“It is unrealistic to expect that during your business partnership your team will not encounter disagreements and conflict”, says Jana Nevrlka, cofounding expert, author of the book “Cofounding the Right Way” and start-up mentor at F10 FinTech Incubator & Accelerator. But conflicts are not necessarily a bad thing: “It brings an opportunity to surface underlying tension, improve understanding and self-knowledge and – if done well – increase the team’s cohesion”, states Jana.

It is good to know the options cofounders have to resolve conflicts and what is the team’s preference on conflict resolution. In the following paragraphs, eight conflict resolution methods are discussed.

Prevention

Not surprisingly, the best conflict resolution is to do your best to prevent conflicts. “Here we go back to the essential ingredients for a functioning and performing partnership: respect, trust, and communication”, explains Jana. These ingredients must be applied regularly and consistently. Openly communicating about sensitive issues in a respectful way before it possibly escalates is the easiest option in the long run. If the open communication deteriorates, this is a red flag to be addressed.

Negotiation

Jana stresses to “always make sure that you first tried your utmost to resolve the conflict internally within the team”. Internal negotiation has the lowest costs as there are no external fees included and the highest chance to succeed because every team member has personally invested in the solution.

The cofounding expert recommends ten ground rules for internal conflict resolution:

1. Choose a facilitator within the team.
2. Agree on the process.
3. Treat everyone with respect.
4. Make sure that everyone can remain calm and separate the emotion from the issue. If necessary, take the time out until everybody is calm enough to continue.
5. Start with the big picture – reminding the team on your joint purpose and why it is in everyone’s interest to resolve the conflict.
6. Outline communication rules.
7. Identify the problem and when doing so look beyond the immediate conflict.
8. Ask each cofounder what they wish for and evaluate if there is sufficient common ground to resolve the conflict and reach an agreement.
9. Ensure everyone’s commitment to the solution and decide what you learned as a team out of the conflict and if there is anything you would like to implement going forward.
10. If you do not reach a satisfactory solution, ask for help.

Facilitation

This is the closest method to internal negotiation, with the difference being that an external third party is asked to be the facilitator. “The ground rules for negotiation are applicable and effective in the same way”, says Jana. “Similar to the internal negotiations, for this option to be worth trying the commitment and willingness of the team to resolve the conflict must be given.”

Expert advice

This option means inviting a third party to actively help finding a solution by providing a recommendation. The typical experts to involve are lawyers, accountants or business consultants. “You need the commitment of the whole team and even more importantly the independent status of the expert to use this method”, warns Jana. Depending on the complexity of the issue at hand, the expert (unlike the facilitator) needs time to examine the content of the issue as they are providing advice on the content, not on the process.

Counselling

Counsellors focus on the dysfunctionality in the communication and underlying relationship, helping the parties to find a way to start communicating effectively so they can continue and resolve the underlying business issue themselves.

Mediation

This is the full involvement third party option. A mediator’s job is to help the cofounders with the process as well as helping them to find a solution. According to Jana it is not advisable to involve other third parties, such as laywers, in the mediation process. This is the full involvement third party option. A mediator’s job is to help the cofounders with the process as well as helping them to find a solution. According to Jana it is not advisable to involve other third parties, such as laywers, in the mediation process. Mediation is relatively underused, but a very effective way of conflict resolution. “It is amicable and not adversarial like arbitration or litigation. It is the parties to the conflict who are supported by the expert, but it is them who do find the solution to their problem. That is very powerful aspect of the mediation process”, emphasises Jana.

Arbitration

In arbitration, the third party invited to solve the conflict is controlling both the process and the outcome. “This means that the decision is taken out of the cofounders’ hands and the arbitration process is binding”, explains Jana. This conflict resolution method was initially invented as an alternative to the adversarial, lengthy and expensive judicial litigation. During the arbitration process, the arbiter reviews the evidence and bases the decision on laws and legal precedents. The rules of the process are often defined by the chosen arbitration association and the decision is typically enforceable in court. The advantages of arbitration compared to litigation are a relatively shorter timeline and the fact that it is private.

Litigation

According to Jana, litigation should be the option of last resort. “Remember before you decide for litigation that even a bad agreement is still better than a good lawsuit”, warns the cofounding expert. “Be prepared to go deep into your pockets, reserve a lot of time and energy and do not think that the relationship will survive litigation without serious damage.”

“All the years in business made me a firm believer that there are no win-lose situations. Unless you find a win-win solution, it is a lose-lose situation. Even though you might have won the arbitration or litigation it is likely still to be a loss for everyone involved as your cofounding team will look different afterwards”, says Jana. Therefore, the preferred way to resolve conflicts to be discussed within the team upfront and included in the cofounder agreement is a step-wise approach – from negotiation to mediation.

Jana lists three tools to help teams deal with conflict:

1. Have the rules on how to deal with the conflict when it occurs.
2. Address the conflict as soon as you see it happening.
3. Always remember that the best solution is an immediate win-win situation.

Checklist:

• Did we discuss how we want to resolve conflicts?

• Have we decided on a step-based approach and described it in our cofounder agreement?

• Are guidelines for internal communication and negotiation outlined in our partnership charter?

These insights on conflict management and cofounding have been provided by Jana Nevrlka, author of the book “Cofounding the Right Way” and start-up mentor at F10 Fintech Incubator & Accelerator.

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