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%