I get asked this question a lot.

"Akhil, how do I set up my business for success?"

Now I can only talk about the legal side of this.

And let me tell you what I've personally seen that leads to a company's failure.

Because if you can cover for the failure, then you open up the road to success. 

Fallout between partners or founders while working on a business or startup is more common than you think.

There could always be minor differences in judgment or execution.

But things go wrong when those minor differences pile up.

And end up becoming a major disagreement regarding business.

Let me tell you 3 common differences that I have seen firsthand.

1. Disagreement towards their respective roles and responsibilities.

One partner nudges into the other partner’s territory.

2. Disagreements over control and ownership.

One partner contributes more (in terms of time) than the other partner does.

And "assumes" they should have the major share in the business.

3. Disagreements over the major decision of the business which would decide the future of the company.

One partner saying we should get more funding and move aggressively.

The other one wanted to move slowly.

Disagreements are common and are bound to happen in any business.

The difference in viewpoints is good actually.

That's why you start a business with someone else, to begin with.

But these differences should never cause a deadlock.

Or impact the business in such a way that it leads to failure.

Now how can you avoid such disagreements?

Some disagreements could be resolved in a friendly manner.

While others cause serious concerns for the business.

That's why a Proactive step is better.

Prevention is always better than resolution.

1) Set up unequal partnerships

When there are two co-founders or partners, the default ratio of ownership and control they go with is 50-50.

BUT.

This structure itself causes tons of issues later on.

When they agree on 50-50, each gets 50% voting rights in any decision of the company.

Initially, they could be able to persuade each other when there is some disagreement amongst themselves.

However, as the business grows, the disagreements create deadlock situations.

Basically a situation where the company is not able to make any decision.

It even grows to such an extent that one partner deliberately tries to sabotage every decision of the other partner.

That's why you should NEVER set up partnerships in which two people have equal ownership and power in decision-making.

If two partners are to work together, establish at the outset who is in charge.

Remember - someone needs to steer the ship.

This may seem an unpopular opinion, but a 50-50 partnership rarely works, without any additional measures in place.

So be careful about this.

2) Think of “what if” scenarios

“What if one founder does not want the company to go for fundraising?”

OR

“What if one founder wants the company to go in a particular direction, while the other one has a different idea?”

If you do want to keep a 50-50 partnership, think of such situations beforehand and plan in advance.

Agree in writing on what will happen if there are such deadlock situations.

And, you should do it in the early stages, while you still have that enthusiasm and friendly relations.

There are different mechanisms you can choose:

1) Buy-sell agreement- buy the other founder’s stake or sell his own stake

2) Agreement to go for mediation

3) Agreement to refer for third-party binding arbitration

If you can’t agree on “what if” scenarios in advance, don’t go ahead with the partnership.

That's it!

Remember to tackle these "What if" situations early on.

And if agreeing on some of these "what ifs" feels like pulling teeth, then maybe the partnership needs a second thought.

It's your business - so set it up for high-fives, not high-tensions.

Need more tips like this? Follow me:

Linkedin | Twitter

Did someone forward this to you?