By Marty Aquino
06 APR 12
As a founder or co-founder of a startup company, you’re plagued with many problems. These problems can vary from the trivial to the self-destructive kind. Most founder dilemmas are not-so-obvious and are downright insidious. This entrapment is often caused by the general unwillingness of the founding team to ask the hard questions early-on. Nearly all startups begin with wide-eyed enthusiasm thinking things like: "because my co-founder is a very good friend –all will work itself out." The reality and statistics of startup teams, however, paint an entirely different picture.
The all-too-common founder failure list below has been excerpted from Noam Wasserman’s “The Founder’s Dilemmas.” Noam Wasserman is a professor of entrepreneurial management at Harvard Business School and has focused over 10 years of research on “make or break” founders’ early decisions. In 2011, his course was named one of the top entrepreneurship courses in the U.S. by Inc. Magazine. The bottom line is: his research is worth reading. And, if you’re part of a startup founding team his research is worthy heeding.
The Facts About Founders:
- In 73% of founder-CEO replacements, the founder was fired rather than voluntarily stepping down.
- Founders feel like Lewis and Clark: Rough idea of where to go, but don't see a clear road ahead or upcoming pitfalls.
- Founding-team turnover increases dramatically when the startup raises its first round of financing.
- Unfortunate but true: If entrepreneurship is a battle, most casualties stem from friendly-fire or self-inflicted wounds
- The chances of founder-CEO succession rise with each new round of financing.
- 65% of startups fail due to problems within the management team.
- Feel like a "people decision" is a no-brainer? You may be in for a nasty surprise later on. Decide rather than default.
- A dirty little secret of entrep: Many decisions along the journey push a Rich-and-King outcome further out of reach.
- Each additional social relationship within the founding team increases the likelihood of cofounder departure by 30%.
- Friend/family cofounders are often the least likely to tackle the elephants in the room (Relationships, Roles, Rewards)
- Playing with Fire by cofounding with friends and family? Carefully construct firewalls and discuss worst-case scenarios
- After a 6-month honeymoon period, teams with prior social relationships are the least stable.
- Founders often fail to realize when they are about to make a fateful decision.
- Examine the motivations of your potential cofounder to see if they are compatible with your own motivations.
- Motivational compatibility does not guarantee success, but incompatibility is asking for trouble.
- Founders often describe their equity-split negotiations as "war," "exasperating," or "stressful."
- Is pivoting a possibility? So why do more than 50% of teams split equity without allowing for adjustments?
- 73% of teams split equity within a month of founding: amazing given the big uncertainties they face.
- The Founder Discount: A labor of love can become a trap in which you're paid less than an equivalent non-founder.
- Within each of the 3Rs (Relationships, Roles, Rewards), the most common choices are often the most fraught with peril.
- The trial by fire of founding a startup often burns a team rather than forging a stronger team.
- Neglect the 3 Rs (Relationships, Roles, Rewards) at your peril. Misaligned 3Rs cause tension, dissension, and blow ups.
- Rich founders should be making very different investor choices than King founders; understand your core motivations!
- A founder-CEO's success at leading a fast-growing startup can accelerate his or her own obsolescence and replacement.
- 52% of founders are replaced as CEO by the time the startup raises its third round of financing
- Firing yourself as founder-CEO enables you to remain more involved with your startup after you're replaced.
