eventually pushed out.

Reason for the failure: As the company struggled, so did the founders’ friendship, and the co-CEO situation (always a difficult balancing act) became untenable. As part of an agreement for additional funding, Sha became sole CEO, and it was determined there was no longer a place for Conrad in the company.

Key to the comeback: Conrad didn’t waste any time moving forward, he incorporated a new company — cloud HR benefits service Zenefits — the day he left SigFig. A former cancer survivor, he knew how important health insurance was, and having managed a lot of the admin work at SigFig, he also knew how much of a pain it was for small business owners to navigate. The company officially launched in 2013 (with Conrad as sole CEO) and is now on track to clear $100M in 2015, potentially making it the fastest-growing SaaS company ever.

5 Key Takeaways

If you’re starting or growing a tech company, how can you avoid Conrad and Minshew’s early mistakes? Here are five tips to keep in mind:

1) Remember, business is business (even when it’s personal): Going into business with your friends or colleagues can be great, but you can’t rely on things always going smoothly or being buddy-buddy forever. Have frank conversations and lay out ground rules so you don’t get blindsided.

2) Talk openly about equity: No founder wants to be seen as greedy, but equity is an important piece of the puzzle. Structured properly, it can incentivize and motivate the right people to do the right things. Structured improperly (or ignored entirely), it can destroy an organization.

3) Create clear roles/responsibilities & a chain of command: This can be a hard conversation when you’re founding a company with friends or peers, but this structure is critical as a company scales. Without it, you run the risk of too many cooks in the kitchen.

4) Make a plan for handling disagreements: Don’t avoid sensitive issues. Be very upfront, discuss your worst case scenarios, and make plans for them accordingly.

5) Get a lawyer: You may not think it’s necessary, but it is. Not only will a lawyer help you formalize things/make sure you’re crossing all your t’s and dotting all your i’s. A good one will also help you avoid problems you’re not even thinking of. You’ll rest easier and be able to focus on the real work of getting your company up and running.

Bonus: Don’t be co-CEOs: Just don’t. It rarely works out.

Photo by: Ryan McGuire

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Meghan Maher
Meghan Maher
Senior Talent Manager, Engineering

Meghan Maher is Senior Talent Manager, Engineering, actively recruiting top talent for OpenView and its Portfolio Companies. Her tech background has helped OpenView hire for nearly 20 IT and engineering positions. Meghan began her career at AVID Technical Resources, where she was a Technical Recruiter for two years.
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