March 21, 2017

March 21, 2017

Subscribe to Latest Legal News and Analysis

March 20, 2017

Subscribe to Latest Legal News and Analysis

How Well Do You Know Your Co-founder?

Two co-founders, one CEO and one EVP. One owned more than the other, got paid better, had bigger bonuses. How did this happen?

“We were always very clear with each other about who would have what role,” the EVP once told me. I observed that almost everything between them was consultative, even to a fault. But for a tough call, if push came to shove, the EVP deferred and the buck stopped with his partner. “We defined the roles and it has always worked for us.”

Yet, when representing start-ups, I often find that conversations over business fundamentals such as choice of structure, team recruiting, or tweaking a cap table will be greeted by an entrepreneur nervously wondering, “How am I going to break the news to my co-founder?”

The guy wringing his hands across the table didn’t fret while burning the candle at both ends to improve on the start-up business model. He didn’t squirm when he quit his day job to bootstrap a risky venture. He didn’t sweat when he and his co-founder shook hands. But now, he’s afraid of allocating himself more shares of stock.

One such entrepreneur was running the entire operation. One had made a substantial loan to the company. One was dealing with unqualified co-founders whose presence would have violated any nepotism policy. One had declined freelance work and was living with her folks. One had paid the other a handsome salary in one business while they jointly plotted the spin-off. But they all sometimes found themselves walking on egg shells when it came to having what they perceived as difficult conversations with their co-founders.

Watching a rerun of the Food Network show Restaurant Impossible reminded me of this phenomenonOn the show, host Robert Irvine is brought in to a failing restaurant to identify the problems, help correct them, and hopefully turn it all around. On each episode it is often the family member or long-time buddy back in the kitchen or at the host stand that is harming the business in some way. Curiously, nobody can quite bring themselves to pinpoint the problems honestly when Irvine does his initial due diligence. Finally, after the employees quietly signal the real dynamics, the main players have to go on national television so that they can be prodded to have an adult conversation with each other.

Are you nervous about your co-founder? Will he be tempted by surer paths? Are your complementary skills being strained? Are you making allowances? Are you hiding annoyances?

Perhaps you’re nervous about yourself? Do you feel as though you are enjoying an undeserved wide berth? Afraid your co-founder will bear a grudge? Have your expectations changed? Is there some romantic or other non-business alignment?

As seen through personal experience (and on Restaurant Impossible!), for the good of the venture, it is important to be able to talk about these things and your other feelings in an open and trusting way. For starters, discuss each person’s strengths and weaknesses. Identify what actions and reactions he or she views as positive. Figure out what really gets under her or his skin. Compare management styles. Come up with the areas where one person needs a counterweight or could simply benefit from support.

Naturally, it’s ideal to have such talks before deciding to partner with someone. But it’s never too late to employ candid interactions to take your relationship to the next level.

©2017 Greenberg Traurig, LLP. All rights reserved.

TRENDING LEGAL ANALYSIS


About this Author

Jonathan D. Draluck, Greenberg Traurig, strategic transactions lawyer,
Of Counsel

Jonathan Draluck counsels public and private companies on a variety of commercial and strategic transactions. He has focused on technology transfer and procurement matters and developed early experience in expansion of telecommunications offerings and infrastructure. For pharmaceutical and medical device makers, Jonathan has crafted arrangements for sponsored research, patent licensing, material transfer and evaluation, design and manufacturing, and pre-clinical and clinical trials.

Jonathan previously represented global pharmaceutical companies...

703.749.1300