“It’s about how you respond to it”: What to do if your co-founder exits suddenly

Here’s the situation: you’ve found a business partner. They are someone you trust with your vision, who shares your passion, and who complements your skillset. You get along well enough to work long hours together, week in, week out.

But due to circumstances outside your control, they leave the venture, suddenly, before you’ve built out a team or scaled your venture.

This is what happened to Lara Solomon, co-founder and chief executive of Story Antics.

Solomon and Kellie Marks met through the inaugural Antler Australia accelerator, bonding over a mutual desire to encourage children’s love of learning.

The startup they built together, Story Antics, sells children books that can be customised to reflect family structures, ethnicity and gender roles excluded from traditional fairytales. In fact, customers can personalise characters to look like their own family.

“A lot of storybooks in the market right now focus on morals and they’re quite bland,” Solomon tells StartupSmart. “So our stories are a bit more quirky.”

“We still teach them about kindness in the books, but they’re just not quite so obvious.”

However, not yet a week after a successful pitch to a crowd of more than 900 people at Sydney Town Hall, Marks exited the startup.

Solomon admits the exit came as a shock, saying Marks left for personal reasons.

“Not my first choice, but these things happen, unfortunately.”

“The best thing for the business is to move on and refocus,” she adds.

Free up equity to find new talent

Because co-founders most often leave pre-revenue and pre-product, Benjamin Chong, partner at Right Click Capital, sees vesting agreements as a precaution and solution to a few common pitfalls.

“One of the things that are helpful for founders planning to go into business is to get a vesting agreement,” he tells StartupSmart.

These agreements are typically over four years in Australia, he says.

Chong considers it “critical to free up equity”, which can either incentivise the remaining co-founder in taking on the entire leadership role, or it can be used to attract new talent.

Solomon admits she is worried about “losing momentum”, so is planning to go it solo and focus her attention on making smart hires.

But “if I find the right person along the way” things could change, Solomon says, because running a new startup doesn’t offer “big perks or a big salary”.

If you do find a potential co-founder, however, Chong says not to “jump in”,  but to have a trial before “becoming more permanently enmeshed”.

You “don’t want to jump into something without taking the appropriate steps given the closeness of the co-founding relationship,” he says.

Communicate with your investors

“Some venture capitalists will insist on a quick vesting schedule as a contingency,” Chong says.

Investors are human too, and so they understand co-founders sometimes exit, not because of internal conflict, but for personal reasons. They are what Chong calls “good leavers”.

On the other hand, any leavers — good or bad — can be disruptive, and so Chong advises remaining co-founder to maintain open channels of communication with investors, the board and the team.

“You still want the business to continue,” he says.

Then, with the investors and board, discuss “what were the responsibilities, contacts and skills the leaving co-founder brought to the startup”.

From this discussion, the remaining co-founder can then “formulate a plan around how the leaving co-founder can be replaced” and how the business can adjust short term and long term.

Chong adds open communication will reassure investors and the team.

Solomon did this by meeting with her current investor, Antler. To negate any concerns the sudden change in leadership will bring, she is focused on existing short-term plans, what she calls her “roadmap”.

Pushing for December sales, for example, is a priority for Solomon. “It earns extra brownie points for investors, especially for solo founders”, she says.

Keep your spirits up

Chong says, ultimately, this situation is sometimes unavoidable, but it is always a true test of the remaining co-founder’s grit.

“Like a lot of things in life, the true test of people’s characters and people’s resolve is how they perform in the face of these difficult situations.

“Investors and customers know life is not always plain sailing … it’s about how you respond to it,” he says.

Although he says the situation is inevitably “deflating on the motivation side”, Chong encourages founders to use the challenge to demonstrate their leadership skills.

Although Solomon believes Marks would have stayed on in some capacity if push came to shove, she didn’t want to “drag out” the process, saying, “if someone can’t give your business what it needs, then it’s better to just move on”.

“I think perhaps that some people don’t realise how much time running a startup takes,” Solomon says.

“It’s not easy but you really have to draw a line underneath it and move on,” she adds.

However, Solomon also suggests ensuring the relationship stays friendly, as it keeps the door open for a future where Marks could potentially rejoin Story Antics.

StartupSmart was invited to Antler HQ as the official media partner of Antler Demo Day 2019.

NOW READ: Antler generator sees 12 new startups bag $100,000 each

NOW READ: How these founders made kids coding a $6 million business in four years