I’m sitting at a Thai Cafe on Mission St. in San Francisco. Piano jazz plays softly from the speaker in the ceiling. I slurp on flat noodles while reading a research paper on existential depth psychotherapy, feeling very sophisticated. I chuckle at myself but nonetheless enjoy the moment. My phone rings. It’s my client — the CEO of a startup, this one’s not in Silicon Valley but rather in Silicon Beach, about 350 miles south of the Thai restaurant on Mission. The jazz is broken, the reading stops, but I welcome it. Because it’s what I love. And I know he needs help.
Conflict in startups is no more unusual than conflicts in established companies. Of course, there’s a particular brand of excited camaraderie that accompanies the launch of a company and the innovation of the pre-corporate organization. But as with any endeavor requiring human beings to cooperate with one another for extended periods of time, the startup organization is no stranger to personality conflicts, ego defenses, and diverging goals. And that’s okay! Conflict can be a driver for growth and innovation…assuming it’s managed properly.
The particularly interesting thing about conflicts at startups is the frequency by which similar problems seem to occur in similar-stage companies. There tend to be common themes of conflict among startups, and each theme tends to correlate with the stage at which the startup is in. The following list comprises the top three problems I have seen at each of the three general startup phases, and some tips for conflict resolution at startups. If you’ve got a startup, I’m willing to bet you’ve experienced at least one of the below conflicts at its corresponding phase. If not, I would love to hear a unique issue your startup has had to manage and how you overcame it.
Startup Phase 1: Seed Round
Being involved in a startup prior to major revenue or funding can be an exciting time. No one is making much, if any, money yet, so everyone is there because they believe in the idea, the mission, and the vision. Hence, the seed round of a startup is often replete with emotionally-driven momentum and, of course, trials and tribulations. Uncertainty, mistakes, and directional pivots are abundant at this phase. And with emotional excitement, change, and uncertainty, comes conflict. This phase, especially, is rife with founder conflict, much of which is due to the following top three themes I have seen at the startup seed phase.
1) Lack of Clear Lanes (Turf Wars)
The startup seed phase is an all-hands-on-deck time. Everyone tends to do a little bit of everything. The CEO is selling and helping in product development; the COO is handling finance and HR; the CMO is dealing with shipping problems. They’re all crossing over into each other’s lanes regularly. While this is often the nature of an early-phase startup without the money to hire a robust staff, this lack of clear lanes often leads to conflict, especially among partners or co-founders. There’s usually at least one founder that thinks he’s doing too much, that he’s doing other people’s jobs but he has no choice because they just can’t handle it the way he knows they should. In other words, no one else is stepping up, so he has to. Then you have the co-founder who feels the first one is stepping on his toes, micromanaging, and acting like a control freak. This makes him feel undervalued, underappreciated, not trusted, and monitored. So, both sides foster resentment. When clear roles and responsibilities are not established and lanes are not adhered to diligently, the turf war conflict is inevitable. Startups in the seed phase should, as quickly and as often as reasonable, develop clear lanes for each role and adhere to them.
2) Misalignment of Goals/Values/Vision Among Co-Founders
The startup is a few months in, and founders are thinking about funding sources, developing their cap tables, revenue models, and go-to-market strategies when visions begin to diverge. Sound familiar? One founder thinks they should market this way and build revenue that way; the other thinks that doesn’t make sense and has her own idea of how the business should be structured. A lack of clear hierarchy also adds to this issue, which is the common “problem of egalitarianism” in early-stage companies. There’s no clear head or final voice that stops the buck; and so, the question of who calls the shots, who leads the vision, regularly results in conflict. Again, some clear lanes, boundaries, and perhaps even a hierarchy is highly recommended.
3) Division of Labor and Shares in Preparation for Funding
The founders are going out for funding, and in doing so they begin learning of the particular demands and expectations of early-stage investors. All those visions and structures the co-founders hopefully came to an agreement on can once again change as investors become involved or gain interest. Investors may have demands on the way the company is structured financially and/or operationally, which some of the co-founders may not agree with…and for good reason. Some founders discover their shares, titles, and board seats have the chance of being significantly diminished upon funding. Sometimes, this is the only way to get funding, and they must bite the bullet for the company and thus for their own jobs and their future prospects; but that doesn’t mean they’ll like it. Swallowing such a pill leaves a bitter taste in the mouth of many. The prospect of reduced control and ownership, especially if it only applies to particular founders and not others, can create resentment and conflict if not confronted and spoken about with everyone openly and logically, including laying out the clear long-term potential for all involved.
Startup Phase 2: Launch (Series A Round)
First round of funding is complete. Woo hoo! The founders are pumped, their vision validated by experienced venture capitalists. Now it’s time to prove their worth. New hires are made, new roles assigned, new clients and customers attained. And with establishment in the marketplace comes a host of new potential challenges, including the following three common conflicts I have witnessed in startups with series A funding.
1) Poor or Total Lack of HR Protocol / Standards
Although new hires are inevitable at this stage, some companies in the launch phase still rarely put much time into developing their people operations. Perhaps it’s the buzz engulfing the accomplishment and the excitement of the launch into market, but many companies at this stage seem to take for granted that everyone is going to be happy, understand their roles clearly, and live up to expectations. Of course, not everyone always does. Indeed, not everyone, from the founders to early hires, is always completely clear on what the expectations are for their job roles or for the working standards at the company in general. This leads the wrong people being placed in the wrong positions — wrong meaning not a capability match for that role or not a culture match for that department.
