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The founder's dilemmas

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Prezi David Hooker

on 5 December 2018

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Transcript of The founder's dilemmas

"
Most companies
fail
. It’s an unsettling fact for bright-eyed entrepreneurs, but old news to start-up veterans…
"

- New Venture Labs
6,000 startups

16,000 founders

31,000 executives
Usually can't do it alone!
FOUNDING TEAM STABILITY
Venture age (# of months)
% of founding teams fully intact
Data: Wasserman and Marx, “Split Decisions,” AOM 2008 (379 Tech ventures, 2006 survey)
FOUNDING TEAMS:
PRIOR RELATIONSHIPS
Wasserman (2008), 966 founders from 308 private IT ventures
Family
Friends
Prior Coworkers
Favorable
Market
Circumstances
Favorable
Personal
Circumstances
Favorable
Career
Circumstances
Leaping in
Exiting
TEAM
TENSIONS
RELATIONSHIPS
REWARDS
ROLES
Family
best friends
Acquaintances
Past
co-workers
Damage to relationship if startup blows up
Likelihood of discussing “Elephants”
"
All of a sudden… I was rejected from my entire social circle.
"
The venture IPO’d
to settle the founders’ divorce.
No agreement!
Michael
Georg
Phuc
Trust Before
Trust After
Michael
Georg
Phuc
CAUSES OF FAILURE IN VC-BACKED VENTURES
Product devt.
Functional mgmt.
Market probs.
35%
PROBLEMS
65%
Gut
Passion
Anectode
Rule of
Thumb
Vs.
ENTREPRENEURIAL EXPERIENCE
I have not founded a startup yet I founded and exited from one startup
THE FOUNDER'S DILEMMAS
NOAM
WASSERMAN

Equity Splits Among Founders
100%
Equity Splits Among Founders
100%
Zipcar
We shook across the table 50/50 and
I thought “great!”
That was a really stupid handshake because who knows what skill sets… milestones… commitment. That first handshake
caused a huge amount of angst
over the next year and a half.
Equity Splits Among Founders
100%
Zipcar
Equity Splits Among Founders
100%
Zipcar
Ockham
1. Unequal split
2. Dynamic split
Not friends
Friends
MORE STABLE
TEAM
TENSIONS
73%
SPLIT EQUITY

WITHIN A
MONTH
of founding
STATIC OKAY?

Strategy
stabilized?
Otherwise, need dynamism!
CONFLICT AVOIDANCE
ANECDOTE
PASSION
CONFIDENCE
GUT/INSTINCT
No
personal
uncertainties for anyone?
Each founder 100%
committed
throughout?
Future
roles
set?
Future
skill
requirements known?

Business model
set?
“THAT WON’T BE ME!”
"
Even after you showed us the data about the risks of founding with a friend and of splitting 50/50, we just figured, ‘Those things happen to other people, they won’t happen to us.’

They happened to us.
"
"
It was like being punched in the stomach.
"
http://techcrunch.com/2011/03/03/jack-dorsey-twitter-punched-stomach/
Venture age (# of months)
Kaplan-Meier survival estimate
95% pointwise confidence band shown
RICH
KING
Flop
Rich & King
Low
High
Small Player
Big Player
VALUE CREATION
CONTROL
0%
100%
Forks in the Road:
Cumulative Effects
Organizational Evolution
Keep Control?
Financial Tradeoff
$10
$8
$5
$3
$0
Share of Company Valuation ($M)
Gave up
CEO and Board Control
Kept
CEO and Boardcontrol
The Founder’s Dilemmas, Figure 11.3.
Older Company
Younger Company
Motivators: Age 20-29
Entreps

