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.