It’s not just founders who need to get along. Everyone in your company needs to work well together. A Silicon Valley libertarian might say you could solve this problem by restricting yourself to a sole proprietorship. Freud, Jung, and every other psychologist have a theory about how every individual mind is divided against itself, but in business at least, working for yourself guarantees alignment. Unfortunately, it also limits what kind of company you can build. It’s very hard to go from 0 to 1 without a team.
A Silicon Valley anarchist might say you could achieve Perfect alignment as long as you hire just the right people, who will flourish peacefully without any guiding structure.

Serendipity and even free-form chaos at the workplace are supposed to help “disrupt” all the old rules made and obeyed by the rest of the world. And indeed,

“If men were angels, no government would be necessary.”

But anarchic companies miss what James Madison saw: men aren’t angels. That’s why executives who manage companies and directors who earn them have separate roles to play; it’s also why founders’ and investors’ claims on a company are formally defined. You need good people who get along, but you also need a structure to help keep everyone aligned for the long term.

To anticipate likely sources of misalignment in any company, it’s useful to distinguish between three concepts:

Ownership: who legally owns a company’s equity?
Possession: who actually runs the company on a day-to-day basis?
Control: who formally governs the company’s affairs?

A typical startup allocates ownership among founders, employees, and investors. The managers and employees who operate the company enjoy possession. And a board of directors, usually comprising founders and investors, exercises control.
In theory, this division works smoothly. Financial upside from part ownership attracts and rewards investors and workers. Effective possession motivates and empowers founders and employees—it means they can get stuff done. Oversight from the board places managers’ plans in a broader perspective. In practice, distributing these functions among different people makes sense, but it also multiplies opportunities for misalignment.

Unlike corporate giants, early-stage startups are small enough that founders usually have both ownership and pos_ session. Most conflicts in a Startup erupt between ownership and control—that is, between founders and investors on the board. The potential for conflict increases over time as interests diverge: a board member might want to take a company public as soon as possible to score a win for his venture firm, while the founders would prefer to stay private and grow the business.
In the boardroom, less is more. The smaller the board, the easier it is for the directors to communicate, reach consensus, and exercise effective oversight. However, that very effectiveness means that a small board can forcefully oppose management in any conflict. This is why it’s crucial to choose wisely: every single member of your board matters. Even one problem director will cause you pain, and may even jeopardize your company’s future.

A board of three is ideal. Your board should never exceed five people unless your company is publicly held. (Government regulations effectively mandate that public companies have larger boards—the average is nine members.) By far the worst you can do is to make your board extra large. When unsavvy observers see a nonprofit organization with dozens of people on its board, they think: “Look how many great people are committed to this organization!

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