There are many resources on the market to help founders navigate through some of the most difficult life and business decisions they will ever make. However, there are not many that are based on a decade worth of research and learning. Harvard Business School Professor, Noam Wasserman’s new book, ‘The Founder’s Dilemmas’ has studied the experiences of nearly ten thousand founders and performed in-depth case studies of founders like Evan Williams of Twitter and Tim Westergren of Pandora to show founders the key pitfalls of doing a start-up and give them advice to avoid them.

For first time entrepreneurs, doing a start-up can really be a daunting experience. Some of the decisions you have to make are so critical they will impact the future and success of your business and will definitely keep you awake at night. Rather than sweat it out by yourself or spend many hours trying to find the answers, this book can give you comfort and reassurance that there are many founders who have gone before you and you can learn from them.

The book covers the whole gamut of decisions a founder must make. Topics include career dilemmas of when you should start a company; founding team dilemmas of who you should start with including who should take what roles and how much equity to split; after founding team dilemmas of how to hire people, which investors to take on and Founder-CEO succession scenarios.

Here are some very valuable examples of analysis from the book:

  • All other things being equal, idea people receive 10-15% more equity than non-idea people
  • 94% of start-ups name their CEO by the time they raise their first round of financing
  • Boards typically give founders an average of 6 months less vesting than they give hires
  • Start-ups are willing to accept 10% less valuation to secure a ‘well known’ VC compared to a less well known and experienced VC

To get more insight into Noam’s thinking and experience I interviewed him:

What do you believe most successful entrepreneurs would do differently if they could go back in time and do it again? 

It depends on whether they were successful from the beginning (in which case they almost always say, “I wouldn’t change a thing!”) or whether they had to go through the bottom of the entrepreneurial roller coaster before becoming ‘successful entrepreneurs’. Regarding the latter type, research shows that 65% of the causes of failure within high-potential start-ups are people problems – early decisions about co-founders, hires, etc., that lead to destructive tensions within the founding team and then between founders and the non-founders who are involved in the start-up. Avoiding the early decisions that led to those tensions and failures is definitely high on – and often at the top of – the list.

What is the biggest myth about entrepreneurship and start-ups by first time entrepreneurs?

My favourite Steve Jobs quote is, “Follow your heart but check it with your head.” To me, the biggest myth is that it’s a virtue to follow your gut or ‘heart’ without thinking ahead and trying to anticipate which pitfalls could get in the way of having an impact on the world and realizing your dreams. In my research, I have seen time after time that the heart without the head is a recipe for trouble.

What surprised you most in your research? 

Overall, I have been most surprised by the recurring pattern of the most common decisions (e.g., founding with friends or family; splitting equity early, quickly and equally) being the most fraught with peril. Regarding a specific event, I have been most surprised to find that the most successful founders are often fired even sooner than founders who have achieved middling success, what I call the ‘paradox of entrepreneurial success.’

Is emotional attachment to a start-up detrimental to practical decisions?

There are a lot of psychological elements – early strengths and foundations of the early magic – that become detrimental down the road. One of those is indeed the emotional attachment to the start-up and to the original idea. It’s a broader issue than just who will become CEO, but it can indeed affect whether the idea person becomes the CEO despite having someone on the team who might be a better choice.

In founder equity splits, how much weighting should capital contribution play into how much a founder gets?

When founders are negotiating equity splits, past contributions to the start-up should indeed be part (though not all) of the equation, and early capital contributions would definitely fit into that bucket. They are a tangible contribution to the start-up’s resources, so a founder who contributes more capital deserves something for that contribution. At the same time, capital contributions are often also a deeper signal of commitment to the start-up and other important intangibles, so to the extent that one founder is putting his net worth on the line, even if it’s a lesser amount of money than the other founder is contributing, that should also be considered.

What is the most dangerous thing a start-up can do to jeopardize their survival and how can they mitigate that risk? 

Not having a roadmap of the most likely pitfalls they will face, so they can anticipate and avoid those pitfalls. Another danger is not having the self-knowledge that will be critical to shaping their decisions at each fork in the road. To mitigate the risk, get that roadmap and be pushed hard to think about which fork in the road you will take when you are faced with a trade-off between your highest priorities.  For instance, if the left fork will enable you to attract key resources but at the expense of losing control of the start-up – i.e., it might increase your chances of becoming Rich but imperil your remaining King – would you prefer to take that option or to take the right fork, where you can remain King but end up less Rich?  It takes that kind of self-knowledge to understand what your true motivations are and then take actions that are consistent with them.

When taking outside investment, is there an optimal number of investors? How many at the Angel round and series A round? How does this effect ability to make quick and vital decisions?

This is extremely start-up and founder dependent. Investors can play a key role in filling in a team’s holes and negating its weaknesses, depending on those specific holes and weaknesses. A variety of holes calls for considering a variety of investors; one clear hole you need to fill can be filled by a single investor.  Each new investor can add new value to the start-up but also introduces new risks, including coordination issues and the potential for more divergences in interests, and founders who make decisions without understanding each side of that trade-off are heightening their chances of getting burned.

Are your lessons specific to America or can be applied elsewhere? 

All of my quantitative data comes from North America and almost all of the three dozen deep-dive case studies in the book do too. From everything I’ve seen so far, though, most of the pitfalls I study are relatively universal – e.g., no matter what industry or time frame, a core founder has to figure out if and when to leap into founding, whether to attract co-founders, with whom to co-found and how to divide the roles and equity, etc.

I’m actually in the process of extending my data collection to more countries outside the U.S. – including China, India, Israel, and the United Kingdom – and will hopefully soon be able to give a quantitative answer to your question. However, I think the biggest differences will be regarding investor issues.  For instance, a founder elsewhere might have a different set of financing options – different forks in the investor road – than founders have here in the U.S.

If you had all this learning when you were younger, would you do a start-up yourself and if so, what would you do?

I actually did work for five years before coming back to school, during which I founded and grew a high-tech practice within the firm at which I became a Principal. When I left to come to H.B.S. for my M.B.A. and then PhD, we had grown to nineteen people and although I hadn’t realized it at the time, I had seen a lot of founding and growth challenges that have deeply informed my research since then. Right now, I get to scratch my entrepreneurial itch by helping my current students, alumni and other founders maximize their chances that they’ll bring their dreams to fruition.

Noam’s book, ‘The Founder’s Dilemmas – Anticipating and avoiding the pitfalls that can sink a start-up’ is available on

Jason is an Australian born Chinese living in Beijing, specializing in entrepreneurship, start-ups and the investment eco-system in China, especially in the tech and social area.

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1 Comment

  1. The Founder’s Dilemmas is a great addition to data-driven literature that can truly help entrepreneurs. It covers basics every entrepreneur should be aware of, like the perils of setting things up the wrong way at the beginning. But rather than just being the pontifications of someone who has been there done that, it’s real data, showing the probabilities of things working out well or poorly depending on choices made during the founding process. Along with Founders at Work, Four Steps to the Epiphany, and Venture Deals, this book is a textbook for entrepreneurs who want to avoid pain.

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