Co-Founder Mistakes That Kill Companies & How To Avoid Them

You definitely want a co-founder. Hey, this is Michael Cyball 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 going to 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? 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 co-founder has at the moment they join the company are the only skills they'll ever have. In my experience, almost everything you learn, you learn on the job. So you'd 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 co-founder is excellent, A plus; they just don't have the skills that we need," versus "My co-founder is a living nightmare and I can't take it anymore"? How 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 co-founder because they just didn't have the right skills"?

Michael, do you ever hear that?

I never hear it, and by the way, it's not that it's not true; it's that that doesn't cause a co-founder breakup. That doesn't kill a company. It's an error, but not a fatal one.

All right, let's move on to the next one. The YC founder wrote in: "Take arguments with your co-founders seriously; it's more likely to kill you than anything else." What I see with a lot of co-founder disputes is that the relationship has never been pressure tested. They've just been friends— they've been like, "Oh, yeah, we chat all the time." Then the first time there's a disagreement, it's just a blow-up, 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 ebb and flow over years. My best takeaway is that, first, you don't always have to come into a resolution. 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 co-founder deals with stress. Some people deal with stress by attacking; some people deal with stress by retreating. If you understand how your co-founder deals with stress, you can kind of better interpret what they're doing.

All right, here's the last comment that a YC founder wrote in: "I chose a co-founder 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 and 12 hours a day with someone, and they'll be like, "I haven't spoken to them in a week." Like, wait, you know? I'm like, "What are you guys doing all day? You haven't talked to him in a week?" Or, "I haven't talked to him in a month" or "I haven't had a real conversation with them in a year."

I think when things get that bad, I would argue there's a point where breaking up becomes inevitable. The CEO's job is now not how to repair the relationship; it's basically how to separate in 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.

When you talk to these folks, they know that the right thing for the company is to go their separate ways, but they, for whatever reason, are willing to go through years of pain or actually reduce the chance the startup's going to work than to face that head-on. It's really rough. The longer this relationship persists in this way before there's a breakup, the worse the breakup is going to be. 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.

There are all these things that get worse by leaving it alone. How should the CEO set up a company so that if there is a co-founder fight, 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 percent 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 50/50 deadlock is rough, and we see that kill companies a lot.

It might be reasonable for the CEO to have one extra share, so you effectively have the same ownership as your equal co-founders. But that one extra share is you agreeing in writing early that in the event of a 50-50 deadlock, there's a tiebreaker vote.

Dalton, before we close, what are some tactical tips you give folks who are looking for co-founders 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 want to come up with the idea first; maybe they want to raise money first, and then they want to add a co-founder. 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 co-founder 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 co-founders later, in their mind, it's your company; it's not their company.

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, like, "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 going to 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 want to say co-founders are essential, but man, they're so helpful.

It's such a powerful tool, especially in the hardest part of the startup, the pre-product market fit startup. We still encourage everyone to have a co-founder. But like the startup game, right? It's not about doing it well; it's about doing it great. Having a great co-founder can be a superpower for your company.

Having an okay co-founder, not taking this seriously, can be the seed of big problems. Absolutely. And sometimes people, they end up with co-founder issues. I'm like, "Well, I guess I'm just going to quit and start a new company."

Well, it's not so easy to start a new company. Good luck! 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. One of the regrets is they wish they would have spent the time to set up the co-founder relationship well and choose the right person first, rather than think they can just blow everything up and get a do-over. That's just not how life works. We recommend you get a co-founder; 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! You should certainly get a co-founder, but don't slack. Don't slack off; this isn't the place where you want to slack off or where you want to put 50 percent effort. This is one of the most important things you're doing in the beginning of the company.