The Founder’s Dilemmas
By Noam Wasserman
(Princeton University Press,
480 pages, $37.95)
Entrepreneurship is a struggle, a battle for success by an entrepreneur and his or her team. What’s not often appreciated, but is highlighted in Harvard University Professor Noam Wasserman’s hefty and sobering book The Founder’s Dilemmas, is the fact that most casualties in this battle often stem from friendly fire or self-inflicted wounds.
From the time entrepreneurs come up with the idea for their startup they face a series of decisions that will have significant consequences. Whether it’s deciding to be a sole founder or find a partner, hiring the first employees, or setting the equity structure, founders grapple with interconnected dilemmas that they will determine what success looks like down the road.
Underlying their decisions should be a firm understanding of whether, in Prof. Wasserman’s shorthand, they want to be rich or king.
Some founders want their new enterprise to shower them with wealth, and therefore should view every tough choice they encounter through that lens. Others are more focused on retaining control; from the start, they should be making choices to enhance that possibility.
“A founder who knows whether wealth or control is his or her primary motivation will have an easier time making decisions and can make consistent decisions that increase the chances of reaching the desired outcome – rich or king,” he writes.
Only a few entrepreneurs, such as Bill Gates, can manage to attain a large degree of both. Invariably a dilemma arises that is a huge obstacle to having it all. That’s why it’s wise to plan ahead.
Here are the main dilemmas a founder will encounter:
At what point in your career should you launch a startup? If you have an idea, are you better to jump in now or continue in your current position, building skills and money that might be helpful later on to better develop the idea? What if you are ready and the economy isn’t?
Solo vs. team approach
Should you launch the business yourself or try to attract co-founders? Going it alone will increase your control but might push financial returns further down the road. A co-founder can accelerate your company’s growth but, depending how you split equity, can limit or even take away control.
In attracting co-founders, should you bring in friends, family, acquaintances, former co-workers, or strangers? Reaching beyond your immediate circle might maximize the wealth opportunities but will be less comfortable. On the other hand, launching a business with a romantic partner or family member could lead to relationship and business tumult.
Roles and rewards
If you have a co-founder, what roles should each of you play? What decisions can you make alone, and which should be joint? How should you divide equity and other financial rewards among the founding team?
What type of investors will you reach out to at different stages of growth and what challenges will that involve?
Outside investors usually want a measure of control or complete control, so for this dilemma you definitely have to know whether you want to be rich or king.
Some founders intend to eventually step down as chief executive officer, cashing out and moving on to another position or to launch another startup. Other entrepreneurs aim to remain at the helm for as long as they are healthy. It’s important to think through, and prepare for, the ultimate scenario.
All these dilemmas are critical to a business, but Prof. Wasserman pays particular attention to what he calls the Three Rs: relationships, roles and rewards. It’s important these be aligned, because the linkages between them are strong.
“A decision made at one point can make a subsequent decision turn out badly, even if the subsequent decision might have turned out well in different circumstances,” he notes.
“At best, misalignment of the Three Rs will bring tension and dissension; at worst, it can blow up the founding team.”
Prof. Wasserman provides a great deal of data and stories about high-potential technology and life-sciences startups. His book offers much more information than most entrepreneurs can handle at once, but it is probably essential for them to know.
It would make sense to read the first chapters as key points are outlined, scan the rest, and come back to the book when you hit stages of growth or dilemmas where reading every last word in a chapter could be critical.
Entrepreneurs Steve Blank and Bob Dorf offer a step-by-step guide for building a company from scratch in The Startup Owner’s Manual (K&S Ranch Publishers, 571 pages, $44.78).
Entrepreneur Chris Guillebeau tells how to craft a life of independence and purpose in The $100 Startup (Crown Business, 285 pages, $26.95).
In Serial Innovators (John Wiley, 202 pages, $41.95), Claudio Fezer, a director of McKinsey & Co., takes findings from economics, psychology, neuroscience and sociology to show entrepreneurs how to overcome the obstacles to growth as their firm ages.