Outcomes Of Founder Breakups


What happens when founders break up and how to prevent it

Posted on August 14, 2017

I recently wrote about the prevalence of breakups between founders of companies.

So how do you prevent founder breakups? You should be able to call each other out and the other side needs to listen. I mean really listen, not just play lip service. Founders need to be proactive about cultivating trust between each other and those around them by taking the other's concerns seriously.

I know the family analogy is overplayed or downright wrong, but the marriage analogy between founders holds true. Just like you can't neglect your partner in life, neither can you neglect your business partner. It's a financial marriage and a legal one, and it can get difficult and ugly to retract.

Having been there myself, I can attest to how frustrating it can feel when communication disappears and you're left with... nothing. It doesn't get that point overnight, though. It's a process and inevitably both sides are to blame for a deterioration in the relationship among founders. Sometimes founder relationships, like some marriages, are just destined to fail.

When that happens, it's best to limit the fallout by cutting bait. When transparency leads to the certainty that the partnership is going to fail, then cut bait right away. Don't let it drag out. Your relationship may be saved this way and it will also be better for the company.

Ultimately, founder breakup outcomes vary but they fall into three general buckets:

  • One founder leaves, company survives: Common and best outcome for employees and shareholders. In this scenario the CEO is usually fired and an outside CEO or outside COO takes his place.
  • All founders leave, company survives: Less common because most companies need a founder to stay involved for cultural security. This is less optimal and less likely for favorable outcome. It usually takes the form of a private equity takeover. The entire management team is replaced, founders and all, and the purchase is almost always made at a steep discount to the last valuation.
  • Founder breakup, company fails: Sadly, this is most common. Failure comes in many forms, but best case is a low valuation "fire" sale or "acquihire." The breakup at the top causes a company-wide rift that impacts morale, productivity, and finally brings down the company. A sale can happen if the management is fortunate enough to find a buyer or has the foresight to see the endgame in advance.

The counterexample: Lyft

Logan Green and John Zimmer of Lyft seem to have avoided these problems even as their company has grown to billions in value and over 1,000 employees. It’s highly unlikely that these two could remain friends and business partners over the course of such an incredible climb. But they did.

I listened to John Zimmer describe the origin and ascent of Lyft and it appears they avoided these pitfalls by building the precise opposite of my points in the founder breakups post:

  • The founders are completely aligned in goals and values. They see Lyft as a transformative force not just for travel but for building relationship between people around the world. Transportation defines cities and living spaces, so by building a transportation company, they can ultimately influence how cities operate.
  • They do not appear to be driven by fame or fortune. There’s no dirt on these guys. No scandals, no stories of wild parties or sexual harassment. Lyft built a culture that is the opposite of Uber.
  • They trust each other. I thought it was revealing that although Logan is the CEO, John did the NPR interview. Most CEOs wouldn’t do that. Most of them want the spotlight or need to control the message. Not Logan, though, and I’m sure that’s helped him retain John as his co-founder.
  • As a result, they’ve grown. Zimride, their first company, was a profitable carpool scheduling service. It seems they’ve taken that approach to the highly competitive, loss-fueled growth market of ride-sharing. They may not make as much money as Uber but they also don’t lose as much.

For these reasons, in the long run, I’d bet on Lyft over Uber.