Entrepreneurship researcher Amar Bhide has written that, “Entrepreneurs who start and build businesses are more celebrated than studied.” Harvard Business School professor Noam Wasserman starts his new book The Founder’s Dilemmas with that quote, and then attempts to add a healthy dose of data to the existing literature on startups.
In 2005, Wasserman started a blog to share preliminary results from his survey research on startups, and hoped to engage maybe 50 high-level readers who could contribute to a dialogue that would inform his work. To his surprise, he attracted thousands. When he launched a course at HBS on the perils founders face in 2009, he harbored similarly humble ambitions, only to find that even with two sessions, it was oversubscribed.
“I have underestimated the appetite for this at almost every step of the way,” he told me. It turns out entrepreneurs are hungry for good information about the challenges that others have faced before them. And with the release of The Founder’s Dilemmas, Wasserman has delivered.
Through surveys conducted over 10 consecutive years, he has compiled a dataset including 9,900 founders at 3,607 startups, which he blends with deep case studies to offer a deeply quantitative yet eminently practical analysis of the challenges that startup founders face. One theme that he returns to throughout is the conflict between the dueling motivations of “Rich” and “King.” As he writes early on:
Although the desires for wealth and control seem complementary, as entrepreneurial motivations they turn out to exist in perpetual tension with one another.
The best path to riches most often means giving up control to co-founders, employees, and most significantly investors. Wasserman advises entrepreneurs to honestly assess their own goals, identify how much they value getting rich vs. being king, and then plan accordingly. Wasserman is hopeful that enterpreneurs will be able to use his data and recommendations to make better decisions as they start his business.
He quoted Steve Jobs “Follow your heart, but listen to your head,” saying that he is trying to help entrepreneurs find the balance between the two.
“Until now, following gut, following intuition, following anecdote, that has been where the heart has been having the preponderant say in all of these decisions,” he said. “Hopefully here we can start bringing some of the data, some of the intellect, some of the head to the equation.”
Wasserman’s next projects will be both expanding his work internationally to China, India, Israel and the UK, as well as to examine those rare founders like Zuckerberg who find a way to be both rich and king.
If you work or plan to work in startups, you ought to pick up this book. But to tide you over, I’ve included a bunch of interesting facts and quotes below:
5 Lessons From a Decade of Data on Founders
Optimism has real costs:
Optimism leads founders to make overly rosy predictions about their own chances of success in comparison to their competitors’ chances, to overestimate their own abilities and knowledge, to underestimate their initial resource requirements, and to fail to plan for foreseeable problems… …In addition, the entrepreneurial environment itself can exacerbate a founder’s vulnerability to his or her own overconfidence. Many entrepreneurs work in highly uncertain and “noisy” environments in which feedback is ambigious and based on uncertain evidence. Such environments render people especially susceptible to cognitive biases and errors, including overconfidence…
If you’re just in it for the money, try something else:
On average, entrepreneurs earn no more by founding startups than they would have earned by investing in public equity – less, in fact, form a risk-return perspective… All told, entrepreneurs earned 35% less over a 10-year period than they could have earned in a ‘paid job’.
Former co-workers are the most stable founders while friends and family founders are less stable than strangers:
Friends and family, who already have so much (social) experience with each other, tend to feel there is no need for such uncomfortable conversations. The irony is that friends and family risk much more – a treasured relationship – than strangers do, yet typically take much less care to mitigate that risk.
Don’t just split equity equally between founders:
Splitting the equity is one of the most complicated and tension-filled of the founder’s dilemmas. The natural inclination is to bypass the tension by taking the simplest route – an equal and statis split. Founders should resist this urge, which is fraught with longer-term peril. Instead, they should seek the right time to split and use the right approach to doing so… When things start to solidify, the founders should engage in a detailed attempt to match the initial splits to each founder’s expected long-term contributions.
More than 50% of founders are replaced as CEO by the time the startup raises its third round of funding:
My quantitative research found that a high percentage of founder-CEOs are replaced as CEO, most often against their wills. The public thinks of business eminences such as Bill Gates, Richard Branson, Anita Roddick, and Michael Dell – wealthy and powerful CEOs of the companies they created – but these are the very rare exceptions.
Want even more? Here’s Wasserman explaining the book: