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Decision-making process

How should conflicts be settled? Who has the final say in the event of a business disagreement on business strategy?

Although in the initial stages, founders tend to have great implicit understanding with one another, differences can arise from time to time. If differences cause friction or take time to resolve, it can reduce overall operational efficiency. For example, what if there are differences over the following issues:
  • Should the company follow a B2B or a B2C model?
  • Should it focus on building offline channels or on online marketing?
  • Should it focus on international markets or the domestic market?
  • Should it diversify now or take the product to the next level?
These questions need to be resolved through a clear decision making process – there could either be a functional hierarchy (e.g. specific co-founder’s decisions will prevail if the function falls under his or her domain). Therefore, a clause allocating responsibilities can be included in the co-founders’ agreement, which should be used as the guideline to decision-making. 
A voting procedure amongst the co-founders could also be inserted. If a voting process is followed, decisions could be decided by a majority of the co-founders (where each co-founders vote carries equal weightage), or through a weighted vote, where the voting power corresponds to the percentage of economic stake that each founder holds.

Where the number of co-founders is an even number, the agreement should state the procedure which is to be adopted in the event that there is equal division for and against a decision. It should be specified if any of the individuals has an additional casting vote. How such an individual would be chosen and consequently how the decision will be made should be specified. Co-founders could also approach a third party ‘advisor’ or ‘mentor’ for the casting vote. 

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