Dear Startup Investor: Why You Need to Know about Conflict Before You Commit

The truth is that starting up is one thing, but staying alive is another. Research shows that half of new business startups fail within the first five years of operation, and over 60% fail due to negative outcomes from conflict. Noam Wasserman’s research on startups, described in his best-selling book The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, reveals this: Most business startups ‘sink’ not because of lack of planning, failure to test the market or undercapitalization, but rather due to interpersonal complexities, destructive co-founder disputes, destructive team dynamics, and people problems.

Put another way, there’s at least a 34% chance your investment in a startup will be adversely affected by destructive conflict within the team. A stunning and sobering statistic..

But Don’t Be Disheartened
Another truth is that conflict is a necessary part of successfully running a business. This is because conflict is a natural occurrence which can happen any time two or more individuals have different ideas, wants, and needs. Conflict is normal in any environment. However, if not properly managed, conflict can escalate into disagreement and become entrenched to a point of no return for a young, fragile business.

How to make sure these natural and predictable conflicts are well managed in your teams?

Know the Pitfalls

I’ve seen too many startups flounder and fail because of co-founder conflict. Everyone starts off with the best intentions — and then things start unraveling. In many of these cases, the conflict could have been avoided — or at least surfaced sooner, if the founders had confronted some of the potential issues and asked each other the hard questions early-on.
— Darmesh Shah
  • Repressing, ignoring or avoiding conflict. Leaning into conflict is one of the hardest things for us to learn to do. So most people tend to avoid conflict, shoving it under the rug and hoping it will go away. However, in most cases it just gets bigger, more entrenched, and ultimately too toxic for the business to recover. Even if there is not an evident crisis, over time the undercurrent of persistent conflict can undermine your business team.
  • Failure to see a systemic issue. Our analysis has identified 11 common issues that cause destructive conflict in new teams. Startup founders who understand and proactively address these issues in their teams have a much better chance at success than those who do not.
  • Missing the positive power of conflict. If you are not experiencing a few robust conflicts within your team, this also raises a red flag. Conflict is not always bad. In fact, constructive conflict has been shown to drive productivity, initiative and innovation - what every startup needs. Here’s an important takeaway: If you are part of a startup organization and there is no conflict or "creative tension" in the team, know that there are costs to that inaction.
  • Going it alone. To give your startup the best chance of success, bring in experts who know conflict. Conflict advisors (with ombudsman services) can work with your partners, teams or leadership to:
    • Normalize conflict and help the team understand the benefits of constructive conflict.
    • Use constructive conflict to your advantage as a tool to move toward goals faster and foster a workplace of creativity and innovation
    • Offer impartial, objective and expert view that supports your conflict management capacity

The good news is that you are on the right track to beating the startup-failure odds just by reading this article - understanding that the nature of conflict is powerful!