Picking up the pieces

Fights between founders are surprisingly common. How you handle the fallout will determine success or failure

• Earlier this year and days after raising Rs 175 crore in funding, Jabong.com was rocked when co-founders, Manu Jain and Mukul Bafna, quit the portal to start their own ventures.
   
• After its founder Anupam Agarwal quit Koolkart.com, a Chennai-based e-tailer, in 2013, no amount of fire-fighting could save the portal from shutting shop.
   
• After Abhishek Shah's exit (again in 2013) from the venture he founded, Fetise.com, a men's-only apparel retail store, shutting shop seemed like the logical conclusion.
   
• Fashionandyou.com, a popular online branded apparel website, saw the exit of its founders Pearl Uppal and Gaurav Kachru in mid-2012, barely two years after they set it up. Aasheesh Meditratta, chief executive did admit at one point that the going was particularly tough for the company especially after the founders left.
   
• Within six months of John Kuruvilla's (co-founder of Taggle) departure in 2012, the daily deals portal was forced to shut down in the face of mounting losses.

Consider the above examples closely; there is one simple lesson to be learnt: the exit of a co-founder can either kill a start-up or take a heavy - even if short term - toll on the business. Second, in the absence of advisory boards - which experts reckon is imperative but not an issue taken too seriously particularly by Indian start-ups - an exit, especially if it is not amicable, can draw attention to IP rights, or the lack of them, ownership rights and can stall the company's growth forever. One reason why investors look for as many cues as possible, and actually study the body language of founders closely in meetings, lest they end up investing in a weak or broken relationship.

According to Noam Wasserman, a professor at Harvard Business School, who studied several hundreds of founders during research for his book, The Founder's Dilemma, 65 per cent of high potential start-ups fail as a result of conflict among co-founders. In his view, even as pairs and groups bring a variety of skills, the potential for conflict over leadership, money, strategy, credit and blame can be high.

That said, it is not unusual for one or more of the founders of a start-up to decide not to work full-time when they realise there isn't a clear need for their skill-set in the company going forward or they decide they want to pursue a different course of action. If executed amicably such separation does not necessarily prevent the remaining founders from carrying on or raising fresh capital. As long as there is an acceptable reason for a founder's decision to leave, investors will likely evaluate the opportunity based on the merits of the remaining founders and that of the management team. Ultimately, investors are focused on the capabilities of the leader who will wield the baton going forward.

What can go wrong
Experts reckon that a start-up is akin to a marriage between partners and too many disagreements and relationship stress can lead to the venture's failure. Those in the business also say that one of the top reasons why start-ups flounder - and quite possibly shut shop - is when the equation between the founders deteriorates beyond repair. Besides the conflict, lack of bootstrapping plans (with the founders preoccupied with the big idea without possibly chalking out a roadmap for a year or two sans external funding), great attachment to the original idea with no willingness to change the company's approach to new data and circumstances, are other reasons why founders may get up and leave, thus putting start-ups in a lurch.

The big question, therefore, is: what should be the next course of action when nothing can stop a co-founder from quitting? What should a company management do when the inevitable happens?

According to Subir Bakshi, director, talent and rewards, Towers Watson India, start-ups should not make the mistake of thinking of succession planning as distant possibility. "Who will be the face of the company once the founder decides to leave? Who will continue to communicate the ethos and the mission of the company once the original team has decided to split up or move on? These are key questions that need to be asked early on," he says. In his view, the first thing a start-up should do when a founder decides to quit is to focus not just on investors but on the stakeholders within. The team at the helm should at the outset communicate as transparently and effectively to employees why the founder felt the need to move on. "Your corporate brand cannot take a beating in the eyes of the employees. Allow them to know that even as the founder quits, the start-up is on its mission to succeed, on its growth path," adds Bakshi.

Sandip Shah, managing director and co-founder of Shopyourworld. com, agrees. He says, a company's culture and its stability reflect in the sentiments of its employees. "If the company has an open - as opposed to a closed - culture there is less of grapevine and facts can be in front of the staff accurately. The organisation should put forth its future plans to its staff and the tasks handled by the exiting founder should be shown in detail and all questions by the team and investors should be accurately answered," says Shah.

Making a comeback
See how Fashionandyou.com did it. When the portal saw the exits of founders Pearl Uppal and Gaurav Kachru (the two partnered with Harish Bahl's Smile Group to start it), it seemed like the company had lost its early magic. Its grand acquisition of Urbantouch.com was declared a flop and the company appeared to be on a sticky wicket. If the going was tough for Bahl, it was not an easy legacy to inherit as Aasheesh Mediratta, the company's chief executive, soon found out. The internal conflicts, as many in the company hinted at the time, didn't help and it took three months to even admit to the issues that were veering out of control. The 1,000-plus team, which Bahl had earlier boasted of, began to look like a lot of flab. To make things worse, Abhishek Goyal, founder of Urban Touch and the chief executive of the company, also put in his papers.

