Is Cofounder Conflict Threatening Your Business?

April 2020

If you asked entrepreneurs to make a list of everything they think might one day pose a threat to their company, you’d probably hear a variety of answers. Some might be (rightfully) worried about ultimately developing a product in search of a marketplace. Others may be worried about how they’re going to overcome cash flow issues. And some may still be worried about getting “taken for a ride” by the venture capital people they’re putting so much of their faith in. While all of these are understandable concerns, there’s one that’s often missing from the list: cofounder conflict.

While it’s absolutely true that founding a business with at least one other person increases your chances of becoming a success, it’s equally true that about 50% of cofounder relationships fail, and most of those failures aren’t pretty.

That’s because cofounder conflict is very real and far more common than many people assume. But by taking the time to learn as much about it as you can, you put yourself (and your colleagues) in the best position to mitigate risks from these issues as much as possible — before it’s too late.

Why Cofounder Conflict Happens

Cofounder conflict can happen for a myriad of reasons, and not all of them are going to be immediately obvious. Sometimes when you start a business with someone else, you don’t realize just how incompatible your managerial styles are because you’ve never had the chance to put them on display. But once your startup is up on its feet and real decisions are being made on a daily basis, you might discover that you and your cofounder have two very different working styles.

Other times it comes down to the fact that roles and responsibilities among cofounders are not clearly defined. Who is actually supposed to be doing what? What is your specific job description and how does it overlap with that of your cofounders? What boundaries are in place that give each of you your necessary space, but that also allow you to truly collaborate with one another in the way you need to run a successful business?

Another issue, and arguably the biggest issue, could be the absence of stipulations on how significant future changes affect the management and control of the business. Without a buy-sell agreement and succession plan in place, your business is at risk if any major event — like your partner’s death, divorce, or bankruptcy — may occur.

Mitigating Cofounder Conflict with a Buy-Sell Agreement

Remember that being an entrepreneur and founding a business with someone else ultimately requires a fair amount of give and take. Therefore, once you start to see conflict develop, don’t be afraid to address it head-on. But also understand that you must be willing to make compromises, too. Don’t just spend time identifying problems with someone else, rather, offer up solutions of your own.

In terms of mitigating some of these potential risks, a buy-sell agreement can be very effective (and should be viewed as a necessity). This legally-binding document spells out how the assets and business interests would be distributed if an owner leaves the business, becomes disabled or passes away.

Consulting with a tax and accounting professional during the process of negotiating a buy-sell agreement can be very beneficial for all parties involved. The team at Cray Kaiser has facilitated several buy-sell agreements and would welcome the opportunity to help you and your cofounder(s) with yours. Please contact RBI member Cray Kaiser to get started.