Conscious Co-founders

The Conversation Factory

In this conversation, I sat down with my friend Doug Erwin, the Senior Vice President of Entrepreneurial Development at EDAWN, the Economic Development Authority of Western Nevada.

Doug is a former serial entrepreneur turned economic developer and executive coach, and he’s committed to growing Northern Nevada’s startup and technology ecosystem. His community work has helped change the perception of Reno and lay the foundation for future generations of entrepreneurs to thrive in the region. Doug is proud to support entrepreneurs as they embark upon their own journeys.

Doug shares, with great clarity, vulnerability and humility, his entrepreneurial journey and some key lessons he’s learned along the way.

I invited Doug to have a conversation with me about what it might mean to be a conscious cofounder, given Doug’s personal work on mindfulness. Towards the end of the conversation, we arrive at the idea that we are our own most important cofounder - the conversations we have with ourselves will either lead us to lean into or turn away from challenging conversations with our cofounders. And with the lens of Triple Loop Learning, we can start to create better cofounder relationships, not just with better contracts and financial structures, but from our way of being.

The basic metaphor is this: Work is a relationship. And relationships are made of conversations.

And you can hear this in Doug's description of a company as a “rebound startup” or talking about startups like a marriage.

And just like in personal relationships, sometimes, as Doug says, people want to turn away from the discomfort of having difficult conversations.

Doug mentioned research about splits among founders and how it related to the future success of the company. I did a bit of digging and... It’s counter-intuitive, that a startup with equal distributions is a red flag to investors, and that such a company is more likely to fail.

Doug suggests that unequal distributions are proof that the founders have had some hard conversations - which is a key skill in work and life.

However, roughly three out of four startups decide to split the business equally when they start up.

One of the main issues with this approach isn’t a question of HOW to make the split, but WHEN. A 2016 HBR article suggests that founders should wait to split shares until later, co-creating rules to determine the value of various contributions. (I recommend the book Slicing the Pie!).

The HBR authors suggest that “teams that negotiate longer are more likely to decide on an unequal split: the harder you look, the more likely you are to discover important differences. More generally, [they] argue that if cofounders haven’t learned something surprising about each other from their dialogue, they probably haven’t engaged in a serious enough discussion yet.”

The HBR article suggests that a hastily created equal split will sour over time - the percentage of founders who are unhappy with their split increases by 2.5x as their startups mature. That discontent can lead to rapid turnover, which can be problematic.

Another study, led by Professor David Noack, Executive Director of the Hall Global Entrepreneurship Center at the Goddard School of Business and Economics at Utah’s Weber State University suggests that an equal split, especially in early-stage companies, has another unexpected effect - making it unclear who’s driving the bus. According to Professor Noack’s research, if no one feels that they have ownership and responsibility, no one takes the wheel, which has a real effect:

Companies with an unequal split were 21.7% more likely than other firms to be up and running a year later.

And just like in a marriage, having a “pre-nup” conversation can be awkward, even when people know the data about divorce.

While it’s uncomfortable to do so, hosting a conversation to explore all the negative scenarios that might occur in the future, with corresponding actions to help avoid them, can help founders avoid headaches later on…and increase startups’ chances of success.

This is a conversation worth listening to…And I’m excited to share it with you!

Head over to theconversationfactory.com/listen for full episode transcripts, links, show notes, and more key quotes and ideas. You can also head over there and become a monthly supporter of the show for as little as $8 a month. You'll get complimentary access to exclusive workshops and resources that I only share with this circle of facilitators and leaders.

Links

EDAWN - Startup Reno

Growth Pioneers Podcast