The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup (The Kauffman Foundation Series on Innovation and Entrepreneurship) Hardcover – 25 Mar 2012
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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
"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
"[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
"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.&quoSee all Product description
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It’s rigged up as a parallel structure between serious statistical research and anecdotal stories that are meant to guide you, the entrepreneur, in the early decisions that stand to influence the future success of your business.
So you get told “Evan next decided he would only hire junior developers via Craigslist” and then you get presented with the relevant performance of the 3,000 startups that only hired juniors versus the 3,500 that hired senior developers. And so on.
Nice idea and a decent way for a professor to lay out all the studies he’s ever done, but you know what? It’s a sad state of affairs if people are running statistical studies of all these things, it kind of tells me we’re hitting a “top” and, more relevantly, it adds up to 400 pages.
What entrepreneur has time to read 400 pages? Would Brad, Eric or Jeff ever invest in some loser who found the time to read 400 pages about the statistical advantages of starting a company with your girlfriend versus starting it with three guys you met in business school?
(I secretly hope the answer is “yes,” because I must confess I finished this thick tome, but my excuse is I take the green line from Earl’s Court to Mansion House every day and the time I travel there’s no elbow room for the FT)
So I can’t recommend this. It’s too long. But I read it and I kind of enjoyed it and I picked up some stuff here and there I had not thought about. it wasn’t a bad book, it just went on forever, basically.
If you plan on reading it, look away now, here come the takeaways:
1. People mainly start companies for two reasons: autonomy and power. Well, that’s what they say, but the rest of the book is structured around two other axes: control and financial reward.
2. Hold off starting your company until (i) you’re not giving up too much (for example rewards, or relevant learning) by leaving your current job (ii) the personal angle is covered, including an adequate financial cushion and a family that’s on board and (iii) the market you’re about to tackle is on the up and uncrowded.
3. Generally speaking you should get yourself some co-founders, to get on board as much as possible of three types of “capital:” Human (skills), Social (connections) and Financial. You don’t need to do it right off the bat, but the stats say you’ll do better if you do.
4. Your co-founders really should not be friends or family, because there’s stuff that is best left unsaid or undone in a friendship or within a family that you absolutely need to discuss or do in business, but it won’t feel right to do so.
5. It’s rather good to start a business with past co-workers and particularly so if you carry on working with the same hierarchy.
6. The C-level titles (yes, American book, or maybe only I have a filthy mind) matter. CEO is the biggie and it typically goes to the “idea person” and correlates well with future reward. The rest can act to motivate and that’s good, provided they are appropriate and you don’t find yourself having to take them away later. CEO statistically gets underpaid relative to what he’d get in the outside world, though. The rest don’t.
7. You and your co-founders need to have the same goals, particularly on the “control versus financial reward” axis.
8. Do not split the ownership equally just to avoid conflict. Do not split it equally, period. Do it right, reflecting past, present and expected future contribution. Maybe even formalize how it will all take place and how it may all be revised. And remember that once you’ve taken outside money this question will be out of your hands.
9. At the beginning, all hiring will be done by the CEO, who will be hiring cheap and friendly-to-him “generalists,” but over time this goes away and the firm will start hiring “specialists” and the CEO won’t know what specialists to hire in all departments. So then you move to “impersonal searches” (like an ad in the paper) and eventually you move on to hiring a headhunter to do it.
10. It is possible to hire expensive “specialists” too early. It’s also possible that you’ll hire them at the right time, but they won’t be able to operate in a small company. The right time to hire them is when on top of their skills you also need the credibility they bring to your operation, their ability to hire others like themselves and the stability that will come from not having to replace them later.
11. An outsider, non-founding CEO gets 6% on average to join. COO gets 2.9, CTO gets 1.7 and COO gets 1.3. VPs get 1 to 1.3. They all need to stay 4 years to vest.
12. Don’t take money from friends and family. Many bad things can happen. You can lose it all. Or you can lose your sanity as you try to protect their investment. Well, if you cannot get it anywhere else, take it, but know it sucks.
13. Angel investors, if you can get money from them, are a much better idea because you don’t get any of that baggage, plus they can put you in touch with other sources of funding later, or even with people to hire. And they don’t just do tech and biotech. They are good for half a million, usually. They eventually get chased / bought out by the VCs, should you get to that stage.
14. VCs bring the financial muscle your business will need. And the cred. And the connections. And they’ve done it before and they’ll put together a board that will lead you and bring you structure. They’re not going anywhere these guys, they outlast you. They will exert their control via the board.
15. Three times out of four, the founder who took money from VC will not get a penny beyond his salary. He will lose control or he will sell for less than was necessary to participate in the spoils. Typically because in the interest of the firm being a success he will sign on some pretty optimistic terms that leave him with zip unless some targets (business or financial) are met.
16. If the firm is a success you get chucked. You need to get ahead of this process. If you embrace it and help appoint your replacement, typically a professional CEO who’s done it all before, you do a lot better than if you find out from your board the day they announce it to everybody else. It is the “paradox of entrepreneurial success.”
17. Get your head straight, right from the beginning: do you want control or do you want success? If you as much as think about both you will get neither. Pick one and make every single decision you will ever make consistent with this one goal. Serial entrepreneurs have a history of swinging from wanting control to wanting success, but successful ones do not make any sharp turns while they are with the same company. While you’re with the same company make it one or the other.
Really makes you want to take the leap, doesn’t it? Maybe that’s why the book is 400 pages. In the hope that you won’t make it till the end!