Non-Entreps

Men
Women
1. Power & influence
2. Autonomy
3. Managing people
4. Financial gain
1. Autonomy
2. Power and influence
3. Managing people
4. Altruism
(9. Financial gain)
1. Security
2. Prestige
3. Financial gain
4. Affiliation
1. Recognition
2. Affiliation
3. Security
4. Lifestyle
(11. Financial gain)
The Founder’s Dilemmas, Ch. 2 (N=27,063, with Dr. Tim Butler)
Motivations:
Male Entrepreneurs
20-29
30-39
40 and older
1. Power & influence
2. Autonomy
3. Managing people
4. Financial gain
1. Autonomy
2. Power & influence
3. Financial gain
4. Managing people
1. Autonomy
2.
Altruism
3.
Variety
4. Power and influence
Motivations:
Female Entrepreneurs
20-29
30-39
40 and older
1. Autonomy
2. Power & influence
3. Managing people
4. Altruism
1. Autonomy
2. Altruism
3. Power & influence
4.
Variety
1. Autonomy
2. Altruism
3. Variety
4.
Intellectual challenge
Source: Dr. Tim Butler, Harvard Business School
High-Income Countries
Europe & Asia
Latin America
& Caribbean
Middle-&-Low-Income Countries
GEMS Global Research project
% increase income
% independence
WHY FOCUS ON
R
AND
K
?
Preponderance Inherent Conflict
DISTRIBUTION OF SURVEY RESPONSES (N=2,915)
26%
20%
13%
7%
0%
Strong Rich
Strong King
DISTRIBUTION OF SURVEY RESPONSES:
YOU
Strong Rich
Strong King
DISTRIBUTION OF SURVEY RESPONSES (MBAs):
NOVEMBER
45%
34%
23%
11%
0%
Strong Rich
Strong King
CHANGES RESPONSES (MBAs)
0%
Rich
33%
I'd rather found a venture worth $100m, of which I own 5%
.00-.14
.15-.29
.30-.44
.45-.59
.60-.74
.75+
45%
34%
23%
11%
0%
DISTRIBUTION OF SURVEY RESPONSES (MBAs):
SEPTEMBER
50%
38%
25%
13%
0%
Strong Rich
Strong King
.00-.14
.15-.29
.30-.44
.45-.59
.60-.74
.75+
+30%
-19%
-11%
Mixed
King
I'd rather found a venture worth $5m, of which I own 100%
67%
Vs.
ALTERNATE PATHS
Bootstrap / Self-fund
Growth rate: Fast to Explosive
Vs.
"SUCCESS"?
"IMPACT"?
A
B
C
ECHOES FROM HISTORY
"
From a personal point of
control
.
"
over which I had
only joint
larger
technical department
to be associated with a
much
extremely small) rather than
department
(even if it was
boss over my own
view, I prefer to be absolute
Henry Royce
"
For my part, I had
Rome.
"
the second man in
[lesser] fellows, than
man among these
rather be the first
http://NoamWasserman.com
Detailed table of contents
Chapter 1
Self-assessment survey
“When to Leap” video
Other awesome stuff
KEY
QUESTIONS
FOR THE FOUNDER
Motivations?
Options?
}
}
Decisions
WHY
AM I DOING THIS?
Motivations: Rich? King?
WHAT
EARLY OPTIONS
WILL CAUSE PROBLEMS?
WHICH
OPTIONS

ARE CONSISTENT WITH MY
MOTIVATIONS
?
Motivations?
Options?
}
}
Decisions
ENTERPRISE APPLICATION MANAGEMENT COMPANY
Lew Cirne
Founder-CEO and Chairman
Lew as CEO
Built 50-person company
Developed pioneering product
Raised 2 up-rounds from top-tier VCs
Revenues up, losses down
Wily Quarterly Financials
Revenue
Not Income
Lew's Reward
David Strohm
Investor
"
I Want you to step back as CEO within 6 months
"
Lew Cirne
"
Where have I messed up? What have I been doing so wrong?
"
Lew to "CTO"
LEW GETS OVER HIS SHOCK
The world’s best
speedboat captain
isn’t able to pilot an
oil tanker
. It’s not who’s the best flat-out leader, but who’s best suited to the tasks at that stage of development.
Lew Cirne
"
I want veto power!
"
FINAL DEMANDS
Dick Williams
Successor?
More compensation
Lew also has to resign as Chairman
QUANTITATIVE DATA
Rate of succession
the
more money raised
in the last round
after
raising a new round
of financing
after
product development
is completed
Data: 202 IT Start-ups (Wasserman, 2003 Organization Science)
INCREASES
Chance CEO is replaced
Company performance
“Paradox of Entrepreneurial Success”
"
If the company tanks, I’m gone.
But if it’s a big hit, I’m also gone.
"
"
One of the toughest jobs I have is firing CEOs who have succeeded in rapidly growing their companies.
"
VC
0%
20%
40%
60%
80%
CTO
COO/Pres.
Other C-level
VP or below
Left immediately
Stayed as executive
POST-SUCCESSION EXECUTIVE ROLES
Our Beloved Founder and Chairman
CEO for 2 Years, but Sold our Company!
"
Next time, I’m running it to a billion dollars, and I don’t care what any VC has to say about it!
"
SAME FOUNDER, TWO VENTURES
SOONER
LATER
than the
investor
wants
than the
founder
wants
0%
20%
40%
60%
80%
CTO
COO/Pres.
Other C-level
VP or below
Left immediately
Stayed as executive
WHICH FOUNDERS? WHEN?
MR. RIGHT? MR. RIGHT NOW?
Kevin
Your needs
Jason
Your needs
HIRING TRADEOFFS
Formalization
Burn Rate
Quality of Work
Nimble
Cash Poor
Mr. Right Now Jack of All Trades
Big-Co. Guy Best Athlete
Specialist Mr. Right
Skills
Time
Full transcript