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Co founder conflicts & challenges


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Session on Co-Founder conflict cases or challenges that startups with multiple co-founders face during different stages of their company ( before and after fund-raising) - How do the founders ideally plan for these, and if not planned, how does one find solutions to resolve them when they encounter such challenges.

Published in: Business

Co founder conflicts & challenges

  1. 1. Co-founder conflicts/challenges Startup Leadership Program (SLP) Bangalore, 5th January 2013 Anjana Vivek
  2. 2. Agenda Stakeholder and funding matters Roles and responsibilities Other aspects: Business & beyond ... Summary About usVentureBean Consulting Private Limited 2 2
  3. 3. Some key stake holders• Multiple founders – Promoters – Family/friends – Others supporting the venture• Mentors/advisors – Roles vary, from organisation to organisation – Roles vary from mentor to mentor – May be general specialists – May be technical experts• Investors – Family/friends.. organised/formal & informal angel investors – VCs – StrategicVentureBean Consulting Private Limited 3
  4. 4. Some key stake holders • Each of the stakeholders; i.e founders, mentors, investors … will come with different expectations and aspirations. • Conflict may arise between different groups, for eg. founders and investors – Sometimes there may be a hidden agenda; what is said and visible may not disclose the complete picture • Conflict may also arise in the same group, i.e. multiple investors may have different needs.. – an investor may be in a hurry to exit due to compulsions to pay back fund in the main fund and may push for early sale before the company can leverage on its potential for value creationVentureBean Consulting Private Limited 4
  5. 5. Key stake holders: Points - to trigger thinking• Equations, roles, outcomes etc. should be thought through and documented – With a legal document – or a note/MoU etc.. – Sooner.. rather than later … And.. – The loop should be closed, for eg. if there is an email with details, the acknowledgement should also be saved on record• Documentation helps – As a reference: a document is more reliable than memory – To communicate: what one persons means may be understood to mean something else by another – A proof: if requiredVentureBean Consulting Private Limited 5
  6. 6. Key stake holders: Points - to trigger thinking• Often it is the individual who may be causing stress and conflict, rather than the role this person is playing• Attempt to unbundle the issue from the person• Human egos and other sensitivities are to be factored in … in addition to the business aspects of the problem being dealt with• Try to see the opposing view and perspective, it can help in negotiations and in arriving at a settlement … no two humans are alike and no two humans may view the issue the same way• Sometimes there may also be a hidden agenda, there is no need for paranoia, but there is a need to be alert..VentureBean Consulting Private Limited 6
  7. 7. Funding and investment • Capital infusion – Equity/ debt mix – Self funded/ internally generated – External investor/lender • Ability of founder to invest – This may be an issue if additional funding is required mid-way • Investment in cash or kind – Would you give more weightage to land contributed by founder as compared to money brought in – IP owned by founder in her name, assigned to company, can also lead to other issuesVentureBean Consulting Private Limited 7
  8. 8. Funding & investment: Points - to trigger thinking Think through • Possible requirement for capital infusion • Worst case scenarios .. what will be done for funding … plus…have a boot-strap plan • How will you deal with a situation where one founder can get in additional money required and another cannot • The impact of holding of IP and other assets by a founder or related party • Legal and tax aspects in addition to the business and valuation perspectives VentureBean Consulting Private Limited 8
  9. 9. Return on investment • Equity stake • Revenue sharing • Profit sharing • Combination of above, depending on performance and milestones reached • Related matter: Salaries/compensation – for full time vs. part-time or flexi-time work – Market linked or not – Based on performance (eg. Commission on sales) or notVentureBean Consulting Private Limited 9
  10. 10. Return on investment: Points - to trigger thinkingHelps to have clarity regarding sharing of return and takingcash out of the company, for eg.• Equity stake.. – On exit or sale of stake.. On capital appreciation.. – Dividends..When? Should returns be ploughed back for growth• Revenue sharing .. – On generating revenue or post cash in-flow from sales• Profit sharing, salaries/ other payouts .. – Will profit share be pre or post sales commission – Will salaries be paid out, at what rates – What are the other payouts to founders – What expenses will be reimbursed VentureBean Consulting Private Limited 10
  11. 11. Agenda Stakeholder and funding matters Roles and responsibilities Other aspects: Business & beyond ... Summary About usVentureBean Consulting Private Limited 11 11
