Co founder conflicts & challenges

Co-founder conflicts/challenges

Startup Leadership Program (SLP)

Bangalore, 5th January 2013

Anjana Vivek

[email protected]

VentureBean Consulting Private Limited

Stakeholder and funding matters

Roles and responsibilities

Other aspects: Business & beyond ...

Summary

About us

Agenda

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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– Strategic

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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 creation

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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 required

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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..

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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 issues

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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

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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 not

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Return on investment: Points - to trigger thinking

Helps to have clarity regarding sharing of return and taking cash 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

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Summary

About us

Agenda

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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?

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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

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Team/Employee roles

• Family members, friends working together

• Different sets of people working together, i.efounding team of family and non-family member

• Financial investors vs. owner managers

• Senior management role vs. financial partner with junior partner role

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Team/Employee roles: Points - to trigger thinking

Helps to separately set out Do’s and Don'ts 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

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Other aspects: Business & beyond...

Summary

About us

Agenda

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Business growth

Some 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…

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Beyond business

Typically 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 harbored

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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..

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Summary

About us

Agenda

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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…

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Summary

About us

Agenda

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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 methodologies

Working 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 client

Business Setup

• Team scalability – expertise across business functions

• Innovative business models / frameworks

Consumer / Retail / Food

Banking / Finance ManufacturingIT/IT enabled

servicesTravel &

TransportationEducation Healthcare

VentureBean adds value to clients through…

…across multiple industry verticals

Our professional approach is unique

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•Strategies for business growth

•Governance

•Change Management

•Project and Program Management

•Business and operational Due Diligence

Planning, Change Management,

Integration

•Channel strategies

•Product portfolio Management, and Product Extension

•Value Chain Mapping

•Customer analysis, segmentation and loyalty programs

Sales and marketing effectiveness

•Lean process engineering methods

•Gap-analysis

•Customer focused processesOperation

•Performance Management

•Key talent & change management

•Leadership development based on the Leadership Diamond ™

•Organization Structure for Excellence & Growth

Organizational Development / Leadership / HR

•Strategy, Governance & organization

•Sourcing

•Architecture

•Project Management

IT

•Cost / Overheads Reduction

•Cash-flow Management & Capital Structure Advisory

•Project Evaluation & Risk Management

•Syndication-Debt & Equity

Finance

Cross

functional

expertise

Functional

expertise

Our expertise within various areas…..

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Thank You!

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