Posted on August 14, 2017
I've been listening to a lot of podcasts recently and How I Built This has been particularly interesting. Beyond the travails and comebacks, it's been fascinating to see over the span of a dozen podcasts how many founding teams break up.
It's far more likely that at least one of the founders leaves the company relatively early than for the entire early team to stay together.
That begs the question: Why is this so common? Based on my own experience and what I've pulled from various public examples, here's four common reasons why founders break up.
- The company underperforms: When a company misses targets, someone needs to take the blame. If not the CEO, then the VP of Sales. If not the VP of Sales, then the COO.
- There is cultural misalignment: Influence of money and fame can cause executives, usually the CEO, to change behavior. This behavioral change can conflict with company culture, causing attrition and bad performance.
- Trust among executive team changes: This change can be attributed to culture but it can also be attributed changing leadership needs as the company moves into new territory. If a CEO won’t grow and adapt with his company, then the executive team may leave him.
- The goals change: Founders should be aligned in what defines success. If that alignment never existed or if the goals change, that conflict will eventually cause a breakup.
Let's take a look at each reason with an example from a well-known company.
Cultural misalignment: Uber
I respect Uber for its undeniably brilliant execution and ability to open up new markets fast. They deserve a lot of credit for setting targets and achieving them.
However, my personal beef with Uber stems from its origin: the founders built it to impress girls and look cool at fancy clubs in San Francisco. That’s why Travis Kalanick conceived Uber and that same chauvinistic lean is also what took him down.
A company can only survive a bombastic CEO for so long. His way of operating infiltrates into the culture and eventually makes the company sick. I don’t know Travis personally but I’ve seen him speak a few times. He’s charismatic, sharp, and confident. People I respect who do know him have defended him against the media portrayal of a slick, arrogant, womanizing rich dude.
However, I look at the reports and the outpouring of support for female employees who left and risked their careers to expose the severe reality of Uber’s culture and see a bad apple. I also don’t think the board would have fired Uber’s CEO over false pretenses.
The culture he built ultimately backfired and Uber will be better without him.
Company underperformance: Groupon
Andrew Mason gave perhaps the most light-hearted response to losing his CEO position and leaving Groupon, the company he founded:
“After 4 1/2 intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today.”
His announcement came the day after Groupon posted a large quarterly loss. Investors weren’t pleased and he was let go.
Trust changes: Zenefits
The Zenefits founder breakup crosses over into cultural misalignment as well. Patrick Conrad, whom I do know and have met several times, promoted a win at all costs culture that eventually backfired. In a highly regulated industry, more caution is needed and trust is paramount.
When the executive team and board lost their trust in Patrick, he was let go and the reigns were handed to his COO. Zenefits had to go through a brutal, public apology for skirting the rules and building a toxic sales department culture and a significant layoff, but they survived.
Goals change: Whole Foods
John Mackey recently sold Whole Foods to Amazon. Based on the origin story he described on How I Built This, I doubt he would have ever thought he’d sell to an online retailer. However, he did have the dream to build an enterprise, the largest organic food chain in the country.
John was one of four founders initially. Each of them left after discovering that their version of success was different than John’s. He was able to retain ownership and continue growing because his goal was to grow and open up more locations and expand the variety of foods sold.
His co-founders wanted to remain small, local, and vegan. Those goals were not shared among the whole team, so they broke up.
Founder breakups can ultimately be a good thing for the company and its investors. It doesn't always work out that way, though, as we'll see in the next post.