How to deal with a co-founder who has wasteful spending habits

Like others have said, talk with your co-founder, and consult your own lawyer to make sure you actually are a co-founder (and aren't getting pushed aside).

You might also want to consider asking HN admins if they'd delete this post, since the ~28 employees will realize which company this is, and maybe you'd prefer they not read about a leadership disagreement/misunderstanding on HN.

As we know, a big part of startups is constant learning, and today can be one of many learning moments, for you and CEO.

If it turns out one/both of the cofounders has to tell everyone they made a mistake, IMHO that can double as a great culture message, about honesty, humility, psychological safety, and learning.

Is the CEO non-technical, older, more focused on wining/dining/if-we-just-land-that-one-logo/we'll-land-investors/social-proof-board-name-dropping/networking-is-the-game/exagerating-sometimes-lying and do you have disproportionately less equity, were you bearish on getting to 30 people in the first place before being a solid, viable, business? Do you find yourself thinking that the company could run with fewer than ten very specific people?

Does work get done more effectively when the CEO does not interfere/mess things up but you don't allow yourself to say so?

Does it happen you watch clips from The Office's Michael Scott and it hits too close to home?

PS: Also, are you sure you're a co-founder and are you certain you actually do have equity? Did a lawyer you (not the company/CEO) have paid go over this? Are you in the bylaws?

Just to clarify, the event has already taken place? Is that correct?

You said the business partners were supposed to attend, but none of them did.

I think this is probably a good opportunity to sit down with your co-founder and discuss what went wrong.

Rather than just accuse them of wasteful spending, create a learning experience for them (or you).

The type of questions you'll want to ask is

1) Why did they think it was a valuable way to spend company money?

2) What sort of result did they expect? If partners were supposed to attend, did they expect an increase in revenue from the event? If not, why are they spending money on partners/

3) What would they do differently next time?

4) Is there a way they could have reached the same goals without spending the money at all? How can they be more creative, etc?

Perhaps the CEO had a master plan that didn't work out (unlikely), perhaps they just wanted to blow off steam. Maybe they heard it's what other companies did, and therefore thought it was a sign of what they should be doing.

I wouldn't attack them, but make sure they understand that you believe this was not a good use of company funds, and that as a result of these actions, you now must do X, Y, Z in order to get back the money that was spent (how much more sale, how much more advertising, which leads to more hiring, etc).

Paint the picture in clear detail of what the event cost beyond the dollars spent and time lost. For every $100 they spent on the event, the company needs to earn $240 (or whatever your margins are after tax, etc etc).

This way you can make it clear that the next time they attempt to do something like this, that they understand the cost isn't the $$$ going out, it's the cost of getting those $$$ back in!

Also make it clear that there are limits to how much they should be spending without discussing it with you. I assume they wouldn't make a major hire without consulting you, so why would it be OK to spend a huge chunk of revenue.

There are probably some notices you may want to write down about the event to keep just in case of future litigation, etc. But you'll want to speak to somebody with legal experience about that...and do the legal thing after the discussion.

I have bad news for you. Cofounders are like any other employee. You don't automatically get a say in every decision just because you were one of the company founders. Often, the CEO has the power to simply fire you. The CEO certainly has the power to demote you to a non-decisionmaking role. The CEO does not have to listen to you about every little decision like having a company retreat.

First, you should have gone to the company retreat. As a manager it's your responsibility to support team-building things like this, even if you don't agree with the CEO's decisions.

Second, your communication style is hurting you. Don't just reject the CEO's initiative. Don't complain about your boss on HN in a way that, honestly, will be completely obvious to your CEO if they read this thread. Politely bring up your objections, and if the CEO overrules you, accept it and move on. It's a company retreat, you must have more important problems.

  * During this economy, how wasting so much money on
    beaches, midnight parties at pubs, and yacht tours can be
    normal?
  * How can I deal with this behavior of treating your
    partner like any other employee?
  * How can I fix this communication problem and prevent
    future abuses?

It seems as if you haven't spoken with your business partner. You should do that. Explain your position. Be firm. Set boundaries. It doesn't need to be a long conversation, but it needs to happen. If this is your company, take charge.

