Cofounder Relationships Gone Bad

This article appeared in the new Founder Confessions series on Inc.com. If you’d like to be a part of this series, look for the “Topical Confessions” on the right sidebar to view the current topic. 

When you first start your company, you’re often required to wear a lot of hats. As the saying goes, you become a “jack of all trades, master of none”.

As you’ve been told repeatedly as an entrepreneur, you can’t be an expert in everything. So, as many entrepreneurs do, they look for their counterpart when first starting up. In the startup world, that often means a co-founder that understands either business or tech. Sales or engineering. Marketing or operations.

In addition to bringing the skills the other lacks, co-founders also serve as a sounding board, joint decision maker and pillar of emotional support. Frankly, entrepreneurship can be a lonely road and sometimes it’s just easier to go through the process of launching a business with another.

As clichéd as it sounds, starting a business with someone is like getting married. And unfortunately, like a real marriage, they don’t all work out.

In an effort to help you avoid costly mistakes, we asked founders to share their experience (anonymously) of their co-founder relationships that have gone bad:

Being a non-technical founder I came up with the idea for a new product and found the appropriate engineer to create a proof of concept. The deal was a 8% stake to get us to beta. After the proof of concept was complete, he demanded between $16-25K per month to continue. Every email had a different number … clearly not in the cards. 

So I started to search for another technical co-founder. During this time we had the proof of concept for demos and I struck gold bringing on a Stanford Professor as a advisor. She was well respected and saw the bigger picture. She knew this whiz kid–one of Thiel’s 20 under 20–and thought we should meet. So I met the kid. At that time he was busy working on some Apple swapping deal. Two weeks later, he calls me in tears and said his partner kicked him out of the company. He had nowhere to go, no money, etc.. So I gave him a room in the house and even filed for a visa. For that, he was going to build a temporary website for us … that quickly led him to believe he was the CTO. I then hired another tech person out of Apple. She was great … liked the equity deal and the title. The kid did not like this and after months of flat out lying, he was let go and left for Singapore. Subsequently, our company landed on www.bullshitstartups.com.

About this time the Stanford Professor disappeared … no idea what was going on. I continued to try to call and email her with no success. About a month later, I get a letter from our local prison. She had been arrested for child abduction and placed in jail until her hearing … six months later. Had no choice but to remove her too. 

So the gal from Apple who got it and loved the project took a huge hit when Apple stock price fell. After three months she wanted to renegotiate and get back pay at $16k per month and then move forward as CTO. As if I could do that. I talked to our limited investors and we all agreed that she needed to be replaced.

So now we have a solid team, some traction and getting the introductions we need to survive as a company. I guess the moral of the story is perseverance pays off in the end, but my hairline suffered through the journey. 

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My marketing business began in 2001 with two partners. We worked together at two previous companies. I was the catalyst for starting the business. One partner was a creative and the other was a project manager. I was the sales arm and set up everything–found the office space, bought desks, wrote the business plan, got a line of credit, etc. The project manager’s control issues and lack of training were issues throughout the first five years. In addition to project management, she was to perform the accounting function, which she had no training in. At one point, we bought a company cell phone, which she would not allow out of the drawer in the front office.

Decision making was very difficult with three equal partners. Nothing was fast and everything was debated. The creative director admitted later that he was burned out on the business before we started our company. There were times when I had to work from home because of extreme differences of opinion. We even hired a corporate counselor to help us work through the issues.

Ultimately, no business is equally divided. Nearly all of the sales came in through me. I worked double the hours that the other two worked and I had to continuously push them to change and make decisions. One day, both of them resigned. The creative partner inherited money and wanted to retire. The project manager wouldn’t be able to stay without the other partner. The breakup was a little painful at times. But the buy/sell agreement developed before the company started was the best decision. Our mentor worked with us in the beginning and helped me through the partner breakup, securing assets, etc. We started as friends and haven’t talked in over eight years. 

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I created a wellness company–opening after one month with 75K in sales, and 2.5M in sales after 15 months, including international attention, magazine covers, TV interviews, etc.

I solely funded the company and was in charge of every aspect–except product development. My “partner” in charge of product development, complained for the first four weeks, setting the stage to ask me for an advance on his commission fees, plus payment for bogus business receipts (things like his cat’s food, children’s clothes, groceries for his family, products he bought for his own home). We had gone to graduate school together and I thought there was trust. He ended up splitting town with 9x of what he actually earned and royally screwed me over.

The budget was killed for the next six months and I had to scramble in product development to service clients. What was originally supposed to be an excellent product turned out to be above average for the first six months. Then … we got in the swing of things and executed it how it was supposed to be–excellent.

I’ve consulted for over 150 start-ups and this was my 4th personal company. The initial major set-back was unbelievable to me. With hard work, new measures, me and my new team were able to turn it around.

As for that guy–turned out to be a world-traveling criminal con artist.

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I owned 100% of the company and gave three guys 10% each for free so they’d be more motivated to run their divisions. None of them really ever understood what they owned. When the company became hugely successful ($160MM a year), greed took over and they each independently sued the company and myself personally to get paid out well before they should have. It was a nightmare and sunk the company–we went bankrupt soon thereafter. They all got paid. I never did.

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My co-founder-to-be wanted more equity–almost half of the company, and to dilute the other co-founders without informing them. He might have been made a co-founder as he was a key technical person. He refused to sign an IP contract and then when things didn’t work out, he walked away with code and IP. Why did all this happen? Because we thought he could be trusted, as it was a long standing relationship.

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I watched my co-founder/friend design a buy/sell agreement and then disappear off the face of the earth after his shares vested with no regard for what it would do to the company, our investors, or our friendship. Money really does change people in ways that you can never possibly predict.

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My co-founder was the CTO and used our entire budget to hire his overpriced friend. Together they burned through all the money we got, never produced anything except a bill which my company is still on the hook for. Then, he bailed on the company during crucial investor meetings leaving me with no product and no money. Ultimately, I had to close the business down.

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Joined up with two non-tech guys as developer to build a high-tech startup. I worked hard like ~80 hours a week. I spent my own money for everything.

After two months, they showed me a equity agreement, where they allocated only 2% equity for me.