Tuesday, October 23, 2012

Founder Dilemmas from HBS Reunion Sessions

October 2012
Next panel up: The Founder's Dilemma. Anticipating and Avoiding the Pitfalls that Sink a Start-Up

Start-ups causes for failure: 35% product market fit &!65% due to people problems. And these are the ones VCs decided to back!

Steve Jobs, "Follow your heart, but check it with your head."

Research supporting presentation. Data set: 10,000 founders, 4,000 start-ups, 20,000 executives.

Data are from tech and life sciences in US 1) Do you do it alone? (16% only). So, discussion will be with co-founder companies.
Core dilemmas: 1) market circumstances (I believe it, but is there a market) 2) career circumstances (abilities & contacts) 3) personal ""

When to found, building the team(co-founders), new venture hiring, investors/partners, exit dilemmas (all of the above)

Do you found w/ friends? Family?[yikes] Because you know them well, you make assumptions that you can trust them & vice versa.

People with whom you have prior professional relationships but not friends. You can work through tough issues. Different profile.

Prior professional is most stable of teams. Co-founding with friends is less stable than founding with acquaintances!

Can you build a company via consensus? Of course not #obvious Very common decision in early days.

Many start-ups transition from "Neverland" (Peter Pan) to Zeus making decisions at 20-30 people. Ie consensus to top down. Hard to do.

Team tensions rise... Understanding the tension between relationships, roles and rewards..

70% of teams split equity within 1 month of founding. And they're really optimistic about everything then. So, when you hit a bump...ouch.

Most common way for how teams split equity: equally. 1/3 split equity & they then say they will keep it that way in perpetuity. #HBSReunion

Zipcar case: co-founded by 2 female friends. 50/50 equity up front. Then 1.5 yrsRobin Chase did deals, business plan. Cofounder kept day job

First hand shake caused a huge amount of angst over that 18 months.

Case study: Ockham co-founded by co-workers. Began w/ deep dialog abt contributions so had uneven split. Series of if then, else statements

Ockham idea guy had day job & was about to be new father. Was he going to be involved & how? If he's full time, X% Else, part time, then Y%

Ockham's idea guy never joined at all but buy out terms were baked in at the beginning.

Most common way to allocate dynamism is create pool of unallocated stock. Outside party I.e., board of directors determine how to allocate.

Avoid assumption of rosy scenarios.

Another way of injecting dynamism: vesting. How do we know they're still on board? Critical element: we shouldn't architect static agreement
Key ?s: what's your strategy, biz model, future skill requirements known? Future roles set? Each committed 100%? No personal uncertainties?

You will never be able to answer all of those ?s in first month!

Caution: that won't be me. "Those things happen to other people."

No difference in failure rates between solo founding and team founding. People who misread that they should solo found, fail.

Investors are biased against solo founded teams. Maybe an arbitrage opportunity.

Investor dilemma: bootstrap (solo finance or internal cash) or who do we take $ from

Founders still CEO? Only 50% of founding CEOs still CEO at four years

Financial trade off: give up CEO role & BD ctrl, highest rtn for founders, esp for older cos.Keeping CEO & bd ctrl led to 50%

Tweets from HBS Reunion Session on the European Debt Crisis

October, 2012
Tweets from session on European Debt Crisis Panel

@hbsreunion for @tmania attending panel on the european debt crisis w/ professor Rajiv, Dante Rossini, Luis Viceira, George Papaconstantinou

Viceira is optimistic about the Euro but question is who will be part of the Euro other than Germany and the Netherlands. 

Are you optimistic? Roscini says yes because Europe has no choice. The only institution that moves at market speed is the ECB.

Not sure that Spain, Italy will be successful in restructuring, but if global Growth happens, might see a friendly divorce in 5 yrs

Fmr greece finance minister says that this crisis was inevitable. Initially everything was ad hoc, but we have gone a long way in 3 yrs

There will be no such thing as an orderly exit from the euro.

Greece had a fiscal crisis. Ireland had a banking crisis. What's happened in greece is equivalent of us reducing debt by $1T!

