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The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup (The Kauffman Foundation Series on Innovation and Entrepreneurship) Paperback – April 1, 2013
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Winner of the 2014 Entrepreneurship Practice Award, Entrepreneurship Division of the Academy of Management
Winner of the 2013 Silver Medal Book Award in Entrepreneurship, Axiom Business
Finalist for the 2013 George R. Terry Book Award, Academy of Management
"[A] seminal work. . . . Sure to be required reading in business school curricula, this illuminating and captivating read will also appeal to aspiring entrepreneurs or founders who want to make better decisions in existing ventures."--Publishers Weekly
"[A] first-aid manual to help resuscitate ailing start-ups."--Jessica Bruder, journalist, author, and adjunct professor at Columbia University's Graduate School of Journalism, You're the Boss blog, New York Times
"Wasserman illustrates his findings with real world examples that translate into immediately applicable advice. But rather than creating a prescriptive list of commandments that would be impossible to follow, he adopts a more holistic approach. Encouraging entrepreneurs to study how others have handled similar challenges in the past, his insights highlight the common ground found in seemingly unique situations."--ForeWord
"Harvard Business School professor Noam Wasserman is one of the writers and teachers who best captures the high stakes decisions that entrepreneurs face every day."--Scott Kirsner, Boston Globe
"There are plenty of books, lots with stories, anecdotes, and suggestions, but none that are particularly systematic about going through all of the issues. Noam's book is the first I've read--and he totally nails it."--Brad Feld, Feld Thoughts
"[T]he definitive book on the topic. . . . If you are a founder or thinking about becoming one, you should read this book."--Dharmesh Shah, OnStartups.com
"This is a serious book for a serious endeavor: creating a company from scratch that can be a world-beater and life-changer. . . . Wasserman's book is a towering guide to making these decisions thoughtfully and purposefully. Every founder should read it--and take the time to digest its rich data and lessons."--Jeff Bussgang, Seeing Both Sides blog
"Wasserman's book is on track to take as lofty a position in the entrepreneurial literature as HBS's Clayton Christensen's The Innovator's Dilemma did in the field of technological change."--Peter Cohan, Forbes
"Highly recommended for those who plan to embark or are already living the entrepreneurial lifestyle, it can serve as a guide to very tough situations for founders to evaluate the best possible way out."--Bernard Leong, SGEntrepreneurs
From the Inside Flap
"This book provides the rare combination of practical advice and scholarly research. It gets to the heart of the people issues that can bedevil every, and I do mean every, startup. Issues such as founder motivations, equity splits, and equity control can make or break a company. I guarantee that the price of this book is approximately one-thousandth of what you'll pay lawyers to clean up your mess if you don't read it."--Guy Kawasaki, author of Enchantment and former chief evangelist of Apple
"The Founder's Dilemmas is required reading for entrepreneurs, venture capitalists, and the professionals who work with them. Few entrepreneurs appreciate the far-reaching implications of decisions they need to make at the beginning of a startup venture. Most founders make these critical decisions based on their gut instincts; backed up by data covering ten thousand founders, Noam Wasserman shows that the most common choices made at the outset of a new venture are often the wrong ones. This book also shines a light on the difficult conversations that entrepreneurs need to have with their colleagues and with their investors, and makes plainspoken, commonsense recommendations that facilitate this dialogue."--Pascal Levensohn, founding partner of Levensohn Venture Partners and member of the board of directors of the National Venture Capital Association (2007--2011)
"The Founder's Dilemmas will change the way we think about the internal dynamics that can make or break startup companies. Drawing on substantial research and considerable insight into practice, Wasserman uncovers the inner lives of startups, exploring the personal and professional conflicts that founders encounter on their entrepreneurial journeys. His book will appeal to academics and practitioners alike."--Thomas Hellmann, University of British Columbia
"The research that Noam Wasserman has assembled here can help entrepreneurial companies who want to prepare well for their future.The Founder's Dilemmas is a must-read for anyone thinking about starting a business."--Timothy C. Draper, founder of Draper Fisher Jurvetson
"Looking at the real-life founder issues of many accomplished entrepreneurs, Noam Wasserman draws insights that are both universal and timeless. If you're thinking of starting a new venture, do your homework and read this first."--Jeremy Stoppelman, CEO and cofounder of Yelp
"Noam Wasserman takes you through every major issue in a startup and shows you how to handle it in a prescriptive, logical way.The Founder's Dilemmas is for everyone thinking about starting a serious company, with their eye on a big prize, and for the people who invest in those companies."--Paul Maeder, chairman of the National Venture Capital Association, founder and general partner of Highland Capital Partners
"If you're starting a new company, you probably already know that a crazy variety of land mines await you. What if you had a map that showed exactly where they are and how to avoid them? Wasserman's recommendations are backed up by rigorous research--a rare thing in books about entrepreneurship--and his stories and anecdotes serve as accessible illustrations of situations faced by thousands of companies. Having seen these dilemmas derail countless startups, I wish every entrepreneur and prospective founder would read this book."--Eric Ries, author of The Lean Startup
"Every entrepreneur faces trade-offs when founding and growing their company. As we discovered at YouTube, those early decisions have far-reaching impacts and lead to unforeseen pitfalls down the road. Noam Wasserman uses vivid anecdotes and deep research to expertly outline the key early choices that define a startup, making The Founder's Dilemmas an invaluable alternative to real-world trial and error.&quo --This text refers to the Audio CD edition.
