Save your Startup - Law 2 - Founders are the Foundation

Founders are the foundation to venture backed business success.?

The founding team are convicted by the mission, have complementary skill sets and are coachable. They can have a massive disagreement with one another, make up, and get on with the job - because the mission is bigger than any one of their egos.

… at least that’s how a founding team should operate.

Unfortunately, this is not the norm. Founders often partner with the wrong people/person. Either they’re not aligned on the mission, they don’t complement one another, they let their egos get in the way or they might not actually want to be a founder.

It’s no wonder that a leading reason startups fail is because of founder breakups. Depending on what data you deem to be true, founder splits happen in 35 - 60% of startups.?

So, what happens when you and your co-founder(s) breakup? Surely it can’t be that bad??

Wrong - it’s the f*cking worst.

A founder break up can be likened to a marriage that ends up in divorce (including signing paperwork that both parties don’t want to sign).

The ordeal is all consuming. You wake up thinking about it, you go to sleep thinking about it, you notice your mind drifting to it whenever you’re alone with your own thoughts.?

In a business sense, it impacts your ability to make good decisions. It makes it extremely hard to lead.

Specifically, how does a founder break up impact a startup?

1. It impacts your employees. Even if it’s not out in the open, your employees will know something is going on. They will feel unsettled. They won’t feel like they are in an environment where they can do their best work.?
2. It impacts your IP. Co-founders usually have a heap of domain and technical knowledge. They might not walk out with the marketing materials or the code base, but they do leave with years of knowledge on how to get shit done in the market that your startup is playing in.
3. It impacts your cap table. When a startup is conceptualised, the co-founders usually own 100% of the company. As outside funds are introduced over time, those co-founders are diluted proportionately but they likely still hold a highly significant amount of shares (even with vesting agreements). Even if they have rightfully earned these shares, the allocation that they still hold becomes problematic when your startup goes on to raise future rounds because venture capital companies see the ex-founder holdings as ‘dead weight.’

As a founder, you’re likely running on unhealthy levels of adrenaline - add a founder divorce into the mix and hello sleepless nights and/or cold night sweats.

And at JRNY I didn’t just get 'divorced' once.?

I got divorced three times.

JRNY initially had four co-founders. By the time we sold the company I was a solo founder. Each year that we operated we lost a co-founder for a range of reasons. To answer the question before it is asked, these 'divorces' were not the fault of my co-founders. They are all incredible, intelligent and highly capable people. Rather, as pointed out in Law One, we started a business without knowing what problem we were going to solve, so we actually had NO idea if we were the right people, or had the necessary motivation or skill set required to build and lead a venture backed business.

Heck, I probably wasn’t the best person to be the CEO of an Insurtech startup at the time either!

The worst bit about this was each of these co-founders were my friends. And this experience almost wrecked these relationships. I am lucky in the sense that each of my co-founders forgave me and the situation we ended up in. They were big enough people to sweep the break ups under the rug so we could remain friends.

Now, can you imagine trying to run a business while dealing with a divorce, year after year? It was horrible. As I recovered from one breakup and the stomach knot that accompanied it, I would go back into another breakup cycle.?

From a business perspective, the mental and emotional overload created a huge opportunity cost, which meant I was not able to focus on areas of the business that required my full attention. My distracted, anxious mood affected JRNY employees, it affected my decision making and it impacted how the wider team executed on the plan. And, with every founder departure a great deal of JRNY’s IP walked out the door because of the domain and technical knowledge that each of these people had.

To make matters worse, when investors looked at our cap table they saw ‘dead weight’ because previous co-founders were no longer involved in the business. Every departing founder had worked really hard to help get JRNY to where it was. They therefore rightfully owned a decent percentage of the company, but VC’s didn’t see it that way. They saw it as though I would be ‘demotivated’ to succeed because I did not own enough of the company outright. Raising capital is hard enough. This added an extra reason for venture capital firms to say ‘good luck, but not thanks.’

Looking back, do I think the four original JRNY founders would have successfully built a startup if we were all aligned on the problem we were solving? Most definitely.

Our issue was we failed Law 1 - Fall in love with a defined problem - which made it almost impossible to succeed with Law 2 - Founders are the Foundation.

So, how can you best avoid a founder divorce?

Here’s the strategy I recommend:

1. Ensure that you find someone who is convicted by the same mission as you are (see Law 1 - Fall in love with a defined problem).
2. Ensure that this person has not just a complementary skill set to you, but that they are also able to see your blind spots. Although it can sometimes be hard to hear, someone who calls a spade a spade is very very helpful.
3. Ensure that they have a growth mindset. Startups change, and it’s important that founders are happy to pivot their own skill sets and refocus to help the startup succeed.
4. Ensure that ambitions are aligned. It’s important that the founders see the same end game - a global business or a smaller localised business.?
5. Ensure that this person is ready for the uncertainty and willing to put in the work.?

Remember, founders are the foundation. Spend some time to make sure you partner with the right person(s) to fix the right problem. This is what Law 2 is all about.

Law 3 - Dropping next week! Subscribe?here ??? ??

About the Author

Michael ?is an ex startup founder who now specialises in helping technology startups scale. By sharing both his wins and his losses, Michael hopes to help entrepreneurs and change makers all around the world ??

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