According to the Bureau of Labor Statistics, more than half of all small business startups fail in the first four years. Other sources tell an even grimmer tale. Professor Noam Wasserman took note of this dismal trend while teaching at Harvard Business School, noting that would-be founders often failed to answer some obvious (and some not so obvious) questions before taking the (often very expensive) leap into starting a company. Questions like: Is the timing right for my idea? Do I need a partner? How do I involve other people in the startup in a way that heightens its potential rather than heightening its risk? How do I guard against my passion becoming my nightmare? He compiled an entrepreneur’s roadmap that became a best-selling guide, “The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.”
Wasserman, now the Lemann Chair in Entrepreneurship at the University of Southern California Marshall School of Business, recently followed with another book, “Life Is a Startup: What Founders Can Teach Us About Making Choices and Managing Change,” that became an Amazon #1 bestseller in entrepreneurship. In it he explores the ways in which entrepreneurial skills can be applied to building happier, more productive, and creative lives.
In your first book you wrote about a critical question that every would-be founder must confront before starting out: Do I want to be wealthy or do I want to have control? In other words, do I want to be rich or be king?
One of the things that people fail to think about are control implications. They’re important because the rich vs. king tradeoff recurs at almost every stage of the founding process. Am I going to be a solo founder and keep it all for myself, or a co-founder? If you co-found, you’re going to have to split up the roles, the decision-making and the equity. Am I going to build a board of directors that are going to push me to do things I don’t want to do? Or am I going to keep a board from forming to make sure I’m making the decisions— including the decision that I’m going to remain CEO? Should I self-fund or give up ownership and decision-making control by attracting investors?
Even the decision about what to found has implications of control: do the capital-intensive startup that has more potential, or the capital-light one that won’t grow as much? Also, when do you go forward? Later in your career, when you’ve accumulated the knowledge and the resources and contacts, or early before you’ve built a family and have a mortgage? If you go forward earlier in your career, you’re going to have to give up a lot of the decision making and ownership to get all the resources you’ll need to bring experienced people on board.
Founders typically want both—to be rich and king. But every step of the way you are going to have to grapple with the fact that there are tradeoffs to be made.
Do you think most people have sufficient self-awareness to answer those questions honestly?
People usually assume that they won’t have to make tradeoffs, and it is only when they have to face a jarring decision between two things that mean a lot to them that they actually grapple with which one they want more. Tuning into that can be hard at first, but when you reflect on your past, the lessons can serve as a guide to the future. For instance, I ask people to revisit the past decisions they’ve made and note the patterns that emerge out of them. I say, “Let’s look at your last venture. Did you do it all yourself or did you have partners? Did you keep control of the equity? Did you take the CEO title or give it to someone else? Did you celebrate the outcome you got, or have regrets about it?” This is called revealed preferences. You find people’s tendencies through the past decisions they’ve made and actions they have taken.
When you read about the daily adventures of Elon Musk at Tesla or other high drama CEOs in the news, do you think you’ve got a pretty good idea what’s going on behind the scenes, and why they’ve found themselves in trouble?
Very often; the patterns definitely recur. I remember when Uber was struggling with Travis Kalanick, it struck me as a microcosm of the founder’s challenges: A central founder who is fighting to keep control when it’s clear to everyone else that this unchecked person has become a value destroyer. The founder, the visionary, the person who knows the domain better than anyone else is the best person to make key decisions early on. But once the company gets beyond a certain point, he’s wrestling with things he’s never wrestled with before. For example, there are new functions in areas where the founder has never worked, or areas that need to be built out. The stage the company is in, and its challenges, don’t match what the founder can do. And that’s where keeping that person in control becomes a value destroyer.
New skill sets are needed from Phase 1 to Phase 2 to Phase 3 of a company’s growth. There’s an old saying: Monarchy is the greatest method of decision-making in the world, as long as the monarch is infallible. Recent history shows that even the most iconic founder is far from infallible, especially if their control is unchecked.
You must be amused by the TV show “Shark Tank” where would-be entrepreneurs try to convince a panel of billionaires to invest in their passions.
Yes! I use snippets from Shark Tank all the time in my classes. It often provides a nice microcosm of some aspects of the startup world.
When you look back at the grand American founders of the past like Henry Ford or the Wright Brothers, do you sense they had the same kind of problems founders face today?
Aspects like product development have changed dramatically over the past decade. But people issues, with the founders at the core, are universal. It doesn’t matter whether you are building a startup in low tech or a high-potential venture. It doesn’t matter whether you’re doing it in Africa or the UK, in boom times or bust times. Human issues are about as timeless as you’re going to get. So Carnegie, Ford, all those guys had to decide on the same things I research, teach, and write about today. Problems of getting the resources you need and the people you need existed in 1900 and will exist in 2100, on every continent and in every domain.
Mark Zuckerberg is the quintessential “rich and king.” He’s avoided all the pitfalls you warn against. He’s made billions and he’s still very much in charge.
A lot of would-be founders think Zuckerberg is the rule, but he’s very much the exception. In my classes I say to my students, “Ok, you’ve got two minutes. Write down ten names of first-time founders who were able to build a world-beating organization and made it to rich and king.” For two minutes there’s dead silence in the classroom. Their pens hardly move. Nobody gets to ten names. Invariably they list Bill Gates. They list Steve Jobs. In fact, when Bill Gates founded Microsoft it was his third venture with Paul Allen. Steve Jobs doesn’t fit either because for the first 20 years of Apple’s life he was never CEO. So what does it tell you about aiming for that goal? How often does it happen? And yet many of my students feel they’ll beat the odds and become the rich kings. In fact, by being in denial that they will have to made tradeoffs, they’re only increasing the odds they’ll end up neither.
For Zuckerberg’s part, he actually has not avoided all of the pitfalls, and imperiled Facebook as a result. “Social Network,” the prominent movie about him, wouldn’t have existing if not for his stepping onto a very common self-planted landmine when he split the equity with his cofounder, then regretted the split and tried to claw it back, in a possibly illegal way. He survived despite these missteps that often sink a venture.
You maintain in the new book that many of the guidelines you talk about can be applied not just to potential founders but more widely to any of us as we go through life. How so?
Both inside and outside founding there are human issues to grapple with. But look at some of the things founders are forced to deal with starting an enterprise. For example, confronting their own biases. Overconfidence. The avoidance of difficult conversations. Dealing with failure. The danger of your passion becoming your peril. Those aren’t things that are confined to just founders, they are questions that affect every aspect of many peoples’ lives. When most of us are confronted with an issue in our personal lives we can just put a Band-Aid on it and not really solve it. We also face those issues relatively infrequently, though when we face them they are pivotal. Founders face those same challenges, but more frequently and with a lot more on the line, and thus often find creative – even counter-intuitive – solutions to them. What can we learn about the best ways they have worked through these problems and apply them to personal relationships and career decisions? How do we shake off the old blueprints that follow us?
So it’s our old habits, our blueprints, that come back to haunt us?
You carry your personal blueprints into many areas of life, but they don’t always work. I ask people: Have you ever gone to a foreign country that drives on the left side of the road? Did you drive yourself? Most people say no. Why didn’t you? Because there were all sorts of ways that you could get in trouble. The idea of driving on the right is so deeply ingrained that one wrong turn could be life threatening. We get thrown into a new context and quickly realize that we are not suited for it. You go into that new context and apply that same blueprint at your peril. Another example is when someone goes from being married to being married with a child. How do you meet this new phase of life when you’re used to operating as married? You often hear of someone who’s gone from having two kids to having three, that they go from playing man-to-man to playing zone. That blueprint has to change.
And I understand you have seven kids?