We've all heard it before: Founder disagreements have been oft-mentioned as one of the top reasons startups fail. Sometimes it's cited as the number one reason. Sometimes number two. The exact ranking doesn't matter. This risk is felt by co-founders more as they progress together; we nod our heads knowingly, let it grow, until it has the potential to become a crisis.
It's fascinating, really. We have all this post-facto analysis about why founder teams imploded. And practically all fact-based analysis we are seeing implicitly assumes that the issues was either there on day 1 already, or suddenly popped up before the end.
That’s not how any of these issues occur. There is a progression built in over time. Case in point: Ben & Jerry splitting up after 50 years of success.
That's what Shub and I wanted to explore in this episode. The slower decay, and founders developing at different rates. The gradual realization that maybe your co-founder and you want different things today - even when you started wanting the same thing. Or maybe skills have expanded differently. Maybe you've both changed, just in different directions.
Here’s how Shub and I think about this “credit decay”.
This Week On Practical Nerds - tl;dr
Credit worthiness between founders decays over time with compounding uncertainty
Decay is exponential to team size: Four-founder teams have over 50% chance of departure
Communication beats compensation when addressing different rates of progression
Long-time friendships can actually mask performance issues rather than prevent them
Finding objective counsel requires people with no stake in your success
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Credit worthiness between founders decays over time with compounding uncertainty
How do you know when your co-founder stopped being good enough?
In the episode I introduced a metaphor that we found surprisingly applicable to founder relationships. It comes from finance.
When you're a credit lender, whether you're a bank financing someone's car or a business loan, you need to assess credit worthiness. You're evaluating how likely someone is to pay back the principal plus interest over the lifetime of the credit.
But here's what most people outside finance don't know. Credit worthiness has a built-in decay. The longer the tenor of the loan, the more the credit worthiness statistically decreases. Why? Because there's uncertainty in the future. Externalities you can't predict. Life circumstances change. The macroeconomic environment shifts. There might be a divorce. Health issues. Black swan events. Mentality can change. Life objectives and goals evolve. Cost situations fluctuate.
All of these factors are completely obvious when you think about them. But what's less obvious is that there's a rate of change. And the further you project into the future, the more that rate of change compounds. The more it compounds, the more credit worthiness as a function of uncertainty decreases. That's the decay of credit worthiness.
This is why long-term loan products must be assessed as inherently more risky from a credit perspective than shorter-term products. It's pure mathematics of uncertainty.
As founders, we've observed you're in the exact same situation: When you start on day one with your co-founders, assuming all of you have done a solid job underwriting each other, day one has essentially no risk. You know each other now. There's no rate of change in circumstances just yet compared to yesterday. You're starting from a known baseline.
But one year in, things can change. Two years in, more things can shift. This journey is going to take five years, ten years, maybe twelve or fifteen years if you're building something substantial. Over that time, you will discover things about each other as founders. The context around you will evolve. The company will face challenges you couldn't have predicted. People grow and change at different rates.
Banks understand this, which is why on substantial credits, they want to see your monthly bank account statements. They're investing resources to constantly reassess your credit worthiness. They're actively countering the decay of credit worthiness through ongoing monitoring. Founders should do the same thing with each other. In our experience, they almost never do.
In an ideal world, all founders would have had the opportunity to learn about and understand each other extremely well over several years. Ideally over different kinds of situations, including high-stress scenarios where something real was at stake. Where you could observe how the other person actually reacts under pressure. That way you wouldn't be discovering fundamental aspects of their character for the first time while running a startup together.
But the truth is, very few founder teams actually come with all those ingredients pre-loaded. Which is also why when you encounter teams that do have this foundation, it makes them remarkably special. The underwriting is more fully baked from the start. The default risk is measurably lower.
If you haven't had those shared intense experiences, you're essentially discovering the credit risk as you encounter new situations. And here's the thing we've learned. Being best buddies since high school or university doesn't necessarily predict how someone will show up when the company faces an existential threat. Those friendship experiences, while valuable, often haven't tested the specific dimensions that matter in a startup context.
