Noam Wasserman, a professor at Harvard Business School and author of The Founder’s Dilemmas, delivered a talk to a crowded room of entrepreneurs at Techstars that rests on the statistic that 65% of high-potential startups that fail do so because of people problems.
“It’s unfortunate but true: if entrepreneurship is a battle, most casualties stem from friendly fire or self-inflicted wounds,” said Wasserman.
Drawing upon a unique database of 6,000 startups, 16,000 founders, and 31,000 executives that he's built over the last ten years, Wasserman presented a series of founding dilemmas that every person who has ever considered starting a high-potential company should negotiate.
He dug into this research to pull out information about the kinds of capital a founder needs to succeed, what founding team composition has the highest success rate, and the halflife of founder/CEOs. He also illuminated a few dozen other pitfalls a founder faces that may seem incidental in the beginning, but can prove terminal as your company grows.
Or as Wasserman puts it, “Founders who feel they have gained everything and lost nothing by an early decision that felt like a no-brainer may be in for a nasty surprise later on, when they find out what trade-off they should actually have been considering.”
Below are 5 notable points from Wasserman's data-driven, invaluable advice:
1. Identify that the circumstances are alligned: Before you found a company, you need to systematically confirm that career circumstances, personal circumstances, and market circumstances are aligned just enough to create a window a probable success. Sound obvious? What systems do you currently have in place to measure these factors?
2. Determine your motives Understand whether you prefer power or wealth, because, as Wasserman pointed out during his talk, “you rarely get both, and without understanding which motivators are driving your decision-making, you’re likely to end up with neither.”
3. Know your management capabilities When considering whether to found solo or gather a team, you need to be very honest with yourself about the amount of human capital, social capital, and financial capital you personally command. If you’re willing to trade some amount of control in order to take on additional capital in these three categories, thereby increasing the potential value of your company (as shown in Wasserman’s data) and complimenting your deficiencies, make sure you are actually complimenting your deficiencies and not just giving in to the lure of homophily (surrounding yourself with comfortable people who share many similarities).
4. Strategies to remove and prevent workplace tension Working with family or friends can create a large gap between the willingness to discuss critical issues and the damage incurred if the relationship blows up. Wasserman points out that this creates a risky gap that kills startups: “The Playing-with-Fire gap is the greatest for cofounders with a prior social relationship. They are the least likely to deal with elephants in the room and will suffer the most damage if business tensions undo their social relationships; yet their failure to deal with the elephants makes such business tensions all the more likely. They are, indeed, playing with fire.” Cofounders must constantly work to close this gap, or risk failure.
5. Impartial cofounder agreement If you decide to take on cofounders, get an impartial software engineer to write up your equity split!
