Yes, You Have To Eat Your Vegetables: Why A Founders Agreement Is Indispensable

Ben Lee

Ben Lee

CEO and Co-founder of Neon Roots

Ben Lee is the co-founder and CEO of Neon Roots, a digital development agency with a mission to destroy the development model and rebuild it from the ground up. After a brief correspondence with Fidel Castro at age nine, Ben decided to start doing things his own way, going from busboy to club manager at a world-class nightclub before he turned 18. Since then, Ben has founded or taken a leading role in 5 businesses in everything from software development to food and entertainment.

You don’t have to be neck deep in the entrepreneurship space to know that, at the end of the day, most startups fail. It’s a well-publicized fact, and one that probably discourages more people from starting a business than it should. But less well-understood is the reasons behind those failures, and even for those familiar with the startup space, the extreme failure rate can be a bit of a mystery. There are plenty of reasons for the high failure rate of startups: timing, no capital, a bad idea, poor execution… but here’s a statistic that will probably shock you:

65% of high-potential startups fail due to conflict between co-founders.

Yes, you heard right: 65%. If that doesn’t make you rethink your priorities, we’re not sure what will. But on closer inspection, that statistic isn’t as surprising as it may seem. We’ve talked with countless investors and accelerators alike, and time and time again, they tell us just how important the founding team is. When you think about it, it makes sense: almost all early stage startups pivot, so things like value proposition, target market, and concept will inevitably change – but the founding team, more often than not, won’t.

So how do you avoid being a member of that 65%? Step one is to pick a hard-working team that communicates well and is committed to achieving success. But once you’ve done that, it’s time for the hard part: writing a founders’ agreement.

A founders agreement, also called a co-founders agreement, is a legal document agreed upon and signed by all founding members of the company. It lays out the critical legal details of the company and the relationship of the founders – things like equity stake, decision making protocols, work expectations, and what to do in case an agreement can’t be reached. It’s a document that’s set in place early on in the startup’s life, and it sorts out all the nitty-gritty details that no one likes to talk about. Creating one is a lot like eating your vegetables: no one really wants to do it, but your business cannot grow unless you do.

Thankfully, creating a founders agreement isn’t nearly as difficult as it used to be. There are tons of templates available online (check out the ones from Docracy or Panadoc), and most attorneys specializing in entrepreneurship will have no trouble putting one together for you. No matter where you get one, though, the real value in creating an agreement is that it forces you to have the hard conversations that you need to have – even though you may not want to. While it may be an awkward meeting that temporarily dampens the good vibes of starting something you’re all passionate about, it’s an absolutely critical step in starting a company and paving the way for sustainable, long term growth.

Our thanks to Andrew Taylor for the photo.