Think about it like this: If you've watched Squid Game or Hunger Games, you know that different situations test different aspects of your psyche. What really matters to you. Who you will choose to protect when things get truly difficult. Whether you'll prioritize yourself at the expense of others, or still look out for someone else. That's what these narratives explore.
Running a company over the long term, especially past those first couple of years, operates similarly. Different situations will arise where you're forced to make choices. Where someone will be unhappy. Where you'll have to grind through exceptionally difficult times. Do the dirty work yourself. Make sacrifices that hurt.
What remains indeterminate is how people will respond to these situations. You cannot reliably use high school experiences or even prior co-working experiences as a perfect proxy for predicting how someone will behave when the stakes are existentially high. Because those startup situations will be more extreme in nature. They're often one-of-a-kind experiences. Which is why you discover the true credit risk only when you actually encounter that situation.
This is also why there's a natural limit to predictions based on "we've been best buddies since we were teenagers." That history might give you some foundation, especially if you've had lots of shared difficult experiences or shared trauma together. But if that's not the case, if your friendship has been relatively smooth sailing, then it's not truly representative of how well you'll look out for each other when the going gets genuinely tough.
From our observations as investors, we've learned that when you have tremendous differences in skills between founders, it often becomes evident to us before it becomes evident to the founders themselves, usually because of their emotional bonds clouding their judgment.
Four-founder teams have 50%+ chance of departure
Why does adding more founders exponentially increase rupture risk?
Based on what we've observed across many companies, the whole risk of decay of credit worthiness amplifies exponentially with every additional co-founder you add to the team. There are multiple reasons for this, and the math becomes increasingly concerning as team size grows.
In a two-founder situation, next to solo founder, this problem is least likely to manifest. Unless the relationship is highly volatile or bipolar in nature, you've got relatively straightforward dynamics to manage. Two people. One primary relationship. Clear communication channels.
Add a third founder, and you introduce new complexity. Now you have multivariate underwriting with different kinds of relationships to maintain. The communication becomes just slightly more tricky. It's still very straightforward typically when you communicate effectively. But it becomes, "Hey, what if I do this? What would that person think? And what would the other person think?" So it introduces a bit of that mental calculus.
Once you're at four co-founders, we can almost predict that in more than 50% of cases, founders over a ten-year period will experience significant decay of credit worthiness. Someone on the team will feel that one person isn't up to their standard anymore. This isn't speculation. It's pattern recognition from observing many teams over many years. More than half the time, it's going to happen.
The dynamics can actually cut both ways. Sometimes it's trickier to resolve with four founders. Sometimes it's easier. What's certain is that it's just more likely to occur in the first place.
It gets easier to resolve when the situation is obvious to three of the founders. When there's clear consensus among three that the fourth person isn't performing. Then you have alignment on the problem, which makes addressing it more straightforward, even if still emotionally difficult.
It gets very tricky in other scenarios. Like when the three remaining founders have different opinions about the situation. Or when roles have become so divided that some founders are actually oblivious to the fact that another founder is decaying in performance. They're not aware because they're getting further and further removed from each other's day-to-day work. Their roles and responsibilities have diverged to the point where they don't have visibility into each other's contributions anymore.
We've even encountered situations where four-founder teams split into two distinct cliques or pairs. Two camps within the founder group. This is generally not a good situation to be in. In one case we observed from the outside, this internal division actually led to two corresponding camps forming in the investor group as well.
Each founder group became less trusting of the other founder group. They felt the need to preemptively lobby for support, anticipating that the other side might realize the issues and act first. Which of course led to the other group doing the same thing. It became a full-on game of thrones. Startup mob wars, essentially. This manifested over about a two to three year phase.
As you might predict, there was sustained value destruction happening throughout this entire period. Because once you're playing these political games, you no longer have a harmonious board or harmonious founder group. Everyone's focused on petty maneuvering instead of building the actual company.
