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What kinds of conflicts do cofounders often have, and how are they resolved?

I just learned yesterday that 62% of all startups fail due to cofounders conflict, and would like to avoid this. Please also share if one of your startups have failed due to cofounder conflict. Thanks for participating!

12 Replies

Mike Moyer
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Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
This is because nearly all founders use "fixed" equity splits. Equity is doled out to participants in advance of any real work being done in anticipation of that participant's future contribution. Then, as is always the case, each person's actual contribution will be different than expected. Some contribute more and some contribute less. This means that some people will have more equity than they deserve and some will have less. Those who have less will be angry and confront those who have more. Arguments will ensue.

In some cases, those with more will acquiesce and give up some equity to those who have less. The result will be a new fixed split that will lead to new conflicts.

Some teams can handle this constant fighting, others can not so the company fails.

There is a solution. It's called Slicing Pie and it is the only model that eliminates this issue. Slicing Pie applies a logical, fair formula that is based on actual contributions. Each person gets exactly what they deserve no matter what changes along the way.

I developed Slicing Pie to eliminate co-founder conflict. It's in use all over the world. I have yet to hear of a single co-founder conflict based on equity split in a company that used Slicing Pie.
Johnathan Proffer
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Johnathan Proffer Entrepreneur • Advisor
Software Engineer, Visionary, Entrepreneur
hmm how do you unfollow these things? i unfollowed via the button but i'm still getting these emails
Arthur Lipper
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Arthur Lipper Entrepreneur
Chairman of British Far East Holdings Ltd.
The member of a team of founders who disagrees with the CEO should depart as it is the CEO;s responsibilty to make it all work or himself be replaced.
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
@ Mike Moyer, what unit of measure to you typically see used by founders using the slicing pie model? Is it hours or some valuation of each contribution? For example, how do these teams address the issues/conflicts around how to measure each member's contributions? do they track hours? Are the hours of the CEO of equal, more or less value than the marketing person for example? At various stages there are varying 'intensities' of contribution: early on someone needs to focus on validating assumptions re product/market fit prior to product development. This will result in time spent putting together a business model, financial model, market analysis, ideal prospect modeling, business partner modeling, contacting and meeting with prospects, developing 'straw' product models, presentations, etc. Hopefully if this goes well someone will leverage their network and go make a sale or 2 or 10. Then if things pan out someone will need to spend time to design a MVP and then someone will spend time to build it. If that all works out then someone will use their connections and go make some more sales or a partnership or 2. So for example, is 1 hr of the CEO leveraging his/her network to get some meetings or make a sale equivalent to 1 hr of designer time or 1 hr of dev time? Do these teams typically need to agree on assigning some value to each type of activity or each contributor's time? How do these teams value cash contributions? real cash invested at an early stage can mean the difference between life and death for the startup. How are the hours of fundraising valued - by success or hours or both? The more experienced and 'connected' the CEO the less time it takes to raise funding (if at all). I find it is more often a variety of issues, not just equity, that cause cofounder conflict. I was involved a while back in an attempt to 'democratize' the startup process - a bunch of entrepreneurs and first timers from varying backgrounds (from tech to sales to design to marketing, etc.) interested in vetting startup ideas, forming small teams and 'starting up'. We agreed to use the slicing pie model. A few teams formed, but not 1 startup even got out of the starting gate as the members (from 2 to 5 members in each 'startup') could not agree on how to value and track contributions. There may have been other issues too, but we spent an inordinate amount of time trying to get to agreement on how to implement slicing pie. The dev guys couldn't understand why it would take 100 hrs to put together a business and financial model or do market research. The Sales/marketing/'business' guys couldn't understand why it would take xxx hours to build a 'simple' prototype to use in product/market validation exercises. I suspect even had teams gotten stated with slicing pie there would have been conflicts unrelated to equity splits such as why this critical piece was behind schedule or disagreements about that name or logo or using scarce resources on this rather than that and who wants to hire this person rather than this other person and the marketing person says s/he put in a bunch of hours, but we don't like any of the results.
Martin Omansky
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Martin Omansky Entrepreneur
Independent Venture Capital & Private Equity Professional
Some of our portfolio companies failed because the founders could not settle on cutting the shares of the equity pie. Sent from my iPhone
Josh McCormack
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Josh McCormack Advisor
Owner, InteractiveQA - Marketing, Web Dev, Testing, Data & Market Analysis
I was involved in a startup that died because of a conflict between the founder and the CEO. Stupid conflict that led to lack of focus on the business and resentfulness. What a waste. I'd be extremely careful about having cofounders you don't know really well, or contracts that can handle situations like this.
David C. MSE
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David C. MSE Entrepreneur
CEO at Business Development
Name of study...link? Vague stat with no further detail.

Mike, "nearly all" based on your experience with 5 companies..100?...a study of a thousand a 100k?

Throwing out numbers and stats with no backed up data adds very little to topic or discussion.
Mike Moyer
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Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
Rob,

Slicing Pie measures all types of contributions including time, money, ideas, relationships, supplies, equipment, facilities, etc. It protects all participants from "gaming" the system and is always 100% fair.

I've set up a page on Slicing Pie with complete details. Contact me and I'll send you a copy of The Slicing Pie Handbook. It will address all your questions. There is even a chapter covering common objections!
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
Mike, i've already read slicing pie as did everyone in the group i mentioned above. It seems it still boils down to agreeing on a currency or multiple currencies (hours or relative 'value' of one's contributions, etc.) and methods to value and then track those currencies.
Mike Moyer
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Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
David, please see this study by Noam Wasserman and Thomas Hellman. It shows the majority of startups used fixed equity splits. Even without referencing the study, you may observe that very few startups implement dynamic splits. Without Slicing Pie, a dynamic split can be very complicated.

That being said, all splits are dynamic because they all eventually have to adjust. The adjustment is usually a co-founder dispute and renegotiation which only leads to more fights in the future. I call the traditional model "Fix & Fight" for this reason. Slicing Pie provides a logical, fair formula for adjustment.

Rob, Thanks for reading Slicing Pie!

Slicing Pie converts all contributions into "slices" a slice is a fictional unit of at-risk contribution and is based on the contribution's fair market value and a multiplier that normalizes cash and non-cash contribution.

All the team has to agree on is fair market value. This is the amount the company would agree to pay if it had the money.

I have a new book out called The Slicing Pie Handbook. It includes a foreword by Noam Wasserman citing his research and experience.
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