-----

I've answered your three questions below, based upon my experiences. The answer to your first question is labled #1. The answer to your second question is #2. The third answer, labeled #3, attempts to answer your third question.

1. It doesn't matter whether this is normal. You should ask whether it is useful and acceptable for your company. Above and beyond that, you need to set boundaries regarding co-owned funds. A marriage won't last between two people who don't speak with each other. In many ways founders enter a marriage with each other, so they need to speak with each other and keep their lines of communication open. After all, you've entwined your financial and business lives together.

2. Stop acting like an employee next to your partner. The first step is to talk with them instead of reaching out to random people on the Internet. It's possible that your co-founder does not see a problem but would be willing to change if you spoke with them. It's also possible they do not see you as an equal. Either way, you need to find out what is going on.

3. You actually didn't state a communication problem in this post. That tells me you don't always speak up and in this case may not have spoken your mind with your partner. If you want them to treat you as a partner, you need to treat them as as a partner as well. Otherwise, they'll never know what you want them to know.

You're going to have to speak to them, and it's going to be a difficult conversation for both of you. I therefore would suggest reading a book called Difficult Conversations[1], I can't recommend it enough. It's part of a series based off of research conducted at Harvard, of which Getting to Yes, and Getting Past No are two of the others, also highly recommended.

[1] ISBN 9780143118442

Read "rocket fuel" by Mark Winters.

It sounds like the CEO is a classic visionary - big picture people person, grand ideas, bad with details like operations and money.

It also sounds like you may be their complement - good with details and proper planning - a classic "integrator"

This is actually a great combination, but in order for the company to benefit from your complementary abilities you've got to get separate responsibility appropriately. At 30 employees you should have a fractional CFO or at least a situation where the COO/integrator can keep expenditures in check. CEO needs to let the team do what it does best.

There’s not really enough detail in your post to analyze. 10% of revenue could be nothing or it could be millions. Are you venture funded? What’s your burn rate and runway and how much did this cost in comparison?

I know plenty of companies who have gone 100% remote and spend part of the money they save on company retreats in order to get actual facetime with each other. It’s not clear if this applies to you or not.

If you have 30 employees you presumably have venture funding, and if you're calling yourself a cofounder then you presumably have a decent chunk of equity.

How much equity do you and the VCs have in total? From a purely practical perspective, if you have over 50% then you have leverage over the CEO. You can't credibly threaten to fire him over this one incident, but you can rein in potentially worse behavior.

It would also be wise to figure out why he did this. Does he have a family that he was trying to appease by hosting an event on sandy beaches (so they could tag along gratis)? Is he hitting a wall and worried other people are also, and wanted to let people relax a bit?

Regardless, someone should have been in the loop on this before it went out on Slack. Even a sole founder should be getting a gut check from others before planning a trip that could cost 10% of revenue. If I'm reading this right, did this trip move you from being profitable to being in the red?

But the bottom line is to see who has the majority of the shares. If it's you and others, great. If it's him, then you just have minority shareholder rights, which wouldn't kick in at this point. If he's enriching himself at the expense of the company, then you can take action. Good luck!

> learned [...] on Slack [...] 10% of annual revenue

This is a major red flag for me: it is such a huge expense that the CEO should have discussed this with his co-founder and other top-level mgmt before deciding on it and definitely before announcing it.

This is not a lack of communication. This is a lack of respect of other people, thinking their input is irrelevant.

Hire a CFO or head of finance would be a good start - if possible. With 30 employees you are probably missing a lot of opportunities related to accounting and expenses.

In the meantime, clearly setup and define spending controls as it pertains to bizdev. Create -per-department/-per-project budgets and limits (e.g. approvals required over $X amount) with incentives to stay below these lines.

Not allowing one person to spend 10% of your revenue in one go sounds like a good place to start.

There's a good book called Founder Dilemmas that is good thinking through these types of things

https://ia800509.us.archive.org/4/items/TheFoundersDilemmash...

Are you sure you're co-founders or are you just the first/early employee?