Now, you might think if you're in a four-person founder team right now, especially if you're longtime friends, high school classmates, or even middle school buddies, that this tight bond protects you from these dynamics.
There's a German saying: there's no sheet of paper that fits between you. Meaning you're incredibly tight. Your ranks are closed.
But counter-intuitively, we've found this can actually be a significant risk factor. If you now have performance decay in one person and you're extremely tight emotionally, you might not even realize that performance issues are developing. You're too close to see them objectively. Or you rationalize them away when warning signs appear.
These things absolutely do happen. They're not indictments of anyone's character. They're natural consequences of time and change. But they're real nevertheless. The more people on the team, the longer the journey extends, the more statistically certain it becomes that this decay will manifest somewhere in the team.
Long-time friendships can actually mask performance issues rather than prevent them
What happens when you can't see the problem clearly?
We've both been part of situations where founders called us, and you could just sense the unease. It was so thick you could cut it with a knife. That level of discomfort and tension permeating the conversation. These founders are often very squirrely, circling around what they actually want to discuss.
What usually emerges is that the founder wants to speak to shareholders about a co-founder situation they haven't been able to resolve internally. Maybe they're considering crafting a package where everyone can part ways amicably. And here's what struck us: these founders often have very strong moral consciences. They feel like just by having that conversation with other shareholders, they're somehow backstabbing their co-founder.
But they're not. In the situations we've been involved in, when we knew the full story afterward, everything was done by the book. By the moral and ethical book. But it shows you just how much this process can weigh on your conscience. The emotional burden of even acknowledging the problem out loud to someone else feels like a betrayal.
We think there's also this hesitation or outright dread that comes into play. Let's say the discovery happens once the company has gotten a round of funding. There are investors involved. There's a cap table. There are expectations. Most founders don't want to dig any deeper once they suspect a problem because it opens up this extremely unpleasant can of worms.
Then you have to solve so many interconnected problems simultaneously. Deal with what your investors will say. Deal with what the team will think. Figure out equity implications. Navigate the emotional fallout. It's overwhelming to even contemplate. So there's this temptation to just look the other way. Convince yourself it's not that bad. Keep grinding.
We've both come across cases where founders have chosen to look the other way for years at a time. Until eventually they can no longer avoid it because the situation has deteriorated so significantly. But we think this avoidance also gets in the way of preemptively trying to critically analyze their co-founders. It's easier to not know than to face what you might find.
This happens to all of us to some degree. We're all human. But we've noticed it happens more frequently the less experience you have. The younger you are, the less you've dealt with difficult interpersonal situations, the more likely you are to avoid confrontation. As you get older and more experienced, as your life becomes more resilient through accumulated experience, it tends to happen less. Though it's still very much a function of personality.
The common theme we see is when founders feel like they're having to carry someone else's burden and yet remain answerable to deliver results. We're all human. We feel answerable to whatever goals we've set for ourselves. Whether that's to our shareholders, our loved ones, our team members, or to ourselves. There's this internal pressure to perform against the targets you've established.
So you might find yourself in a situation where you have to carry someone else's burden, compensate for their shortcomings, and yet still deliver on whatever targets you've set. That pressure eventually weighs people down. It robs your sleep, as Patric put it. Sometimes you need to treat the situation in a cold and calculated way as a method of self-preservation. Because if you don't address it, sooner or later it will catch up to you as a founder.
It's the feeling of unfairness that will rob many people's sleep. You're working twice as hard because you're covering for someone else's gaps, and yet you're judged on the collective output. That sense of inequity eats at you over time.
In a very idealistic sense, hopefully the reason you decided to become a founder was that it gives you the ability to express yourself as a business owner. To create a new enterprise that reflects your vision and capabilities. When that opportunity is robbed from you because you're having to carry someone else's burden just to meet various expectations placed on you, you're in some ways losing the joy of being a founder.