Origins of crisis same as US. Lending bubble. Same thing in Spain, Ireland. in US, with Fed, very quick response.

Spain has no Fed, so it is like Japan. Very slow de-levering.

Original Euro structure was wrong, designed to placate Germany. Markets under-priced risk. 

Private debt in Italy is small. Duration of debt in Italy is longer than most.

What tools do you have to deal with the crisis? ECB has evolved and Much more like the Fed in last three years. 

ECB is like the Fed was in 1920's. ECB was originally part of the Bundesbank.

ECB has bought time? Has it made system more risky? He hasn't done quantitative easing- hasn't bought securities from banks like the Fed has

Who do you respect most or least? Fmr finance minister responds, "I am a politician." LOL He won't talk about Greek politicians. 

In northern Europe, loudest voices talk about lazy south. But northern Europe has benefited most... #hbsreunion

Financial vs non financial businesses... Banking system is in shambles. Businesses can't get funding in Spain, Italy or France.

There's a lot of uncertainty and we are seeing social and political breakdown in these countries. There has to be resolution of uncertainty.

Hedge funds are actively engaging. If you bought government bonds in Europe, you made good money in last few months.

Not a question of choosing companies in the EU but of figuring out if you want to invest there at all.

Asset prices are much more reasonable. Great time to invest in Europe. No access to capital. But you have to believe

If you're slightly positive, great time for PE to invest in EU.

There's nothing woes than a middle class used to rising incomes and borrowing against future earnings and experiencing what happened

Did you ever fear for your safety? (asked to former Greek finance minister) Yes. #hbsreunion #obvious

Greek finance minister disagrees. Bigger issue hasn't been addressed. We haven't learned lessons of crisis and looked at regulatory issues.

Hiring and firing? How does that affect the future? If that's not successful, Italy, Spain and Greece won't be in the euro.

Limit on Hiring and firing rules - under 45 employees. So you see a lot of cos with less than 45 employees and then nothing until over 1000!

How can these countries find growth? Reforms aren't enough. What are their competitive advantages?

Is CA the next Greece? These guys aren't Experts in that says @tmania he's right.

France may be a nice short. They haven't been swept away by the #crisis If they lose their AAA rating, bad news.

CA has industries that are robust unlike Greece. Also CA has the federal government.

European economists say $ won't go on forever and gold will come back.

Can anyone explain the resiliency of the euro? It has been amazing. 1.25-1.3 vs dollar throughout the crisis.

The market isn't pricing the breakup of the euro. Controversy on panel ensues.

Probability of Germany leaving euro? The Europeans will do anything to keep it together says Roscini.

How long  can US sustain reserve currency status? We may be reading too much into how quickly his happens. [hope so] #hbsreunion #scary

Property values in UK at all Time high. Wealthy Spaniards and Italians are not buying in their countries but outside of the EU.

A number of individuals and companies are scrambling to get their money out of the EU. Deposits in Spanish banks are down over 30%.

Great book title: "How Greece saved the Euro". Why? Because Greece first showed the weakness of the Euro.

Tuesday, May 18, 2010

"Very Personal Computing"

My partner, Jean-Louis Gassee, has written a terrific piece about the cell phone market. More importantly, he does a terrific job of explaining why HP bought Palm (hint: it was more than Frank Quattrone's deal making prowess)

The link is here: http://www.mondaynote.com/2010/05/02/very-personal-computing/

This is definitely worth the read!

Wednesday, April 28, 2010

Goldman Sachs

A very smart attorney with whom I spoke yesterday told me she read the Goldman Sachs complaint and that it's very narrow. With all of the digging that the SEC must have done, it's amazing that they came up with something so small (on a relative basis to what people expected or might have expected). So, does that make Goldman Sachs a buy? The biggest downside is potentially a class action law suit filed by wronged investors, or is it? I will be curious to know what you think.

