How to Resolve a Dispute with Your Co-Founders

Due to the inherent passion involved with launching and running a startup, it’s understandable that founders become emotionally invested in their ventures. It is this passion that can either drive or crumble your startup. In fact, co-founder conflict is one of the primary reason startups fail, alongside financial issues and market stresses. The dissolving of a partnership can be detrimental to your startup and often results in substantial buy outs and in worse case scenarios lawsuit defamation and lengthy litigation. At Allied Legal we have witnessed our fair share of co-founder disputes so we have created a comprehensive overview of how you can identify conflict and resolve conflict before it’s too late.

How to Determine the Signs of Co-Founder Conflict

• You don’t spend time together outside of work
• You avoid your co-founder at work
• You keep your interactions to a minimum
• You feel underappreciated or undervalued within the relationship
• You question your co-founders’ intentions and motivations
• You feel that you are working harder than your co-founder
• You feel defensive when your co-founder questions your decisions or disagrees with you.

How to Resolve Co-Founder Disputes

Once you accepted that arguments are an inherent and healthy component of the founder-founder relationship, you will be more prepared for when it occurs. Afterall, it is through disagreement that the best ideas and solutions are produced. Healthy conflict takes work and a commitment to resolve it. At Allied Legal, we have the following suggestions on how you can resolve co-founder conflict and avoid litigation.

Clearly define or re-establish your roles

Ill-defined roles can lead to disagreement and tension within the founder-founder relationship. By clearly defining your roles within the startup and assigning tasks based on these roles, you will be able to make quick and effective decisions based on each of your expertise and role divisions. Afterall, the benefit of having a co-founder is that you each bring diverse skill sets, strengths, network, investor relations and resources to the table, so use this. If you are mid-dispute, you can re-enforce and re-establish your roles by consulting your ‘founder stage’ documentation. This documentation should outline intellectual property ownership, job titles, renumeration and more.

Arguments should be constructive

Arguments or disagreements should be grounded in mutual respect and collaboration. There should be no ‘winner’ or ‘loser’ as all decisions should be made with a resolution mindset and a commitment to a constructive outcome. When engaged in conflict, spend some time planning how you will structure the discussion. For example, allow each founder a set length of time to air their grievances and viewpoints without disruption. If possible, you should produce relevant data or information to support your claims. Most importantly, you will need to trust your co-founders’ approach to decisions and the startup at large, particularly if the decisions relate to their ‘domain’ or area of responsibility.

Seek professional help if required

Don’t be afraid to seek help, particularly if you both feel that you have done everything possible to salvage the relationship. Obtaining the help of an outside party like an executive coach or a mediator can assist in gaining an objective and unattached outcome to your startup’s dispute.  Ideally this should take place as soon as possible to limit the risk of litigation.

Final Thoughts

If the founder-founder relationship is beyond repair, you may need to seek legal counsel about the best way forward. If a co-founder has already departed, you should consult a commercial lawyer to assess your startup’s litigation risk under applicable legislation. This will help you to avoid defamation claims and claims of equity such as verbal promises of future equity, intellectual property, and ownership rights.

At Allied Legal, we work with founders who are experiencing disputes, tied up in litigation and facing lawsuit defamation every day. Our biggest piece of advice is to ensure that you are armed with a solid legal foundation in case of a dispute. By getting your legal documentation in order from the outset, you can avoid lengthy litigation and financial stress down the track. You can connect with one of our commercial lawyers by giving us a call on 03 8691 3111 or sending us an email at hello@alliedlegal.com.au. 

You might also like our article How Your Can Scale Your Startup to Last.