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The Dangers of a Startup Democracy

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Back in January 2007 while taking a shower I thought up the idea of my startup. ;)
I’m a business major, but I can’t write a single line of code. I knew I’d also need someone I to help with marketing and administrative parts and since my budget was nearly nonexistent, these would have to be people I could trust, and who’d be willing to take sweat equity. I started talking to a few of my friends. It was my 1st mistake.

Two of them were already working at other jobs, but I was not willing to spend our tight budget on salaries from day one. I figured I could get their attention by offering to split the company between us. Three of them accepted: two were really close friends from high school who had worked together previously on a few websites. The third is a university classmate who I figured would help me with my workload. This is where I made my 2nd mistake.

I was able to convince each person to come work with me on the startup in exchange for 24% of the company. I like involving people in the things I do (2 heads are better than 1!) so at first I was OK with our “28%, 24%, 24%, 24%”-agreement. I thought I had listened to the right people… so off we went! This is where I made my 3rd mistake.

By June/July we were working in the garage of one of our cofounders. Within a few months we were facing some challenges. We got along great, but I felt that I was unable to have a strong enough voice in any part of the decisions, even though I was the father of the idea! My word was not carrying enough weight in part because of my own inexperience, which me feel that everyone knew better than me. So this is when I started to get really paranoid. (Paranoia usually comes into effect when someone starts feeling uncomfortable or insecure).

About the same time a friend at a VC firm introduced me to a new mentor: a 30-year-old with vast internet experience, but most importantly a guy who had “been around the block” and with whom I could really relate on my many levels. One day I spoke with my mentor about how the company was divided up. He immediately started to ask me the type of questions that make you think.

I realized the mistake I had made when dividing the company — I had started a democracy. I began to understand that this conflict could mean my idea might die before it even got off the ground! I feared that if I them of my concerns, my friends/co-founders would flip out and I might lose their friendship. But I understood that I myself was the one that had to feel the most comfortable, or the project would not survive.

After much thought, I presented my teammates with the idea that I was not comfortable with how the company had been divided and that the situation made it difficult for me to impose my wishes on this project. Without a doubt, this confrontation was the hardest issue I had dealt with in my life. I was extremely distraught and even a month later I could not eat or sleep well, not to mention work well.

To make a long story short, we lost one of our co-founders and I lost one of my best friends — a guy whom I counted on when my father passed away, my wingman for the nightclubs. In less than a year I went from promising him that we would “make it” to not even talking to him. Maybe this all a bit overboard but I finally understand that an entrepreneur’s emotions’ are a rollercoaster ride.

I made several mistakes in my decisions about how to build my team of startup founders. But this is what life is about, learning about your past mistakes so that they don’t get repeated.

As a fellow entrepreneur just remember the following:

1. Stay away from working with friends.
I cannot stress how big of a mistake this is!!! I know that everyone says this but I did it and assume that others might be tempted to but DO NOT! Even though you share everything with them and feel extremely comfortable, you can always go to them for advice but remember that companies will come and go, your friends will always have your back.
2. Get advice from everyone, don’t only listen to a family friend,
ask a teacher, as a fellow worker, ask your dog but do not go with only one piece of advice.
3. Surround yourself with people who have been around the block like I did with my first mentor, we were able to bond and speak frankly; if it had not been for his questioning I have no idea where I would be today. Always ask them questions!
4. Do not let things drag on, if you feel uncomfortable with a decision that even you yourself made, talk about it with your co-founder immediately and see how things can be resolved.
5. As the primary founder you better have an authoritarian role in the start-up process,
this might sound harsh but if you had the idea of the project, then you are the one that should take the final decisions but of course ALWAYS take into consideration what your teammates have told you (this is one of the reasons why working with friends is hard… it is not the easiest to disagree with them)!

Nathan Schorr
is the founder of Blahsports, a social content network focused on sports.

