Talking about co-founder and start-up issues in our Failure series.
Social entrepreneur Hemant Nitturkar learned several important lessons about how to run a social enterprise after one of his ventures failed, in part due to team disunity. Here is what Hemant shared with SocialStory about his failure experience.
SocialStory: Tell us about the social enterprise you founded.
Hemant: First generation entrepreneurship is on the rise in India, but these entrepreneurs lack access to mentors and early-stage funding. While I saw a lot of good things happening in the entrepreneurship space, I felt they were all happening in silos. I had conceived an end-to-end service for early-stage entrepreneurs, which ultimately took shape as CARMa Venture Services Private Limited. I had planned a spectrum of services such as mentoring, early-stage capital raising, post-capital raising interventions, and developing entrepreneurship hubs in Tier II towns and many other support services. To pull off such a complex operation, I scouted for and eventually identified several people to join my team, who brought with them skills and experiences to complement my own. I served as the Co-Founder, CEO, Chairman, and majority (over 65%) shareholder of the private limited company.
SS: How did CARMa Venture Services fail?
Hemant: I brought in three individuals from various backgrounds to be co-founders. I had plans to bring more people on the Board as shareholders. Given the range of services we wanted to offer, I had to reach beyond my own longstanding network to identify and enroll people. That meant I only knew the new partners briefly before they joined the team, but I did believe we were on the same page on what we wanted to accomplish together.
We successfully demonstrated early-stage capital raising system by raising equity capital from high-net-worth individuals for our own business and our business started growing. But differences emerged and we began to fall apart as a team. A couple of investors who found out about the differences between the co-founders became worried about their investment, and started making unreasonable demands. I had stopped enjoying the journey and let go all of my stock for no cost in favor of one co-founder, who honored the commitment, and the investors were paid out fully by the company.
My years of intellectual and financial capital were lost and a highly promising business with a huge multiplier impact potential for young entrepreneurs in India went out of existence in the form it was originally conceived. Fortunately, not all was lost. A part of the vision lives on due to the passion of new management, providing useful services to entrepreneurial community. My best wishes to them.
SS: What do you wish you did differently?
Hemant: I should have started small and planned to grow slowly, instead of rushing into expanding too soon. I also treated equity as cheap money and distributed it very loosely. In addition, I should have used professional legal services to help set up the organization from the beginning and to help with co-founder agreements and agreements with the early investors.
SS: What did you learn from this experience?
Hemant: First, upon reflection, I realized that I had trusted others’ abilities more than I trusted my own. Second, we did not have written agreements with the co-founders, but we should have. Written agreements should include mutual expectations and plans for separation if things do not go according to plans, which sometimes happens when highly driven people are involved. Third, we tried to start too many services at once. Instead, we should have focused on maturing existing services and building internal team strength before adding additional services. Finally, in case of problems, which are bound to happen in business, I learned to bring in experts and outside professionals to assist in a timely manner.
SS: What advice would you give to other social entrepreneurs if they find themselves in a similar situation?
Hemant: Entrepreneurs should keep full control of their company until it has reached some level of maturity. In addition, if you need to bring in talent on Board or co-founder level, seek expert business and legal guidance from the beginning.
Some people say do not involve partners as it invariably fails, but that is not completely true. Having co-founders has challenges, as evidenced by my own story, but there is no other way if you want scale of impact. We live a world that demands more collaboration and less mad competition. The way to have a successful partnership, therefore, is to learn from successes and from failures, and be more mature in handling issues. And, in case things between co-founders head south and are at a breaking point, I suggest a two weeks cooling off period in which each co-founder brings in a trusted mentor who has been briefed on the situation for mediation. If things still do not work out, then go for a mature separation. Though it can feel like you are the only one going through such a situation, you are not the first to be involved in co-founder fallout, and trust me, you will not be the last. Just remember, many successful entrepreneurs have gone through such situations. There is always life after separation.