  12. 12. Roles & responsibilities • Different organizational needs – Heads of business, Finance, Sales, HR etc • Weightage of different roles – What has more value .. Getting revenue, delivery or product development? • Leadership and decision making – Are all equal.. All the time? • Weightage of funding partners to others – Is the financial partner given more leverage in decision making …, in addition to greater ownership?VentureBean Consulting Private Limited 12
  13. 13. Roles & responsibilities: Points - to trigger thinking To define • Responsibilities and activities of each role • Performance expectations and benchmarks • Weightage given to different activities/roles if any, for eg. sales, delivery, product development, etc.. • Leader and decision maker.. For different aspects of the business, i.e. for finance, CFO decides, for hiring HR head decides, for strategy.. etc.. • Define Sooner... rather than Later VentureBean Consulting Private Limited 13
  14. 14. Team/Employee roles • Family members, friends working together • Different sets of people working together, i.e founding team of family and non-family member • Financial investors vs. owner managers • Senior management role vs. financial partner with junior partner roleVentureBean Consulting Private Limited 14
  15. 15. Team/Employee roles: Points - to trigger thinking Helps to separately set out Do’s and Donts for : • Ownership and for management • Process and systems to be followed for certain key activities, for eg. – Strategic, such as fund raising – Operational, such as purchasing from preferred vendor or family member VentureBean Consulting Private Limited 15
  16. 16. Agenda Stakeholder and funding matters Roles and responsibilities Other aspects: Business & beyond... Summary About usVentureBean Consulting Private Limited 16 16
  17. 17. Business growthSome areas of conflict can arise at these stages:• When there is a transition of business and growth to next level• When value is being created in the organisation, and there is lack of clarity of distribution of value• Value is being depleted and cash outflow is more than inflow… VentureBean Consulting Private Limited 17
  18. 18. Beyond businessTypically conflict arises if/when there is:• A perception of unfairness• A lack of trust and faith• A lack of transparency• Ego/ Jealousy and ill-will harboredVentureBean Consulting Private Limited 18
  19. 19. Business & beyond: Points - to trigger thinking• Some of these issues and conflicts can be minimized, some cannot• Put in place systems for transparency where possible• Have dialogues where possible, to understand alternate view points• Realize that sometimes when people are not aligned, it may be better to part.. Sooner rather than Later.. VentureBean Consulting Private Limited 19
  20. 20. Agenda Stakeholder and funding matters Roles and responsibilities Other aspects: Business & beyond ... Summary About usVentureBean Consulting Private Limited 20 20
  21. 21. In summary• Scenario planning helps, for : – Long term, medium term, immediate/short term – Cash flow generation, cash flow depletion, value creation – Special situations of conflict of different stake holders• Plan keeping legal and tax aspects in mind in addition to business aspects as also valuation expectations• Plan keeping the human sensitivities in mind, particularly ego and insecurities; separate person from problem• Document expectations, roles, activities, do’s and don’ts ; understand that documentation can only take you thus far… VentureBean Consulting Private Limited 21
  22. 22. Agenda Stakeholder and funding matters Roles and responsibilities Other aspects: Business & beyond ... Summary About usVentureBean Consulting Private Limited 22 22
  23. 23. Our professional approach is uniqueVentureBean adds value to clients through…Expertise• Strategic and transformation capability - combined with expertise in operational implementation• Knowledge of local business conditions - combined with global best practices• Structured approach - ex 6 Sigma and Lean methodologiesWorking style• Entrepreneurship and Independence in working style – across levels in the organization• Change management is an important part of the work – we work together with the clientBusiness Setup• Team scalability – expertise across business functions• Innovative business models / frameworks …across multiple industry verticalsConsumer / Retail IT/IT enabled Travel & Banking / Finance Manufacturing Education Healthcare / Food services Transportation VentureBean Consulting Private Limited 23
  24. 24. Our expertise within various areas….. Cross Planning, Change •Strategies for business growth •Governancefunctional Management, •Change Management •Project and Program Managementexpertise Integration •Business and operational Due Diligence •Channel strategies Sales and marketing •Product portfolio Management, and Product Extension effectiveness •Value Chain Mapping •Customer analysis, segmentation and loyalty programs •Lean process engineering methods Operation •Gap-analysis •Customer focused processes Organizational •Performance ManagementFunctional Development / •Key talent & change management •Leadership development based on the Leadership Diamond ™expertise Leadership / HR •Organization Structure for Excellence & Growth •Strategy, Governance & organization •Sourcing IT •Architecture •Project Management •Cost / Overheads Reduction •Cash-flow Management & Capital Structure Advisory Finance •Project Evaluation & Risk Management •Syndication-Debt & Equity VentureBean Consulting Private Limited 24 24
  25. 25. Thank You!VentureBean Consulting Private Limited 25