At minimum, you owe it to yourself to reclaim your own purpose and mission. To give yourself back what you originally sought when you decided to start this journey.
The longer you wait to address founder misalignment, the more compound damage occurs, not just to the company but to your own sense of purpose and fulfillment as a founder.
Communication beats compensation when addressing founder performance gaps
What's the right way to address co-founder performance issues?
Every positive resolution we've been part of or observed starts with communication. Fairly honest, direct, unfiltered but respectful communication. Not dissimilar to how you would discuss serious issues with your partner in a healthy relationship. It might start with something like, "Hey, for a while I've been feeling we want different things," or "For a while I've been feeling I'm pulling more weight than you are."
That kind of opening can get you into a real conversation. An honest dialogue about what's actually happening beneath the surface.
But before you jump straight to that potentially confrontational conversation, we'd recommend starting with genuine care and curiosity about what bottlenecks that person might be facing. Don't assume from the outset that they're simply free from any legitimate challenges and just underperforming. That's rarely the full picture.
Maybe there's a specific bottleneck weighing them down. Something happening in their personal life that you're not aware of. A health issue. Family problems. Mental health challenges. A skills gap they're struggling with but haven't articulated. Financial stress. Any number of legitimate issues that could be affecting their performance.
Approach it genuinely first as problem-solving. With real care for understanding what they're dealing with. If the bottleneck is legitimate and within your power to help solve, why not go ahead and address it? Maybe you've just saved yourself from a much more awkward conversation. Maybe you've strengthened your relationship by helping them through a difficult period.
But if there are no real bottlenecks, or the bottleneck doesn't seem legitimate, or solving what seemed like the bottleneck proves that it actually wasn't the root cause, then you have very reasonable grounds to escalate the matter. To present it more directly as a case of the burden not being carried adequately. Of performance not meeting the standard the company requires.
Communicating with each other first, before involving anyone else, is extremely important. Do this to avoid moral regret later. Either because you didn't try and nothing changed, or because you didn't try and you kind of escalated through other channels instead. There's moral regret you can have, and there's performance regret you can have.
Anyone with a certain minimum level of emotional intelligence and life experience knows this intuitively. But it's still worth stating explicitly. This direct communication is the only way you can actually get the ball rolling toward constructive resolution. It's the only path that preserves the possibility of a positive outcome for everyone.
Now, what you cannot do is try to fix a mismatch in performance or ambition by simply re-discussing ownership splits or adjusting salaries. We've seen founders attempt this. "Okay, let's just change the equity structure. Maybe we bump one person's salary and not the other's." It sounds like a reasonable compromise. It's not.
This is a terrible idea in almost all situations. We want to be clear about this:
You do not fix a situation of actual misperformance, genuine mismatch in performance, or mismatch in ambition by just paying each other differently. The fundamental mismatch is still going to be there. You will just carry forward with the same frustration, now with additional resentment about the compensation structure.
There might be specific variants where adjusting compensation addresses a particular personal situation or bottleneck. That could potentially be an answer to a specific problem. But specifically for the situation where there's a mismatch in dedication, obsession, hunger, or fundamental performance, compensation adjustments won't solve it.
Objective counsel: People with no stake in your success
How do you get truly unbiased advice in this situation?
From this point forward in the process, it's important to be calculated and objective in your approach. We recognize this is significantly easier said than done. But it's essential. If you allow too much subjectivity or emotion to drive the process from here, you lose the ability to judge how you're framing discussions. You can also make the process much longer and more painful than it needs to be for everyone involved.
What we'd actually stress is finding people who can help you become more objective. If there are investors you can talk to who help give you confidence that being objective doesn't make you a bad person or guilty of disloyalty, bring them into the conversation. Whatever approaches help you build up confidence to not feel alone in this, to feel like being objective is the right thing rather than a betrayal, this is the right time to take those approaches.
Here's a practical framework that we found dependable for getting truly objective advice and feedback on situations like this. Find someone, or ideally multiple people, who meet four specific criteria.
