Why Do So Many Partnerships End in Disaster?

Just because you’re friends doesn’t mean you should go into business together.
Director, Columbia University Entrepreneurship
May 14, 2013

In my last post on OPEN Forum, I made the case that entrepreneurs should stop actively looking for a co-founder. Now I’m here to tell you that if you think you have in fact found the right partner, you should be extremely careful and not rush into any arrangements.

Although it’s shocking, the fact is, a huge percentage of the companies I come across in my various roles as an entrepreneurship professor, mentor, and investor are doomed to fail essentially before they ever get started, due to founder incompatibility.

The reasons for these breakups that are given in retrospect by the founders are some variation of the following:

“The equity split was wrong from the beginning.”

“We had different visions for the direction of the company.”

“We never saw eye-to-eye on major issues.”

“He took advantage of me and stabbed me in the back.”

“Once the VCs came in, she sided with them and pushed me out.”

Guess what? These are symptoms, not causes.

I would say that the most frequent cause of co-founder disputes is the simple reality that the founders were never well-suited to each other (and often unsuited for the market they sought to enter) for any number of reasons. Some of the typical incompatibilities I have seen over the years include:

  • The reason they’ve teamed up is simply because they’re in the same class, they’re roommates, or they live down the hall from one another in college.
  • They’ve never spent significant time with each other outside of one familiar setting (e.g., school, dorm, work) and thus haven’t seen how the other handles stress and operates in a variety of environments.
  • They haven’t considered each other’s values and motivations carefully enough. In all likelihood, these are quite different.
  • One or both of the co-founders has no experience in the market.
  • One is totally committed and the other just likes the idea of being “part of a startup.”
  • There are simply too many founders in the equation and everyone’s equity has been diluted from the get-go—you shouldn’t need more than four founders.
  • Instead of working from mutual and complementary strengths, the entire reason for the union is based entirely on the insecurity of having to go it alone.

No doubt there are plenty of success stories out there in which the founders were roommates—or there were “too many” of them—but in my experience, these are truly exceptions to the rule.

Here’s the qualities that successful co-founders usually possess:

Complementary skill-sets (such as a designer and a coder)

There’s a lot to do when you’re launching a company. It makes sense to have a co-founder that has aptitude where you don’t, doesn’t it? Some teams have one founder as the frontman/woman and one as the ops person, while some companies are founded by a coder/designer combination. Jobs and Wozniak are the classic example of the hacker and creative partnership.

Shared values and mutual respect

I tell this story to my students. Years ago a prospective investor interested in a company I was launching asked me if I had ever been to my co-founder’s house. I was literally tongue-tied. The answer was no, but I had never even thought that this might have been important. I didn’t realize at the time how right he was. When I then visited the co-founder’s home, I realized that I was not going to be in business with him. He treated his wife somewhat disrespectfully, the place was a total mess and in one fell swoop I saw a completely different side to the façade he had been presenting to me and others.

Shared motivation

John Doerr at Kleiner Perkins is well known for saying that the best teams are comprised of missionaries, not mercenaries. What this means is that the best entrepreneurs are motivated by the mission of their startups and not the money. Make sure you are in this for the right reasons—and that your co-founder is, too.

Deep loyalty and friendship

There’s an old saw out there about never doing business with a friend. I always thought this was flawed and wrote about it here. As I’ve stated earlier, the primary reason for co-founding with someone needs to be the value they bring to the table, but if that other person happens to be a true and loyal friend, you are extremely lucky. You’ll never need to waste a minute worrying about his loyalty or about getting stabbed in the back.  If you’re not that close yet, take your time—but if you don’t at least see yourselves getting to be super loyal to each other as co-founders, don’t partner with him.

My main point is you really have to know the other person deeply. You both must be self-aware and understand how important the relationship is, and be mature enough to handle the inevitable disagreements with great professionalism and understanding. Remember this—if you both want what’s absolutely best for the company, you’ll always find a way through.

Dave Lerner is a serial entrepreneur, angel investor and host of Venture Studio. He's also a professor at Columbia University Business School where he teaches entrepreneurship.

Photos: Thinkstock