13 Responses to “The Dangers of a Startup Democracy”

  1. Nathan,

    I have had an absolutely opposite experience. In 1994 I founded a company with 3 close friends. One left early (under his own power). Another friend joined us to replace him. We had a great run for 9 years, survived the bubble crash, and sold in 2003. We’re all still friends. It wasn’t easy, it required flexibility and great communication skills. But it can be done. And when it works, it’s great. In those same circumstances, I’d do it that way again.

  2. Nathan, I feel your pain as I’m sure anyone who has started a company can. However, don’t be too quick to generalize your experience and keep in mind how bias is just as dangerous as inexperience.

    Case in point, who would you start a company with if not friends? Yes, you risk the friendship but otherwise you need to both simultaneously build a relationship with the person while building a company – and as you’ve seen building a company is hard enough. Just because you had a bad experience and lost a good friend doesn’t mean that having friends as co-founders is a bad idea. However, you do need to be careful that you pick friends not just because they are friends, but because you share some ideas, work the same way or are complementary.

    It’s also possible to structure the company up front to avoid these kinds of confrontations later, which I’m sure you’ll do in the future. I wonder if you’d have the same opinion if you’d started with a different corporate structure.

    Also, keep in mind that while startups shouldn’t be democracies they also shouldn’t be dictatorships. If your teammates (and they are teammates and not employees early on) don’t feel ownership (of both the company and decisions) then it will be harder to motivate them. Delegation is one of the finer arts of management and done well you can still maintain authority while giving people the ownership that they need to stay passionate.

    I’m glad to hear you are having success. Good luck.


  3. Daniel Heise

    I agree with Tony 100%.
    In the past 9 years I have founded 6 companies. The first was the only one in which I had a serious problem with a friend. Instead of blaming the problem on the friend issue I learned that the problem was the disaligned vision. I believe (like Tony said) that an aligned vision is the basis of a sucessfull partnership. Having learned that lesson, I continued to found companies with friends and become very good friends with the new partners that I didn’t know before founding the business.
    In my experience as an entrepreneur the people with whom you carry out the journey are just as (or more) important as the outcome (if there is actually one).

  4. Agree with your points on not making a startup a democracy – that should be rule no. 1 for every founder. If it is your vision – you must keep at least 2/3 of the founding ownership – everything other than vision is a commodity. Learned the hard way myself with my own ventures. However, there is value in bringing your friends to be part of your entrepreneurial efforts – just DON’T make it a friendship venture – draw the line between business and friendship “right from the start” – it works really well – something I am doing with my other startups.

    I would also recommend every entrepreneur to take a self assessment test – many of those out there. Play with the test and pick every choice – to see the feedback. Even if you answer them wrong – you will at least know what not to do. The thing that stood out for me in one of those self-tests was a question on “who would you enlist as part of a founding team” with the choices being “friends” or “outside consultants”. The right answer to this question is “friends”, and if you answered it as “outside consultants” the feedback from the test was “go get a day job”.

    When I think about consultants (someone in general who claims to have been around the block), I am reminded of a line from the movie about Earl Long (played by Paul Newman), where through his trials he points to his cronies and says – “look at them, finest bunch of Yes Men in the great state of Louisana”.

    My litmus test for consultants – I usually set them at the first meet – try putting up a couple of your visionary ideas – and if they do not challenge you immediately, you might as well save the coffee for someone else. End this meeting as fast you can – they are the “Yes Men”.

    I do work with two outsourced consulting groups – six years into the relationship. Why did I choose them? Becasue even at the risk of loosing my business, they challenged my RFP and told me I needed to do build it a different way – got my attention – and of course they were right! Six years later, they are not consultants, but a partner in the truest sense.

    I love my family, but agree with you completely – keep them out – they are as I call them, “the entrepreneur assassins”.