- First, they have no shares in your business. No equity position. No financial stake in the outcome. They're not invested in any capacity. This also means don't talk to someone who's funding a competitor, because they also have a horse in the race, just a different one. Find people who literally have no skin in the game.
- Second, they're not invested in you personally. This is crucial. Don't talk to longtime friends or family members. These people have an objective to maintain their relationship with you. They have incentives to tell you what they think you want to hear, or to protect you emotionally even if that's not what you need. They might sugarcoat or avoid hard truths to preserve the relationship. That's exactly what you don't want in this situation.
- Third, they will speak honestly and directly. Find people who talk plainly. Who aren't afraid to be unfiltered with you. Who don't use coded language that forces you to interpret what they're really saying. Patric has found that sometimes Israelis, Dutch people, or Germans speak most plainly in these situations. They're culturally more comfortable with direct communication. They won't dance around the truth. You want someone who will give it to you straight, not someone who will make you read between the lines or decode diplomatic language. This is not the time for subtlety.
- Fourth, they have significant life experience. We all grow with life. We all accumulate wisdom over time. If you can find someone who's 60 and has been through these situations multiple times, that perspective tends to be far more valuable than talking to a 29-year-old employed investor at a fund who's early in their own journey. This should be completely obvious when you hear it stated, but you'd be surprised how many people prioritize picking someone they get along with easily over someone who can actually assess the situation with depth and wisdom.
For founders, all of these criteria can sometimes be found in investors you spoke with two or three times during fundraising but who didn't end up investing. They have context on your company and situation, but no financial stake. They have no reason to tell you what you want to hear. It can sometimes be found in other founders you've only met once or twice at events or through introductions. People who are removed enough to be objective but experienced enough to understand the dynamics.
And if you're lucky enough to actually know someone who's been in a similar situation before and navigated through it successfully, those people are gold. Learn from their experiences directly. Ask them what they wish they'd known earlier. What they would do differently.
Founder ‘Credit’ Underwriting
Based on everything we've observed and experienced, here's how we'd suggest thinking about this challenge. Treat your co-founder relationships like credit relationships that can naturally decay over time (they can also strengthen ! but that's not the point here).
That decay is inevitable across a portfolio of founders (even when not for every one of them), and just a mathematical function of uncertainty compounding over long time horizons.
Start by committing to continuously re-underwrite each other. Not in an impersonal way, but through genuine open communication and curiosity about what bottlenecks each person faces as the journey unfolds. Check in regularly on alignment around goals, ambition levels, and performance expectations. Don't let years pass without these conversations. (There is potential for regret).
When performance gaps emerge that can't be addressed through support and problem-solving, face them directly with honest conversations before involving anyone else. Start with empathy and genuine care, but be willing to escalate to direct conversations about performance and fit when necessary. Don't let misplaced loyalty or fear of confrontation prevent you from addressing real issues.
Seek objective counsel from people who have no stake in your company's success, no personal investment in protecting your feelings, who will speak to you plainly and directly, and who have significant relevant life experience. Present your situation fully and factually, then let them help you see what you might be missing.
Remember that compensation adjustments won't fix fundamental mismatches in ambition, dedication, or hunger. Those are issues of alignment and fit, not issues of incentive structure. Throwing money at misalignment just delays the inevitable while adding resentment to the mix.
Most importantly, understand that this situation happens to most founders at least once in their lifetime. Even Ben & Jerry.
You're not alone in facing it. You will find people who have gone through similar situations and can guide you. The key is facing it head-on rather than letting the feeling of unfairness rob you of the joy that made you become a founder in the first place.
The more founders you have on the team, the higher the statistical likelihood you'll face this challenge over time. That's not a reason to avoid co-founders (!!!), but it is a reason to be thoughtful about team size and to commit to ongoing honest communication as your primary tool for managing the progressing decay over time - and be committed to each other.
We owe it to ourself and -selves.
You Can Find More Analysis On The Practical Nerds Podcast
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