Monday, April 26, 2010

An Economics Joke Serves as a Cautionary Tale

Recently, I was speaking with a fabulous Chief Investment Officer for a large pool of capital (in excess of $10B). He and I discussed the financial crisis and what might be coming down the pike next: inflation, deflation, Goldilocks (everything comes out just right), strong dollar, weak dollar... and the strategies for investing should any of these scenarios come to pass.

When discussing the crisis itself, he commented that no one had modeled what would happen if housing prices fell. It all seems so obvious now, but the biggest issue with any financial model is (are) the key assumption(s). You can model anything, of course. Just tell me what the assumptions are! It reminds me of a joke I learned when I was an economics student at the University of Chicago. It's the only economics joke I know. Here goes:

A physicist, a chemist and an economist are trapped on a deserted island, and they have a large crate of canned food without an obvious way to open the cans. The physicist suggests, "Let's tie vines together, throw them over the branch of the coconut tree and use coconuts to force open the cans by bouncing the coconuts off the cans at the correct angle."

The chemist responded, "That's absurd. Let's use the sea water, some sea weed and the sun to corrode the tops of the cans off."

The economist averred, "You're both wrong. Assume you have a can opener."

Tuesday, April 20, 2010

Friends and Family, Angels and VCs

Today I met with a friend who is starting an e-commerce company, and he needs $100,000 to get his site launched, attain some users and demonstrate metrics and traction. From there, he plans to seek angel or venture capital funding. Well, at the beginning of our conversation, he thought about speaking with some "super angels" now and has in fact done so. His observation was that the "super angels" (Jeff Clavier, Mike Maples, Ron Conway) have moved "up market" just as venture capitalists have of late. Translation: they are doing (relatively) later stage deals and putting more money to work in those deals.

My advice to my friend is the same as it would be for anyone similarly situated. Seeking friends and family for a company in need of $100,000 is the only way to start. To my friend's credit, he has done that and is half way to his goal. For the last $50K, he and I brainstormed about angels who don't necessarily have funds per se but are active and who have an interest in/passion for e-commerce deals. Finding such people can be akin to looking for a needle in a haystack. Frankly, that's where your lawyers, other service providers and friends who are plugged into the angel/venture capital ecosystem can be incredibly helpful. I also suggested that my friend use LinkedIn to find alumni of some successful companies in the e-commerce space i.e., Junglee, Amazon, et al. If you're an active LinkedIn user, it can be an incredibly powerful way to find people whom you want to meet.

Once my friend has some data and has confirmed that his idea has merit i.e., users, a model that is starting to show some color, going to super angels or venture capital firms with a penchant for early-stage e-commerce deals will be the right path forward. Just be sure to conduct diligence on everyone you take money from because you can bet your investors will be doing that on you.

Tuesday, April 13, 2010


"Denial: Why Business Leaders Fail to Look Facts in the Face -- and What to Do About It" is the title of Richard Tedlow's new book. Last, night I had the pleasure of hearing Professor Tedlow speak about his book. He divided his book into to parts: those who got it wrong (e.g., Henry Ford continuing to make one model car and only in black) and those who got it right (e.g., James Burke, then CEO of J&J during the Tylenol poisonings - remember that?). He discussed the man who tried to point out the error in Henry Ford's thinking (after 8 pages of groveling). That man was fired. He also discussed how Andy Grove, then #2 at Intel, suggested to Gordon Moore, then CEO and Chairman of Intel, that Intel exit its MAIN business, memory, in the late 1980's. It's no surprise that organizations full of "yes-men" don't thrive, and it's also a rarity to have such organizations.

I had the pleasure of hearing Jamie Dimon speak about the advice he received from a CEO shortly before Jamie assumed the CEO role at BankOne. The other CEO said, "If you have ten guys reporting to you, make sure that one of them will always tell you the truth, no matter what." Jamie's response was, "If I only have one guy who will tell me the truth, I am going to fire the nine other guys and find nine others who will tell me the truth."

This all seems like common sense, but it is so... uncommon.

I am looking forward to devouring "Denial" even though I am sure that parts of it will be disturbing.