Avoiding Founder Failure: 26 Quick Tips and Real Data

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Avoiding Founder Failure: 26 Quick Tips and Real Data

 

Several years ago, I met with Noam Wasserman who had recently joined Harvard Business School as a professor.  I initially came across Noam because he was doing some fascinating research on startups -- particularly in the arena of founder relationships.  When I met him for lunch, he brought up some of the toughest issues I've ever encountered in my entrepreneurial career: Should you start a company with a close friend or family-member?  Is it wise to divide equity in the startup equally among the founders?  If you had to pick, do you want the cash (get rich) or the control (be queen/king)?  What about your co-founders?  Deep, deep, topics.founders dilemmas

I've seen too many startups flounder and fail because of co-founder conflict.  Everyone starts off with the best intentions -- and then things start unraveling.  In many of these cases, the conflict could have been avoided -- or at least surfaced sooner, if the founders had confronted some of the potential issues and asked each other the hard questions early-on.

I've written about this topic before in "Important Questions Startup Co-Founders Should Ask Each Other".  There are only two times when lack of clarity and understanding between founders becomes a problem for a startup: when things are going well and when things aren't going well.

So, back to Noam.  He's taken the result of his years of research and conversations with founders and created what I think is the definitive book on the topic: "Founder's Dilemmas".  If you are a founder or thinking about becoming one, you should read this book.  I agree with most of what Noam says in the book.  Howver, it doesn't matter whether I agree with it or not, unlike me, Noam's actually collected data.  

Below are some quick tips and stats from the book, made ready for convenient tweeting.

Tips and Insights From The Founder's Dilemmas

1) In 73% of founder-CEO replacements, the founder was fired rather than voluntarily stepping down. [tweet]

2) Founders feel like Lewis and Clark: Rough idea of where to go, but don't see a clear road ahead or upcoming pitfalls. [tweet]

3) Founding-team turnover increases dramatically when the startup raises its first round of financing. [tweet]

4) Unfortunate but true: If entrepreneurship is a battle, most casualties stem from friendly fire or self-inflicted wounds [tweet]

5) The chances of founder-CEO succession rise with each new round of financing. [tweet]

6) 65% of startups fail due to problems within the management team. [tweet]

7) Feel like a "people decision" is a no-brainer? You may be in for a nasty surprise later on. Decide rather than default. [tweet]

8) A dirty little secret of entrep: Many decisions along the journey push a Rich-and-King outcome further out of reach. [tweet]

9) Each additional social relationship within the founding team increases the likelihood of cofounder departure by 30%. [tweet]

10) Friend/family cofounders are often the least likely to tackle the elephants in the room (Relationships, Roles, Rewards) [tweet]

11) Playing with Fire by cofounding with friends and family? Carefully construct firewalls and discuss worst-case scenarios [tweet]

12) After a 6-month honeymoon period, teams with prior social relationships are the least stable. [tweet]

13) Founders often fail to realize when they are about to make a fateful decision. [tweet]

14) Examine the motivations of your potential cofounder to see if they are compatible with your own motivations. [tweet]

15) Motivational compatibility does not guarantee success, but incompatibility is asking for trouble. [tweet]

16) Founders often describe their equity-split negotiations as "war," "exasperating," or "stressful." [tweet]

17) Is pivoting a possibility? So why do more than 50% of teams split equity without allowing for adjustments? [tweet]

18) 73% of teams split equity within a month of founding: amazing given the big uncertainties they face. [tweet]

19) The Founder Discount: A labor of love can become a trap in which you're paid less than an equivalent non-founder. [tweet]

20) Within each of the 3Rs (Relationships, Roles, Rewards), the most common choices are often the most fraught with peril. [tweet]

21) The trial by fire of founding a startup often burns a team rather than forging a stronger team. [tweet]

22) Neglect the 3 Rs (Relationships, Roles, Rewards) at your peril. Misaligned 3Rs cause tension, dissension, and blow ups. [tweet]

23) Rich founders should be making very different investor choices than King founders; understand your core motivations! [tweet]

24) A founder-CEO's success at leading a fast-growing startup can accelerate his or her own obsolescence and replacement. [tweet]

25) 52% of founders are replaced as CEO by the time the startup raises its third round of financing [tweet]

26) Firing yourself as founder-CEO enables you to remain more involved with your startup after you're replaced. [tweet] 

Two quick notes: The links to the book are affiliate links.  I donate all money made from such links to non-profits (I'd rather a worthy cause get the ~5% than Amazon keep it).  

So, what do you think?  Have you run into any tough founder issues yet?  How did you go about resolving them? What issues are you struggling with right now?

