The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup

"First, full disclosure: Noam Wasserman is a co-author of mine. He wrote this book while we were working together, so a little bit of our material made it into the book. The Founder’s Dilemmas is a nice complement to Eric Ries’s book. It looks at the human or personal aspect of entrepreneurship. He’s using a modern and fairly fresh perspective that will speak to all generations. The Founder’s Dilemmas is based on Noam’s research which is qualitative: a substantial number of in-depth case studies of entrepreneurs and what they went through when they started their companies. He looks at all these human problems that come up, from career decisions about whether to become an entrepreneur, to numerous decisions about how you’re going to manage a team, all the way to how you deal with failure and success and transitions, towards the end of the entrepreneurial process. “You have to realise that, as an entrepreneur, there is no distance between business and personal life. That’s the beauty of this book and some of the stories” It’s got lots of these little stories that make it very personal and very easy and fun to read but, at the same time, it tries to extract some of these core questions that an entrepreneur has to ask him or herself about, why I am doing this and how do I deal with that side of the business? So, Eric Ries basically is talking all about the business side but he doesn’t touch on the human aspect of it. And Noam doesn’t really touch much on anything that Eric Ries talks about—how you start a business in terms of business model and customers and finance and all of that. He is really looking at that human side. And so, for me they complement each other very nicely. You should see Noam in class. He can dramatise these things and put people on the spot. You have to realise that, as an entrepreneur, there is no distance between business and personal life. That’s the beauty of this book and some of the stories. You cannot separate business decisions from personal decisions because the business is two people and a dog. And if they’re married to each other, then a bunch of marriage problems are going to enter the business, and a bunch of business problems are going to enter the marriage, like it or not. Noam himself had worked for a venture capital fund that basically said, ‘we will never invest in a company where the founders are married to each other.’ That’s an interesting indication, that those investors believe that companies with married founders are doomed. There is a sequel that could be written to Noam’s book; Noam’s book is very focused on a western—and, in fact, a US-centric—world and I think some of these issues play out very differently in other cultures. That’s something I’ve experienced with my teaching. Some of these family issues would be viewed extremely differently in an Asian or African context. So, there’s more to be said about this topic. But Noam does a very nice job of bringing alive the human conflicts. One of the things that Noam looks at is the decision in a team of whether they’re going to split the ownership equally or not. He has several stories and we have our research that looks at the issue more deeply. Basically, while it may seem very intuitive and natural to go for a quick handshake that says we’re all the same, it turns out that that decision is very problematic. The stories and our data evidence point to equal splits being tempting as a strategy for sweeping issues underneath the carpet that will come back to haunt you later. And so, what we find is that teams that face this very difficult question of who should get more or less early on overcome a very important first hurdle and actually have a better chance of building a strong team. So, basically, his advice is, ‘Don’t just take the equal split. Don’t just shake hands and say we’re all equal. Spend some time working through it and building a plan that acknowledges differences within a team, even though that conversation can be very difficult.’ Well, you have to make sure these aspects are considered. One of the beautiful examples that Noam has is a well-known one from Zipcar where the two founders shook hands and split the business 50/50. It turns out that one of them did 95 per cent of all the work and the other did five per cent of the work. And, clearly, the one who did 95 per cent of the work felt terrible about this. Part of it was that life brought surprises. The one who didn’t do any work became a mother. They didn’t think about that when they were doing it. On the other hand, it also seems that the one who didn’t do any work could have done a lot more work and just didn’t want to. She knew she had 50 per cent of the business and didn’t have to work for it. I’m not familiar with the intimate details of it, but Noam just shows you: ‘Look, these are human problems that come about and you should spend some time thinking about them before you agree to something.’ I don’t have a scientific way of measuring this but I’ve seen my share of it too. It is a huge issue. Yes, and let’s break that down: he spent an enormous amount of time on 30 to 50 entrepreneurs, many of whom are discussed and named in the book, and then he’s also got a database—that’s the database that we worked on together—in which there is a much larger number and that’s, obviously, statistical analysis."