  5. Tony, i agree that picking friends as your co-founders is much easier because you can trust them and you know how they are and react to certain different situations but most of the time we never worked with each other under stressful situations like a start-up when you have to face the bills at the end of the month and dont know how you are going to survive. or if you have to sit your friend down for a talk and set him straight about work ethics etc. I am not saying that this was my case in particular, however it is extremely difficult to have these types of conversations and disagreements if you know that you will end up going to the pub or soccer match with that very night.
    I congratulate you for being successful with your friends, however givenmy personal experience i wish i would have never invited him because i would be one friend stronger.
    I agree, getting co-founders should be as smart as hell!!! I couldn´t agree more, i can stop reading blogs after blogs that talk about how important it is to surround yourself with people smarter than you and ones that complement you well.
    And Ivan, you are 100% correct, never work with a flame!!! I never made that mistake but i know people that have… it must not be that pleasant having to work with your ex.

  6. Al Pacino in Heat:
    “Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.”

    :-) Probably not relevant here, but for some reason this post reminded me of this quote.

  7. Ivan Ivanobrockovich

    I agree 100% about democracy and startups being a bad mix. Openness and transparency are fine, but somebody needs to be the boss. The founder of a company is unique, and has moral authority that carries a lot of weight. You want to listen to people, and get advice from many sources, but ultimately somebody needs to make the tough decisions. Usually no decision needs to be made because everyone is in general agreement most of the time, but when there is a stalemate, only the founder can make the call without causing all sorts of political turmoil.

    Working with friends can be OK, and can be a lot of fun, but it’s important they know it’s your company, and that if things stop being fun, etc, you’ve agreed in advance to part ways. Forming a partnership with a friend, on the other hand, is a very bad idea, bringing your spouse or significant other into a senior role, a very very bad idea. Dating people you work with, also a bad idea, especially in a small company, or if you have a predeliction for hot-headed ‘animal in the bedroom types’, who are usually also psycho in other contexts.

    Having adult oversight is important, although you need to be careful about that too. I can’t count the number of times I’ve dealt with people who had much general business wisdom, but were completely and totally clueless about my specific business. You got to watch out for that too.

  8. I disagree heartily with two points.

    “Stay away from working with friends. ” This, IMO, is terrible advice. Friends are the only people you know well enough to have a sense of whether a partnership might work out. Any other partnership has AT LEAST as much chance of going sour. And, of course– a good friendship will add loyalty/duty to you motivations for success. As a counterpoint to your experience, I’ve started 3 successful companies with friends. I’m still friends with all of the co-founders.

    “As the primary founder you better have an authoritarian role in the start-up process”. Again, I disagree. If your co-founders feel like employees with no ability to affect the vision and not partners, you’re going to lose your co-founders. If you think you’re right when 3 co-founders disagree with you very often, either you’ve selected stupid co-founders or (more likely) you’re being bull-headed. In all 3 companies I’ve founded, I have never ONCE pulled rank on a partner (this is 3 businesses over a period of about 8 years, to give you an idea) and I’ve always been the nominal CEO.

    All of your problems seem to stem from not doing a good job selecting co-founders. You need:

    1) Aligned vision. Make sure you’re on roughly the same page in terms of what you’re building.

    2) Complementary skillsets with a ton of mutual respect and clear division of expertise. The UI guy should have implicit authority on UI issues, but should almost never have to use it… His partners should have the wisdom to defer to him on most UI issues and he should have the wisdom to defer to his partners if they vehemently disagree with him.

    3) Partners who are smart as hell.

    4) level headed partners who are driven by metrics and logic with good conflict resolution skills. With your “my way or the highway” attitude, I think you probably ought to look to yourself first here. If you’ve got 3 partners who are smart as hell telling you are wrong… Well, you’re likely wrong.

    Improve your attitude and pick great partners with aligned vision. Conflicts will be cake and friendship is a huge plus. Hell, if they don’t start as friends, they’ll end up that way (spend 12 hours a day with someone and you’ll either end up loving them or hating them).

  9. I agree 100%. I encountered the same issue with my previous startup attempts with friends. Democracy in a startup simply doesn’t work well, someone has to be in charge and needs the authority to make a call. A bad experience can permanently sour a friendship and family relationships, so be careful.