It was at this point, "when there were wounds and broken pieces all over the place", Mediratta took over. The worst part about the internal strife was that customers were getting affected - products bought didn't reach customers on time, which in turn generated a lot of negative word of mouth.

Instead of pushing the issue under the carpet, the company's top management decided to openly communicate to the employees the precarious position the company was in. Faced with many hurdles, including a co-founder leaving, an acquisition gone wrong, fat cash burn, Fashionandyou decided to cut 60 per cent of its running costs. The first step was to let people go - it now has a staff strength of 350 - and go into a "re-start up" mode. It became an open website and not an exclusive, closed shopping club it was earlier. It focused on the 'ethnic' range (a third of the business for Fashionandyou comes from this segment) and offer bespoke services and especially curated categories based on the needs of consumers. The idea was to forge an emotional connect with its consumers, rather than offering crazy discounts.

Even as Fashionandyou is fighting for recovery, Ambareesh Murty, founder & CEO, Pepperfry, is critical of entrepreneurs who give in when the going gets tough. "When the vision of the company is short-lived, with the founders believing that they will get one mega round of funding and quit to start something else, there is a problem. For me and Ashish Shah (co-founder Pepperfry), the vision is long term, one of commitment and loyalty to our brand, to each other, to the employees who work with us," he says. How does the team tackle disagreements and conflicts? "It isn't about him or me. It is about the company eventually and we have our roles cut out clearly. Even though we have discussions regarding marketing, advertising, back end and financials, we are clear about the demarcation of roles. Additionally, nothing that we do is a secret and our future plans, our growth trajectory, the vision statement are shared not just with investors but with other top management team members and employees," says Murty.

If Murty highlights the importance of a "planned" bootstrapping phase, Rohit Chadda, co-founder & managing director, Foodpanda.in, an online food delivery platform, feels that the funding issue becomes complicated if there is a split simply because investors put in clauses with terms of separation in their draft agreements. So it is not easy for founders to just get up and leave once the investors are in place. "You really need to explain and therefore think really hard before quitting once investors are in place," he adds.

Berlin-based Rocket Internet, an early-stage investor in Foodpanda, did an interesting thing to gauge the compatibility of the co-founders. It urged the two entrepreneurs to continue meeting and discussing their goals, ambitions and dreams for their start-up in casual, informal set-ups. The keenness to get along gave the investors confidence to put in their money into the venture.

Manoj Gupta, founder of Craftsvilla, says, "If you can survive three years with bootstrapping and with angel investors coming in later, if you can promise not to treat the investment as a fancy C-suite ticket for yourself, you are on the right path." In his view, drafting of "conflict settlement" plan is essential so that there is clear demarcation of domains and there is a clear strategy for growth at every step of the journey. The other way to avoid conflict from degenerating into a crisis is to seek investor mediation.

So, these days outside entrepreneurial counsellors are being called in to not just share knowledge but also to intervene when the going gets tough. At the Wadhwani Centre for Entrepreneurship, affiliated with the Indian School of Business, Bangalore, very often experts are called in to share their perspective on what works and what doesn't in a start-up scenario. Interestingly, experts from this centre have often been roped by a handful of Indian start-ups in the country as independent channels of communication to resolve issues between entrepreneurs, even preventing some them from closing down due to founder conflicts. As an independent consultant in the business of training entrepreneurs puts it, "The problem occurs when the founders are either too rigid or too experimental in their ways. The idea for us is to synergise the views and arrive at a common juncture."

So there you have it: a co-founder quitting a start-up is not uncommon and can be potentially fatal. But there is nothing that good planning and transparent communication can't set right.

START-UP DILEMMAS

  Here is what you can do avoid a full-blown crisis:

• Reason out: When founders quit, the biggest impact is felt by the company, employees and the investors. At the outset, understand why the founder is having issues. In the case of Taggle.com, partners were quick to change the business venture into an online one. John Kuruvilla was against it but thought it was best to move on instead of staying in and fighting it out. The result: the company folded six months later.
   
• Be ready to admit to failure and change quickly: Typically companies should be ready to change once the founders quit. Fashionandyou realised that it could no longer be the exclusive, by-invitation-only portal if it had to expand its customer base. It also realised that it needed to cut down costs and tell investors about the changes it was planning to be able to affect those cuts.
   
• Have a succession plan ready: Don't think a start-up doesn't need succession planning. Be ready to share inside information about the company's vision, its growth strategy and its plans for expansion with the top management that you hire so that even if the founders are busy debating on issues, even quitting over differences, someone knows how to convince employees and investors of what lies ahead for the company.
   
• Bootstrap but not all the way: Too much focus on how to keep things afloat can mar the enthusiasm of entrepreneurs. So even if the "roughing out" phase is essential, it is important that investors come on board with funding to give the idea a formidable platform. The investors can also draft agreements that make it tougher for founders to exit.
   
• Be ready for mediation: Agreed that no one other than the founder knows the company's vision best. If letting the founder stay on is vital then be prepared to undergo counselling by experts who can help you stay on course or show you a new perspective.

With inputs from Subir Bakshi, director, talent and rewards, Towers Watson India