With mismatches comes lack of productivity, miscommunication, certain workers feeling they have to pick up the slack and others feeling confused and out of place…all of which lead to interpersonal conflicts. And because there is no people ops department, C-suite executives become directly involved with handling HR issues, which they are rarely equipped to handle from an interpersonal or legal standpoint. These personnel issues happen despite the fact that most young companies hire an outsourced HR service for compliance issues, payroll, and recruiting. That’s why early-stage companies would be well-advised to, at the very least, bring on an experienced HR director or people ops manager as one of their first, core hires.
2) Power Struggle Among Executives
Fortunately, after Series A funding, co-founder and C-suite roles tend to become a bit more defined and lanes become more clear. Frankly, the new executives get so busy doing what their respective roles dictate they ought to be doing, they simply don’t have the bandwidth to take on other executives’ responsibilities. However, while the sense of being micromanaged or monitored by one’s partners may have dissolved, the big decisions per department may still reveal some struggle. That’s because a lot is riding on this phase going well and the company has still not totally proven itself. The combination of large risk (if we don’t pull this off, we won’t get second-round funding, etc.) and the lack of experience (C-suite has not yet proven they can each navigate their jobs and attain results successfully) can create mistrust among founders and executives, which may lead once again to overstepping boundaries and other aspects involved with power struggles.
This period of time takes a big leap of faith by the stakeholders — that each exec is in the right place and should be trusted to do their jobs well. When they have an idea or believe a particular decision is right for their respective departments, it should be wholeheartedly considered and discussed before denying the decision. After all, each executive should be considered the expert over his or her respective department. If they are not, then why are they there? Trust, faith, and an open mind will be important in the mitigation of the power struggle.
3) Mismatches of Executive Roles
During the seed phase, everyone is doing everything. Perhaps one or several of the co-founders or early-stage employees were placed into roles that they were not quite suited for, whether due to a lack of experience or a lack of desire to do that job, but they did it anyway in order to help get the company launched. Now that funding has come in and the company has launched, however, the mismatch becomes evident. What worked prior to funding — i.e., all hands on deck — no longer works, at least not as efficiently as it needs to at this stage. But now egos are involved. The COO, who would be better suited as the CRO or Biz Dev Director, doesn’t want to lose his title as the second in command; even though the newly hired financial strategist would be a much more effective COO.
Handing out new titles and placing founders in new roles can be a tricky endeavor. One that is typically rife with conflict. To manage the potential for intense conflict, this stage will, again, require clear communication, pragmatic reasoning, open minds, and agreed-upon visions for each stakeholder’s future as it relates to the company. Further, a company would be well-advised not to assign new hires to C-level roles too quickly, but rather bring executive in at director-level titles and let them prove they are worthy of a promotion when the next phase of the company emerges. If they don’t prove so, the company can afford to bring on new high-level C-suite executives with Series B funding.
Startup Phase 3: Growth (Series B-D Rounds)
A large cash injection has taken place. There is a buzz now about the company, not just among the Silicon Valley locals but from the general public. It’s a truly exciting time. The founders have proven a model, they’ve developed a viable product, and now it’s time for expansion. But with expansion comes a whole new slate of challenges. The following three conflict themes are those I have consistently seen at this phase.
1) Customer Conflict & Public Relations
With an injection of working capital, there are now many more resources to hire expert marketing personnel and implement massive marketing campaigns. Accordingly, the customer base and product demand should rapidly grow, and the company will hopefully be able to scale as projected. However, this early growth stage can be full of customer service issues as the company scales. More customers means more problems, and the company is still developing its best practices for customer service reps, not to mention still scaling the customer care department. During this growth, some customers will inevitably be upset or not feel taken care of, which can lead to poor reviews and bad press. As soon as possible, the company should assure their customer service reps are well trained both in solving product challenges and in conflict resolution for customer service specifically.
2) Cultural Mismatches of Employees
Unlike during the launch phase, when C-level execs and co-founders are sometimes mismatched in their roles, a startup during its growth phase faces challenges of employee mismatches. At this point, executives have likely proven themselves in their respective roles and expertise. But as the people operations department grows and has to scale the workforce via several more hires, there will inevitably be some challenges and errors. At this stage, the rapidly expanding recruiting process is trying and testing who and what works, but because the company is so new and growing rapidly, cultural mismatches are inevitable, which will lead to interpersonal conflict. As quickly as possible, people ops or HR departments must develop a working model and protocol for finding not only the right people for the jobs but also for the culture.
3) Time Management
The growth phase could, in fact, be the busiest phase for most executives; and yet, it is the phase during which they will need the most time to be innovative — to create procedural systems that can scale and new ideas that can enhance their products, marketing strategies, and revenue models. Unfortunately, many executives, let alone lower-level employees, do not learn or implement effective time management skills. If the CEO’s door is always open, and the CTO can walk in at any moment with a problem or a question, interrupting whatever the CEO was doing, this is a problem. During growth, some executives become obsessed with meetings — meetings for the sake of meeting, another poor use of time. Aside from a productivity issue, the lack of clear boundaries when it comes to availability and an overabundance of meetings can create resentment, frustration, and inevitable conflict among executives and staff. Company leadership would be well-advised to very quickly design, implement, and enforce clear guidelines around how and when time ought to be used and allocated throughout the company.
These top three conflict areas for each of the three phases of a startup are only based on what I have personally witnessed. There are certainly other types of conflicts and many of the above challenges can be experienced across all stages of the startup as well as in established companies. If you have any interesting stories about conflicts at your startup or you need help managing or resolving a conflict in your company, please reach out. We’d love to be of service.