Dalton & Michael: Co-founder mistakes that kill companies and how to avoid them

Hey. This is Michael Seibel and Dalton Caldwell, and welcome to rookie mistakes. We've asked YC founders for their rookie mistakes so we can share them with you and help you avoid these common errors. Let's start with our first anonymous story from YC founders and mistakes to avoid.

At the beginning, when everything's going well, you don't know how you're gonna handle disagreements or bad actions by the other person. It's extremely hard to deal with a bad situation.

after the fact if you don't have anything written down. It's awkward to talk about things like who gets what percentage of the company or do you have founder vesting. And you know how human beings are. We remember we don't always remember things quite the way they went down. Right? And.

so write it down. I think the biggest error that I see is founders looking for someone with a skill match versus someone that they actually maybe have had a fight with before, like a friend. A lot of founders assume that whatever skills their cofounder has at the moment they join the company are the only skills they'll ever have.

And in my experience, almost everything you learn, you learn on the job. So you rather work with someone you really like and learn together than work with someone you don't know at all and, get into fights and then break up. I mean, to put some facts on that, how many founder breakups have we seen.

where the founder says, my cofounder is excellent a plus. They just don't have the skills that we need versus my cofounder is a living nightmare, I can't take it anymore. Right? Like, many people are like, what a great person that I like a lot. They just didn't end up. I shouldn't have made them my cofounder because they just didn't have the right skills, Michael. Do you ever hear that?

Never hear it. Never. And by the way, it's not that it's not true. It's that that doesn't cause a cofounder breakup. Like, that doesn't kill a company. It's an error, but not a fatal one. Alright. Let's move on to the next one.

So the YC founder wrote in, take arguments with your cofounder seriously.

It's more likely to kill you than anything else. What I see with a lot of cofounder disputes is that the relationship has never been pressure tested. They've just been friends. They've been like, oh, yeah. We we chat all the time. And then the first time there's a disagreement, it's just a blow up. And and the relationship is broken, and you'll never be able to put the pieces back together again.

Versus if it's someone you know in a while, maybe it doesn't seem as shiny, but you've already had some disagreements. You've already had the relationship ever ebb and flow over years. Right? My best takeaway is that.

first, you don't always have to come into a resolution. Like, if you don't have two people engaging, productively, you can pause. You know? You don't have to keep the fight going. Yeah. And then the second one is, like, understanding how your cofounder deals with stress. Like, some people deal with stress by attacking. Some people deal with stress by retreating.

And, like, if you understand how your cofounder deals with stress, you can kind of better interpret what they're doing. Alright. Here's the last here's the last comment that a YC founder wrote in. I chose a cofounder with whom I could not share my honest disagreement. We didn't know how to fight well or come out of those fights better and wiser.

Some part of that was conflict avoidance on my part, and some part of that was him fighting dirty.

It's crazy when you speak to founders where they'll spend eight hours a day with someone, more twelve hours a day with someone, and they'll be like, I haven't spoken to them in a week. Like like, wait. You know? And I'm like, what what are you guys doing all day? Like, you haven't talked to them in a week?

Or I haven't talked to in a month, or I haven't had a I haven't had a real conversation with him in a year.

And I think when things get that bad, I I would argue there is a point where breaking up becomes inevitable and the CEO's job is now not how to repair the relationship. It's basically how to separate in, like, the most effective and least destructive way.

When you talk to folks about this, they know in their hearts that that's what needs to happen, but they just can't bring themselves to actually do it because it feels bad. And so that's what's again, when you talk to these folks, they know they know that that it it makes the right thing for the company is is to go their separate ways.

But they for whatever reason, they're willing to go through years of pain or or actually reduce the chance the start up's gonna work than to face that head on. It's it's really rough. The longer this relationship.

persists in this way before there's a breakup, the worse the breakup is gonna be. Like, the more likely there's litigation, the more likely there's, you know, one person has vested stock, so now your cap table's affected. Like, there are all these things that get worse by leaving it alone. How should the CEO set up a company so that if this battle,.

you know, if there is a cofounder fight, it's it's not fatal to the company? The closest to equal you can get, the better. Because it avoids this, oh, this person has 10% more, so it's their company. You see all this drama that happens over equity split. So equal is good. However, here's a pro tip for you. A straight fifty fifty deadlock is rough, and we see that kill companies a lot.

And so it might be reasonable for the CEO to have one extra share. So you effectively have the same ownership. You're equal cofounders, but that one extra share is you agreeing in writing early that in the event of a fifty fifty deadlock,.

there's a tiebreaker vote. Dalton, before we close, what are some tactical tips you give folks who are looking for cofounders now who are extremely early in their journey or thinking about starting a company?

I hear from a lot of folks starting companies where they wanna come up with the idea first, maybe they wanna raise money first, and then they wanna add a cofounder. And I actually think that's going about it, in a less than ideal way and actually might cause more problems. Okay? I would recommend figuring out who the cofounder is first.

And then if you come up with the idea together and perhaps you fundraise together, then you'll have collective ownership that it's your idea and it's your company versus a lot of times when you add cofounders later, in their mind, it's your company. It's not their company. And even though, you know, you worked on the company an extra month than the other person did, which is so silly. Right?

You'll always have this, well, this wasn't my idea. This wasn't my company, which isn't great from a retention perspective. If you can both really feel like you shepherded the idea through the earliest stages, you're gonna see a lot more ownership and people stepping up when you go through hard times. To reiterate what we talked about at the beginning,.

I don't wanna say cofounders are essential, but, man, they're so helpful. It's such a powerful tool, especially in the hardest part of the startup, the preproduct market fit startup. We still encourage everyone to have a cofounder. But like this startup game, right, it's not about doing it well. It's about doing it great. Like, having a great cofounder can be a superpower for your company.

Having a okay cofounder, not taking this seriously,.

can be the seed of of of big problems. Absolutely. And and sometimes people, they end up with cofounder issues. I'm like, well, I I'm just gonna quit and start a new company. And we'll we'll we'll we'll it's so easy to start a new company. And then it's like, well, good luck. And then you speak to them a year or two later, and it's really hard to get back to where they were in the moment.

And one of the regrets is they wish they would have spent the time to set up the cofounder relationship well and choose the right person first, then think they can just blow everything up and get a do over. That's just not how life works. And so the more you can front load this the first time around versus having hard earned lessons. Yeah. Would recommend.

Yeah. Yeah. So we recommend you get a cofounder. We recommend you do it well. We recommend that you invest in that relationship early so that you can survive the fights that will inevitably happen. And, man, grab this superpower. Like, you should certainly get a cofounder, but don't slack. Don't slack off.

This isn't the place where you wanna slack off, where you wanna put 50% effort. Like, this is one of the most important things you're doing in the beginning of the company.