Why Does A Startup Fail?
What are the biggest reasons for startup failure? Market? Product? Sales ability?
To some extent, all of them. One of the biggest reasons for a startup failing (and least talked about) is cofounder disputes or the wrong team. Don't believe me? Just look at these statistics or listen to Paul Graham.
I recently dealt with this problem, and that's the reason I left my startup - an unsolvable conflict between founders.
So how did I get myself into this situation?
The Founder Institute
In February 2015, I was starting The Founder Institute (FI). I'd just admitted that the startup I was working on - instead of graduate school - wasn't going to work, and I wasn't the most confident. But, I was enthusiastic, and when I got to the first FI meeting and met someone else with a similar idea, 10 years experience, and the resume to match, along with an experienced technical friend, I was all but sold.
I wasn't completely impulsive, of course, and over the next several weeks, we consulted on some of the FI assignments, met several times, and went out to play some pool and generally get to know one another. Both potential cofounders were friendly, enjoyable social company and generally pleasant. We didn't share the first same language, country of birth, or upbringing, and a variety of other traits, but bringing some diversity to a startup is never a bad idea...is it?
We continued to work together on the FI assignments, and agreed to develop a company together. I no longer had to worry about how we were going to develop an MVP (Minimum Viable Product) and FI assignments could be a joint effort, reducing some of the workload.
In May 2015 we officially incorporated, and signing our stock restriction agreements sealed the deal. I was now a 1/3 owner in the new company.
Things were generally groovy...in July 2015 we officially graduated from The Founder Institute, as one of 12 companies, and 2 of 14 individuals (our third member wasn't officially in FI).
At graduation/demo night, I let my cofounder pitch; I had the highest pitch ratings of the cohort, but trying to be better at delegating responsibilities (I'm generally a control freak), I let my cofounder pitch. Unfortunately, accentuated by the fact he had a migraine that day, it didn't go exceptionally well. Many asked me afterwards why I didn't pitch, and I wish I had. But, not a big deal, lesson learned.
Life After Founder Institute
We all took some time off, working remotely through most of August, and then coming back to Montreal in early September. This time, I brought along a friend who I'd been keeping updated on our progress, and he had agreed to join the company as a late founder.
Work generally progressed well through the following months. We met on Sundays as a team to plan our weekly sprint, and sometimes three of us would work together at the coworking space where we kept a couple desks through the week. Our lead technical cofounder still had his job, which he would later leave in December.
Our product kept getting better, until the point where it was fully functional. I was dealing primarily with our marketing, which included developing our stand for the InterDrone conference in Las Vegas in September, maintaining our social media and blog, and generating and sending out our press releases. I was also generally leading the product development priorities, doing graphic design for our mockups and revisions, and getting our sales process going. New to sales, this consisted of targeted cold calling in the early stages, and eventually progressed to a volume-based cold email system which automated follow-ups and brought in early-adopter prospects.
I also consulted a bit on strategy, though generally I tried to leave strategy and financing (loans, accelerator applications, accounting, etc.), as well as partnership acquisition, to my cofounder.
The Turning Point
As we worked more and more together, there began to be some conflict. Now, don't get me wrong, there is always conflict within a team of any kind, and even more so within startup teams. But for me, this wasn't the right kind of conflict - it was based on what I perceived as missed details, or poor interpretations (stemming from lack of understanding, I think) of our market and customers. I got nervous when we talked to customers or potential investors (basically, anyone important) about the company, because I was worried about what might be said or how questions might be answered.
Early December, I'd been discussing this issue with some friends and mentors, on the way to a pitch in Ottawa for what turned out to be a very perceptive, major Canadian angel investor. I'd put up the team slide and spoken two sentences, when he cut me off and said something along the lines of "I've seen too many companies fail because a lead cofounder is too theoretical or sciency-y. Tell me why this isn't the case with you guys" (paraphrasing). Of course I responded that we balanced each other's personalities, blah, blah, blah, but really, I was thinking "if this guy can pick up on this when I'm the only one in the room, how on earth are we going to fund raise with the whole team there?".
So, I decided to check in with our third team member. During our end-of-year review, I asked him whether he thought there were any issues within the team or how we might work better. The only comment? "I find the overlapping of responsibilities between you and our cofounder strange - I think we need to resolve this".
By this point, I'd consulted with several of my personal mentors, who were also familiar with my cofounder. The consensus: something needs to change, otherwise it's obviously not going to work.
The problem? I didn't feel there was another role in which this person would fit.
So, during late December, I met both one-on-one with this cofounder, and then as a group of three cofounders. The discussion centered around where I felt the problems were, with examples, in the hope that I could convince this person to step down. Did I really expect that result? No. It takes a very realistic and humble person to face their own strengths and weaknesses and step away from something they created. Realistically, I highly doubt that in the reverse situation I would be able to accept it. It could also be that I was wrong (but obviously I don't think so).
Ultimately, the situation was untenable, and I believed that if not faced now, we were going to face the issue in several months when we needed to fundraise (and with our business model that was inevitable). Do I regret the experience? Definitely not. We gained a bunch of experience, and the partnership got me farther, quicker, than I would have been capable of otherwise. Will I be more careful in the future? Definitely.
A testament to the character of my cofounders: despite our (very) frank discussions about results and work that had been done by each of us, we all remain on friendly terms.
So how do I suggest young (or old) founders find cofounders? Read about that here.