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The best illustration of this is Evan Williams who was a founder of Blogger, and then of Odeo (and then after the book was designed of Twitter). Williams had a very different behavior with the two start-ups. He was “control-oriented” with Blogger, hiring people in his close network, taking friends and family (and close network) money only and keeping management control to the point of firing everyone including his former co-founder and girlfriend. With Odeo, he had initially a “wealth-oriented” attitude, taking VC money and having a different hiring strategy. His inclination made him however buy back his investor’s stake, as he needed to control his start-up again.
Wasserman shows that the “3Rs” (Relationships, Roles & Rewards) are key features for decisions about the key dilemmas founders may experience. These dilemmas are classified according to the chapters of the book: Career, Solo-vs.-Team, Weak vs. Network, Positions, Compensations, Hiring, Investors, and Succession. Wasserman explains (or better-said describes) the various dilemmas founders face when taking decisions and shows that their decisions are very often dependent upon their motivation. Do they want to be Kings (power or control-oriented) or Rich (wealth oriented)? He does it with anecdotes (not so good and quite well-known) and with statistics (very good and not so well-known)
In summary I saw it more as a book for academics than for entrepreneurs and founders who apparently will not take better decisions after reading this book as they will be driven by their motivations, not their experience! At least they will be aware of it. It may be another illustration that youth and enthusiasm are as important as experience and rational behaviors!
One interesting puzzle Wasserman addresses is why individuals decide to become entrepreneurs, often thinking that they will become wealthy whereas this is entirely wrong. This has to do with control vs. wealth. You will need to read Wasserman if you want to know more.
The problem is that of seven start-ups only two will be operating in a year later! That is a 71% failure rate. Imagine if close to all business that started succeeded, and went on to employ only five people. In a short time our “national scar,” unemployment, would be on the way down and prosperity on the way up.
Naom Wasserman has assembled superb data from his research on over 10,000 new businesses that were set to grow large. His research focused exclusively on businesses that were intended to grow large, not on lifestyle businesses intended only to keep the founder comfortable. He also accessed a wide range of reliable data from other sources to formulate this book.
What makes Wasserman’s book so unusual is his focus on a fact over research overlooks. More business start-ups fail because of internal problems caused by the founders’ errors of judgement than by external causes. If founders in the initial stages could make better decisions, many more businesses would be saved, and more would thrive.
Wasserman has identified clear a set of dilemmas facing founders. Choices have to be made between alternatives with no choice obviously better than another. All come with significant upsides and downsides. Solved appropriately, the founders will survive to face the next dilemma. Fail, and there could be no next dilemma.
“This book’s central message is that these founding decisions need to be made by design, not by default,” say Wasserman.
There are four primary founding decisions that make up the content of the book. Each dilemma is analysed, and its implications made clear. This clarity will help you, and those you care about make better, safer decisions.
At the “Pre-founding” stage, there are a set of dilemmas regarding when to launch the start-up. There are at least three major areas of considerations. If you do not have enough money, it may be wise to work for someone else until you do. Perhaps you should you borrow money and start right now? If you delay the start of the business, will you have missed the wave?
There is no one right answer to this question, and it requires the consideration of a number of factors. Are you able to ensure the security of your family (if you are responsible for one?) If you have savings or a retrenchment package will that suffice? Does your life-partner earn sufficiently to support the family? If she does, is she completely committed to your success to pay her part while you play yours? If not, the strain of founding the business may exhaust your strength and shatter your relationship. Are you locked in the golden handcuffs of a secure job?
These and many more profound and difficult questions need probing and honest answers.
Once you have made the decision to start a business, you face the “Founding Team Dilemmas” . Are you able to start a business alone or should you have others doing this with you? There are always skills that are required, but cannot reside in one person. Then there may be a need to work with another person who has your commitment to the success of the venture.
The need to work with others raises the “Relationship Dilemma” of to attract. Will the business work best if you team up with friends, family, acquaintances or strangers? Should you seek someone you have actually worked with before?
The “Role Dilemma” follows from this. What are the positions each one of you should assume in the new business?
How should each person be rewarded for their contribution to the venture? If you reward with more equity than is deserved, you cannot take it back when this becomes apparent. “Reward Dilemmas” are especially dangerous at the beginning of a business when there is nothing tangible. Giving away half of nothing but a promise is easy. However, when the business makes money, paying dividends to someone who never deserved it takes on a different hue. Few mistakes sour relationships more profoundly.
Beyond the dilemmas of the founding team are the “Investor Dilemmas.” Most businesses require funding to take off in a meaningful way.
You can turn to family and friends, “angel” investors, or venture capitalists. Accessing each these sources become progressively harder, and each poses its dilemmas.
For example, when take money from you pensioned parents, you do this believing you will succeed. Five of seven businesses never succeed causing great harm to people close to you. Borrowing from family and friends is best when it is a gift that come with love, not an investment.
Angel investors are investors but tend not to be professional investors. They are often people who have money and are prepared to “take a punt” on what looks like a “good idea” in exchange for equity and a high return. As with all investors, you will be required give up a portion of your business to the investor in exchange for the support.
At every stage there are dilemmas that if not confronted and not addressed thoughtfully, will do more damage to the fledgling business than problems that come from external forces.
Self-inflicted wounds can be avoided. Forewarned is forearmed. Read Wasserman’s profound book.
Readability Light ---+- Serious
Insights High +---- Low
Practical High -+--- Low
*Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works.