If you're co-founders you need to be able to talk to each other. Not on Hackernews.

There's muuuuuch much bigger issues here than some 'wasteful spending'.

> Last month a company retreat event announced and it is scheduled only 5 weeks forward. I learned that with other employees on Slack

You came to know from other employees about it on Slack? Are you sure you are a co-founder? Have you checked with the other co-founder what your company sells? Who knows the company maybe be selling sea surfing items or beach balls and it would be a perfect thing to invite everyone to the beach to promote the products.

I think there might be a miss alignment of values here.

It all depends on what you see the purpose of the company to be.

Some people are dedicated to the company as an entity of it’s own and the product they build and the people working there. It is a valid and respectable way of looking at things. From your post, I have a sense you might fall into this category. Assuming you subscribe to this point of view, it makes sense to consider the retreat an abuse.

Other people do not see companies like this. Instead, they see the company as an means to an end. A tool to use for enhancing financial opportunities and abilities and living a full, luxurious, rich and comfortable life. I believe this too is a valid and respectable way of approaching things. This is how I personally view companies and their purpose. With this point of view, a vacation expensed on the company is not an abuse. It’s the intended purpose.

If you would like to see a decent portrait of this different philosophies I would recommend seeing the difference between Dany Crane and Paul Lewiston in Boston Legal.

Of course it might also be the case this was a miss alignment of business strategy and not fundamental values. If he invited the business partners perhaps he saw it as a business opportunity to renew contracts, perhaps upsell more services, etc.

Whatever the case might be, I think a very frank discussion between the two of you is in order. Business strategy should be aligned, yes, but far more importantly, fundamental outlook on what the company is for.

Best advice I can give you is, don’t leave this unaddressed but address it in a professional manner in order to understand where the other co-funder is coming from. Once you understand his position you will be in a position where you can make an informed decision about your future and the future of the company.

> It is announced that our business partners also will come

I think "beaches" and "midnight parties at pubs" may be cheap way to make better&stronger connections with your business partners

Alcohol despite all shitty things is good at getting people "closer"(?)

> During this economy

It's not 2001 or 2009 (yet). Inflation is high, unemployment is very low, so it's hard to say where the economy is actually at.

Have you tried talking to them about it?

Make more money and your problems will go away.

I've dealt with a similar situation. Some people just don't consider money important until they don't have it. You won't be able to change his ways so don't try. It will just be unproductive confrontations.

An agreed upon budget might help. The budget should have a line item for these type of items. But I suspect you already have a budget and he's not following it.

You won't be able to change him so you need to look at the situation seriously and decide whether it's worth continuing. The reality is that startups without financial discipline will have a hard time surviving. Good luck.

Sounds to me like you have a fundamental trust problem between you and your co founder. You need to fix this (if that’s still possible) if you want to play an active role at the company going forward.

Immediately, without any context other than what you've provided, I would no longer trust him--you should be included in the loop for any major decision like this. If he has no particularly rare redeeming qualities (or if he does, if you can survive without him), discuss it with the board directly. In my experience it is better to not take chances and to aggressively confront this otherwise later you will regret ignoring duplicitous behavior.

What to spend on and why is a complete and utter judgement call and quite subjective.

The examples have to be pretty extreme before you can declare wasteful.

Maybe they are, but all you can really say is that you have two different approaches and personalities, and that is something you have to figure out before getting into bed with someone who either doesn't work the way you approve of or understand.

They may think you are sabotaging the business by being too myopic and focussing on the wrong details. Failing to deliver the load of goods by avoiding buying the truck or the fuel, or attract the right driver, or attract the right customer.

Personally the cost of such a retreat wouldn't matter to me at all. What would matter is if the employees consider it just more insufferable work imposed from out of touch bosses, or actually a good thing. What is the stated purpose of the reatreat? Is that purpose valid? Does it actually attain that purpose?

It sounds like you have no idea about any of those questions or their answers. Is that because they were never communicated or the cofounder has no idea either, or might it just be that you don't see it and it's really just a limitation of your own?

An event like that is not automatically damning, but acting like it is, is actually a bit of a red flag against you, as though you don't recognize any indirect values and only think that spending money is bad. There is always the "in this economy" excuse. It can be said every day forever, and so is actually meaningless.

A retreat like that is more likely to be a bad idea if it's some horrible forced-fun work-intruding-on-personal-time thing that only the boss wants, no one else wants, and the boss has no coherent plan and purpose that maybe makes it correct to initially override what everyone says they want.

hey, you need a psychologist (expensive therapist) to talk to weekly - to process your own feelings as a foundation for communication with co-founder; you can offer couples counseling as well but that is less in your control - impactful communication starts by having your own affairs in order which is in your control.

How much equity do each of you have?

If you co-founder put in a lot of money, but you didn't, he/she might be able to out-vote you.

Do you have a board or VC oversight? Maybe they instructed him/her to do this?

Also, did you mean partner == "business partner" or were you actually dating? Because that would be an entirely different dynamic.

I know there is a quote (maybe Paul Graham?) about the sign of dotcom-era startups failing being when they bought Aeron chairs for the office. But to me, there's a big difference between putting money theoretically into the company's work environment, branding, physical presence, etc. even if a bit extravagant, and blowing through 10% of revenue on bacchanalian pursuits that don't leave you with anything of value whatsoever a week later. This raises serious concerns about whether the CEO is actually upholding their duty to shareholders. Someone else should have been involved in planning for something that expensive anyway.

How much equity do each one of you have?

Regardless of what it says on paper, you two are not co-founders.

This is a leadership issue (yours) and a culture issue.

I’d recommend you discuss this with your leadership coach and address the underlying communication and relational patterns of which this is a symptom so you can get leverage on the culture.

If you don’t have that kind of support, happy to gift you a session or two from EarthPilot.org

Great opportunity here to take deeper responsibility, to grow, and ultimately take your project to a new level.

Two things kill a lot/ most startups:

* Money problems

* Founders alignments

You at least have one of these problem, possibly two in the future.

Only way to fix this is to re align and make sure you don't run out of money.

Re align means discussion and demonstrating what works.

A good book on how to conduct these discussions and gather clear data on the company (that shows afterwards if an action was good or not): Traction

Good luck my friend, entrepreneurship is hard.

In my first startup one of my two cofounders was the initial CEO and I wanted to be the one who managed the cash. As it happened we only had to have a couple of those tough conversations because the three of us were all pretty parsimonious, but I slept better having some controls in place and knowing we wouldn’t run out of money.

Is this a one-off thing or are there similar instances of wasteful spending?

If its a one time thing, maybe your CEO had a reason - he/she might have felt that the employees had been working too hard and deserved a break, or might have noticed that productivity and morale were flagging.

Why didn't you sign an operating agreement from the get go? You engineer automatic, axiomatic, algorithmic systems but failed to engineer your most important system for success. You're screwed. This kind of 'partner' isn't.

Meh. 10% isn't a make or break move, and it may be worth the cost if it keeps employee retention up.

Real problem is to figure out if you guys got what you paid for.

Come on, live a little. A small vacation of 6 months to Bora Bora never ruined a company! Enjoy. Life is short. Carpe diem.

Honestly, this seems like a play to get rid of all the business partners. One plane crash to kill ’em all.

I'm not sure how the first thing that came to your mind isn't "I better talk to them about it.".

Co-founder relationships are like marriages, only losers go vent about their partners on the internet to give their side of the story. Smarten up, go talk to them. Maybe the lack of emotional intelligence on your side is why he didn't tell you ahead of time.

Beat them to upping the burn rate by.. a lot, until neither of you own anything.

Everyone needs financial controls and financial accountability. No one should be able to spend without cosigners. If you set that up early, it will be in your company's blood. If you don't, you will ALWAYS have a culture of wastage.

You might need a mediator to bridge the communication gap.

This sounds like a made up story to me. The numbers don't even make sense.

get out

I think the crux of the problem is not expenses themselves but that you learnt it from slack. It doesn't matter if the CEO is wasteful or miser, it looks like his decision making is one sided. I don't see much future in things frankly.