Nearly half of co-founders have to buy their business partners out, research shows
For millions of entrepreneurs and business owners around the world, having a co-founder offers a much-needed source of confidence and backing, which many sole traders don’t experience. A lot of the time it seems like an obvious decision to enter into business with a co-founder, but we decided to do some research into just how many of these founding teams are successful once the business gets going, and for the majority of them it didn’t go as well as planned.
We surveyed more than 3,000 business owners and found that more than two fifths (43%) of company founders are forced to buy their co-founders out of their businesses due to rifts and power struggles. The most common reason for founding teams splitting was a ‘difference in opinions for the company’s direction’, which (as any entrepreneur will know) can be extremely important for a company’s success. More than two thirds (71%) of our respondents selected this option.
The second most common reason for splits in founding teams was that founders didn’t feel their co-founder ‘reciprocated their beliefs/values’, which 18% of respondents selected.
The majority of founders we spoke to who had split (92%), said that the split was catalysed by a ‘single specific disagreement’ regarding a business decision, following a period of dispute/unrest between the founding team.
We also asked founders whether they would consider co-founding again, and nearly three quarters (73%) stated they wouldn’t. Of the respondents who said they would co-found a business again, more than four fifths (81%) said they would ‘only do so with someone they knew extremely well’ – which is unsurprising based on their past experiences.
When asked what their main reason for having a co-founder was, more than half (57%) of respondents said that they felt ‘more confident and comfortable with a co-founder’, whilst almost a third (32%) said they ‘felt obliged’ to have a co-founder, after coming up with the idea together. This route into co-founding is one of the most common, with entrepreneurs coming up with ideas together and then deciding to enter business as co-founders.
Following our survey, we decided to put together a list of top tips for co-founders to avoid rifts, and ensure they have a sturdy and efficient founding team, which we’ve included below:
Plan out your business’ path before launching
Coming up with a business plan is the bread and butter for any entrepreneur thinking about launching, so this shouldn’t be a shocking tip. However, by planning the route you want your business to take, it will become clearer as to whether your beliefs and goals align with those of your co-founder.
2. Talk to your co-founder about your concerns
If something about your co-founder is unsettling you, or if you feel unease or worry about your business and its direction, talk to them about it. Often founders will keep their worries to themselves rather than just clearing the air with their co-founders and addressing issues with the direction of their company. Whether it’s the first day of trading, or ten years in, working with your co-founder rather than against them is the best way to stop rifts happening – even if you don’t agree with everything they want to do.
3. Consider a third co-founder or silent partner
Having a third voice will mean that you will almost always be able to come to a majority decision, which will obviously help you steer clear of any heated disputes or long winded debates. Whether this is through a third co-founder, or a silent partner who sits above the day-to-day running of the company, having a third voice can help keep everything ticking along efficiently.
Fuel Ventures founder, Mark Pearson, said,
“For entrepreneurs all over the globe, having a co-founder offers a great source of confidence, as well as giving people a great chance to bounce ideas and concepts around, and if the relationship is good, a co-founded company can be extremely successful. However, as our research shows there can be some negatives to having a co-founder, particularly if you don’t share the same business beliefs, values or ethics.
“We invest in businesses with an array of founding stories, whether it’s one founder whose had a business concept since they were a child, two co-founders who dreamt up their idea in a bar, or a group of five who decided to take the leap themselves – if they’ve got a good business and good drive, there’s a place for them here at Fuel.”