August 18th, 2021 | By: Wil Schroter | Tags: Strategy
It's a little-known secret — many Co-Founders typically quit in the first year.
We don't hear these stories because, by the time a startup becomes successful, they are long since written out of the annals of the company's history. If we're a first-time Founder, we don't realize that there's a massive delta between the commitments we make when we start a company and those that we have to maintain as the grind continues.
The problem becomes real when we realize we just gave our "forever committed partner" 50% of the company for what amounted to 5% of the long-term effort required to make it successful. If we had known Co-Founders don't last, we'd have prepared accordingly.
So why don't Co-Founders stick around?
It starts when we rush into the relationship, as most startups do. We're so pumped up that we found someone, anyone, to work on our idea together that we're totally willing to overlook the fact that we often know so little about them.
Our overnight shotgun wedding conveniently overlooks that we have no idea who this person really is. All of our personality quirks haven't had time to manifest yet, and so we learn them at the most expensive time possible — when we're forming the company. It's easy to get along when nothing has really gone wrong yet, but the moment we start to have some real-life challenges, we start to realize how hard it is to find a truly compatible Co-Founder.
Even if we do have some history with our Co-Founder, we may not have a history with them as an actual Co-Founder. Sure, we may have been great friends before or had a great run as co-workers at a different company, but that form of the relationship didn't have the same consequences as our startup does.
Going into our startup, we assumed our Co-Founder would share the same commitment as we would, no matter what. They would work the same hours, put in the same personal capital, and generally hold up their end of things all around.
Those commitments were easy to make when we didn't need to back them up over years of grueling nights and weekends, watching our bank accounts dry up while our spouses and loved ones grew angry with the outcome. Simply put — we assumed they would motor through this like we would.
But once the pixie dust of startup glory wears off, and the realities of running a startup weigh-in, most Founders simply can't stay in the game. Our problem is that we confused "commitments" with "contributions." Commitments are what we say we'll do, contributions are what we made. Anyone can make a commitment, very few people make contributions.
While losing a Co-Founder sucks (for both parties) the only thing worse is having setup a structure that assumed we'd be married forever. Often we hard-code an equity split based on very little initial information or contribution.
It looks something like "Oh what? You say you'll make 50% of the contribution forever? Cool! Here's 50% of the company regardless of whether you ever actually do what you say you'll do!"
A better way to manage this is to have a backup plan, which is often achieved by requiring each Co-Founder to vest over a period of time, often 2-3 years, to make sure the marriage actually lasts, and if it doesn't, that there is a clear and well-understood plan for who gets what in the divorce.
Co-Founders drop off all the time — it's not the end of the world. So long as we have a plan for the "What if?" we'll be able to move on and create something amazing with or without them. We'll hope we stay married forever, but just in case... let's plan otherwise!
How do I fire a Co-Founder? Let's talk a little bit about what a "Co-Founder divorce" looks like, and what we can do to prepare if and when that time comes.
Is This The "Right" Co-Founder? (podcast) When it comes to Co-Founders, we need to be 100% all-in, or 100% all-out. Any space in between is a recipe for disaster.
Does a 50/50 Co-Founder Split Make Sense? There are other ways to split stock in a "fair manner" that isn't down the middle. The most common split amongst startup Founders is the ol' "fair split." Who can argue with a fair split? You'd have to be a real jerk, right?
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.