How to avoid founders’ disputes

Running a scale-up can be overwhelming, and certainly test different aspects of co-founders’ capabilities: prioritising, focus, resilience, ability to work under pressure… and their relationships! 

The co-founders relationship is critical in a business at any stage, but even more so in the early stages because all investors are really backing is the co-founders and their confidence in them to deliver on their vision. The relationship is naturally going to be tested – life events, differences of opinions, handling of pressure or even new pursuits of interest – are just some of the reasons that could affect co-founders’ relationships. How can founders navigate?

Advice from an expert

We spoke to David Farquharson, Founder of London Law Collective, who has extensive experience working with SMEs on a range of legal matters including dispute resolution, about the key factors that help founders to create a great working environment and prevent disputes.

What are the most common reasons for founders’ disputes?

The most important thing is to have a similar set of values because you’ll then be best able to create a great working culture. In the words of Peter Drucker ‘culture eats strategy for breakfast’. I have been both part of managerial teams and advised organisations that have a strong strategy but a toxic culture and unfortunately, too often cracks soon start to appear.

Equally, you need to have a strong work ethic; resilience and a supportive partner and family. For a founding team, late nights and weekends are de rigeur, and it’s so important to have a founder who is prepared to match your work ethic and an understanding family who will be there to share the guaranteed ups and downs and celebrate and commiserate as applicable!  

What are the most common outcomes for their businesses when this happens?

A split can be like a divorce and a good outcome depends upon similar factors. Most important is a willingness of both founders to be pragmatic. If your aim is to get everything that you want out of the split and aim for them to get nothing, you’re heading for a bad outcome. Try to aim for a solution that you can both live with. It’s a good idea to potentially get a mediator or facilitator to help in negotiations, as what’s important to you might not be important to them.

Here’s a quick list of some of the things you might wish to consider. Are there certain clients and/or employees/consultants that you want to continue working with? Are there parts of software under development that you want to continue to use? What about the name of the company? If these things matter to you then they need thought and discussion.

What are your top tips for early-stage co-founders to avoid disputes?

As I mentioned above, be sure to have a similar set of values and remember to communicate. An open mindset; a generous spirit; and strong communication skills are some of the most important things alongside the ability to laugh at yourself and with your Co-Founder!

How, as an expert and lawyer, do you advise founders to act and what procedures to follow if one founder decides to leave?

Whilst it might be surprising for a lawyer to say this, there’s only so much future proofing that’s going to be helpful. Certainly, have the intellectual property and any assets assigned to the Company’s ownership right at the beginning of the relationship. Other than that, if someone wants to leave and they want to take clients and employees (with whom they’d rather have the relationship with) then I’d suggest you try to be pragmatic.

Protracted correspondence or court proceedings aren’t going to persuade those clients or employees to stay and will just perpetuate and add expense to an already lengthy process. Instead, if you’ve done your research at the outset on entering into business with a reasonable person with good values, you can afford to be magnanimous and focus on the future.

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David Farquharson is a Founder of London Law Collective and a recognised expert in helping SMEs and start-ups thrive. His experience enables him to provide reliable and sound advice across a variety of areas; corporate, commercial, data protection and privacy, employment and founders’ disputes resolution. David is also a regular guest speaker on entrepreneurship at the London Business School, as well as to postgraduate groups at other European universities.

London Law Collective is made up of experienced legal experts with different backgrounds and skills, who are drawn together to provide the highest quality legal advice for growing businesses. London Law Collective supports Finerva’s clients on various areas and stages including drafting SEIS/EIS investment documentation, together with later stage investments.