The Hidden Threat to Every Startup: People Problems
Investors back bold ideas and capable founders. Yet post-mortems consistently show that when startups fail, the catalyst is rarely flawed technology or a weak market; it is very often failures in leadership and management of people.
Harvard’s Noam Wasserman studied more than 10,000 startups and found that roughly 65 percent of failures stem from people problems, not product flaws. Co-founder rifts, hiring mistakes, and the absence of clear leadership all take a toll. For investors, that statistic is a warning: portfolio performance correlates directly with founder governance.
The Leadership Dilemma
Founders move fast because they have to: clients to win, profits to make, competitors close behind. The urgency that fuels innovation can also create blind spots. It becomes easy to overlook the investment required to lead and manage people effectively.
That neglect shows up in many forms—misaligned founders pulling in different directions, star performers leaving dysfunction in their wake, cultural drift as the company scales, or conflict avoidance that lets small problems metastasize. Each issue may seem minor on its own, but together they compound and create significant risk and organizational drag.
The investment in systems and structures that support the people side of the business always pays dividends. Founders who establish expectations early, enforce them consistently, and communicate with clarity sustain their momentum. Those who do not discover that neglected structure costs more than it ever saved.
Toward Prevention
As Wasserman’s study shows, these breakdowns are predictable and therefore preventable. For investors, the calculus is straightforward: people risk is portfolio risk. Protecting returns means paying as much attention to the organizational and cultural systems as to the financial ones.
Founders who scale well treat organizational design with the same rigor they apply to product design. They also recognize they can’t build those systems alone. They bring in specialized expertise or independent advisors such as Faro Point to design structures that fit their mission and maturity.
They:
Define roles and decision rights before conflict requires them.
Establish foundational policies—codes of conduct, anti-harassment standards, and performance expectations—so culture does not depend on personality.
Make feedback and accountability routine, not exceptional.
Distinguish performance issues from misconduct and address each promptly.
Some founders fear these structures create bureaucracy, but in practice they are the guardrails that make continued growth possible.
The Bottom Line
Startups rarely fail because the idea was weak. They fail because leaders avoided the conversations that could have preserved trust, focus, and cohesion.
At Faro Point Consulting, we help organizations navigate leadership challenges and people risks before they erode value. Our team has decades of experience managing crises in complex environments. We recognize early warning signs and help correct course before momentum stalls. For founders and investors alike, disciplined attention to people is not optional—it is the difference between sustained growth and preventable collapse.