 

Posted by Dharmesh Shah on Mon, Mar 26, 2012

COMMENTS

I have lived through/experienced 10 of the 26 :-( I won't say which ones to protect the innocent. Great, great, article.

posted on Monday, March 26, 2012 at 9:03 AM by Karl


Some very interesting points that we'll take onboard. 
 
It's early day for us but so far things are working out fine. 
 
Thanks for the article though to keep us on our toes.

posted on Monday, March 26, 2012 at 9:46 AM by Carl


Great article. I needed to learn more so I bought the book! 
 
Keep up the excellent posts! 
 

posted on Monday, March 26, 2012 at 11:23 AM by sharon kane


Most of the articles you post are disheartening at best. Just finished reading a book by a famous billionaire and he said don’t tell people about your start-up until you are ready. Because of the negative factor of others influencing your idea. I get the same feeling reading your post. There is enough of the negative in life without always reading it here. I would like to see more post about how start-ups overcome all odds and where they are at now. Don’t tell me about the 70% that failed, tell me about the 30% that made it.

posted on Monday, March 26, 2012 at 12:16 PM by Jeff Wilson


I agree with Jeff. I want to know what the success stories did right. I feel among the success stories, most of them went through a bunch of failures. So it will be interesting to know how and what they changed over time.

posted on Monday, March 26, 2012 at 9:42 PM by pady


i like 3 point mentioned here above. It is only the basic important factor playing key role.

posted on Tuesday, March 27, 2012 at 4:06 AM by harrietlucia


Having gone through many of these challenging transitions, it is important before creating the startup if you are going to be a startup or a bootstrapped upstart. Both have very different framing. Great article.

posted on Tuesday, March 27, 2012 at 8:42 AM by Zeus


Great article, although I have not founded any company but work in startups and these insights actually shows scenario, the reason for that is core motivation is missing with affect of negativity from the surroundings.

posted on Tuesday, March 27, 2012 at 9:33 AM by Tushar


Increases Fuel Mileage,Reduce Harmful Emissions,Prolongs Engine 
 
life.Listen to the calls Wednesday 
 
7.50pm cst 1-760-569-7676 pin 968734# $50.00 a call for 6 call enough to buy into the company.

posted on Tuesday, March 27, 2012 at 11:09 AM by DeWayne Franklin


Got the book yesterday and really dug into it. Noam wrote a really sobering book for founders. Having worked with 7 CEOs and 12 founders so far, I found myself nodding my head a lot. 
 
There are two issues book does suffer from: 
1. Noam contradicts himself at times in the same chapter. Roles of COOs is one example. 
2. I wish he was a lot more forthcoming about the sample size of a lot of his data. It felt like he was mashing self-funded, VC, and angel-funded company data and separating it out when convenient. 
 
Otherwise this is a must read book.

posted on Wednesday, March 28, 2012 at 9:09 AM by Apollo Sinkevicius


Well, This article have negative tone against the Co-Counders. There is nothing wrong in a Co-Founder being replaced by a CEO after x number of months. The fact thats being overlooked in this article is that the CO-Founders (Idea Starters) are THINKERS. They may not be best in managing a company. I have a Co-Founder who started a an idea, secured funding and then got aside - hired a CEO and virutally managing his company.

posted on Wednesday, March 28, 2012 at 10:23 AM by Satinder


Are you saying Amazon for all it provides does not deserve the 5% that you would have otherwise let it keep? Why exactly do you think this, given that you are using their service.

posted on Wednesday, March 28, 2012 at 5:13 PM by Conrad S.


Great article and nice to see your donating the proceeds from your amazon to a worthy cause. Hope to read some more of your material.

posted on Thursday, March 29, 2012 at 2:00 PM by Us Job Assist


Awesome post Dharmesh, a lot of great stuff here that Ed and I have discussed, dealt with or seen in the last few years. I think the big thing is communication - being open, honest and realizing what you want and taking the best role/responsibilities that can make that happen without pissing off your co-founder or team in the process.

posted on Tuesday, April 10, 2012 at 7:12 PM by Mitchell Harper


Thank you for sharing your great article and I like it very much.

posted on Friday, April 13, 2012 at 2:21 PM by Seo


My take on it.  
Most of problems between founders happens where shit hits the fan. 
It is always nice and pleasant to discuss possibilities, but it's always hard when tough decisions needs to be made. 
 
And for sure, any prior social or family relations makes it even harder.

posted on Saturday, April 14, 2012 at 9:25 PM by Victor Ronin


Comments have been closed for this article.