Book Review of The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup by Noam Wasserman

Just occasionally you read a book that you wish you had read 25 years ago. I worked in the entrepreneurial/venture capital sector 1984-2007 and I so wish I had read this book in 1984. Unfortunately it was not published until 2012 so it was not possible but if you are (budding) entrepreneur, potential start-up hire, angel investor or venture capitalist you should really read this book. This is the first book that really gets to the human side of entrepreneurship but is based on the evidence of a ten year study of some 2000 technology and life science start-ups for the period 2000-9.

Note the title; it is dilemmas not dilemma. In this book Wasserman identifies a number of defining moments in the trajectory of a start-up where the entrepreneur must make a choice which while it may appear to be operational or tactical ends up having significant strategic consequences For example a the first decision for an founder to determine what is his or her motivation? Is it wealth-or-control ("do you want to be king or want to be rich?").

This really resonated with me. For 12 years I was the Executive Chairman of Nanyang Ventures which had three early stage funds doing Series A & B investments. One of innovations when I introduced at Nanyang Ventures was to psychologically profile the entrepreneurs. What we discovered after five years is that our winners had three key characteristics.

1. They had high numerical intelligence. They could understand the numbers. We thought we could compensate for those who had high general and verbal intelligence but low numerical IQ with a competent CFO. We were wrong.

2. They were dominated by the desire for economic success. The personality tool we used was the Humm Wadsworth as it is one of the few tests that measures this factor. Initially we were looking for energetic team builders who were decisive and competitive (kings). Again we were wrong. Wasserman lists the problems that ‘king’ entrepreneurs and venture capital investors may have. We had all of them, many in triplicate.

3. They were also dominated by the desire to complete projects and saw the start-up as a series of projects. They were extremely task orientated and focused on the technical details. They were into planning and compulsively reading everything they could about a project. Their passion ignited the rest of their team. We had not picked this factor as being necessary; again we were wrong.

Some of the Amazon reviews criticise it for being academic. I could not disagree more. This book resonates with reality

Every economy needs a steady flow of “start-ups” (new businesses,) to grow and create jobs. Estimates vary on the value to the country of small business, but there is strong support for the idea that small businesses create more jobs larger companies. And, behemoths such as Microsoft, Facebook and Google were once start-ups.

The problem is that of seven start-ups only two will be operating in a year later! That is a 71% failure rate. Imagine if close to all business that started succeeded, and went on to employ only five people. In a short time our “national scar,” unemployment, would be on the way down and prosperity on the way up.

Naom Wasserman has assembled superb data from his research on over 10,000 new businesses that were set to grow large. His research focused exclusively on businesses that were intended to grow large, not on lifestyle businesses intended only to keep the founder comfortable. He also accessed a wide range of reliable data from other sources to formulate this book.

What makes Wasserman’s book so unusual is his focus on a fact over research overlooks. More business start-ups fail because of internal problems caused by the founders’ errors of judgement than by external causes. If founders in the initial stages could make better decisions, many more businesses would be saved, and more would thrive.

Wasserman has identified clear a set of dilemmas facing founders. Choices have to be made between alternatives with no choice obviously better than another. All come with significant upsides and downsides. Solved appropriately, the founders will survive to face the next dilemma. Fail, and there could be no next dilemma.

“This book’s central message is that these founding decisions need to be made by design, not by default,” say Wasserman.

There are four primary founding decisions that make up the content of the book. Each dilemma is analysed, and its implications made clear. This clarity will help you, and those you care about make better, safer decisions.

At the “Pre-founding” stage, there are a set of dilemmas regarding when to launch the start-up. There are at least three major areas of considerations. If you do not have enough money, it may be wise to work for someone else until you do. Perhaps you should you borrow money and start right now? If you delay the start of the business, will you have missed the wave?

There is no one right answer to this question, and it requires the consideration of a number of factors. Are you able to ensure the security of your family (if you are responsible for one?) If you have savings or a retrenchment package will that suffice? Does your life-partner earn sufficiently to support the family? If she does, is she completely committed to your success to pay her part while you play yours? If not, the strain of founding the business may exhaust your strength and shatter your relationship. Are you locked in the golden handcuffs of a secure job?

These and many more profound and difficult questions need probing and honest answers.

Once you have made the decision to start a business, you face the “Founding Team Dilemmas” . Are you able to start a business alone or should you have others doing this with you? There are always skills that are required, but cannot reside in one person. Then there may be a need to work with another person who has your commitment to the success of the venture.

The need to work with others raises the “Relationship Dilemma” of to attract. Will the business work best if you team up with friends, family, acquaintances or strangers? Should you seek someone you have actually worked with before?

The “Role Dilemma” follows from this. What are the positions each one of you should assume in the new business?

How should each person be rewarded for their contribution to the venture? If you reward with more equity than is deserved, you cannot take it back when this becomes apparent. “Reward Dilemmas” are especially dangerous at the beginning of a business when there is nothing tangible. Giving away half of nothing but a promise is easy. However, when the business makes money, paying dividends to someone who never deserved it takes on a different hue. Few mistakes sour relationships more profoundly.

Beyond the dilemmas of the founding team are the “Investor Dilemmas.” Most businesses require funding to take off in a meaningful way.

You can turn to family and friends, “angel” investors, or venture capitalists. Accessing each these sources become progressively harder, and each poses its dilemmas.

For example, when take money from you pensioned parents, you do this believing you will succeed. Five of seven businesses never succeed causing great harm to people close to you. Borrowing from family and friends is best when it is a gift that come with love, not an investment.

Angel investors are investors but tend not to be professional investors. They are often people who have money and are prepared to “take a punt” on what looks like a “good idea” in exchange for equity and a high return. As with all investors, you will be required give up a portion of your business to the investor in exchange for the support.

At every stage there are dilemmas that if not confronted and not addressed thoughtfully, will do more damage to the fledgling business than problems that come from external forces.

Self-inflicted wounds can be avoided. Forewarned is forearmed. Read Wasserman’s profound book.

Readability Light ---+- Serious

Insights High +---- Low

Practical High -+--- Low

*Ian Mann of Gateways consults internationally on leadership and strategy and is the author of Strategy that Works.

Prof. Wasserman's book on Founder's dilemmas is a must read for every aspiring entrepreneur. And by that I do mean every single aspiring entrepreneur. For full disclosure I am an entrepreneur in the biotech industry and have lived many of the choices than dilemmas that Prof. Wasserman has described. I so wish it would have been available earlier to me and my fellow founders. It certainly would have reduced the stress reduce the number of difficult choices we have had to make.

The book is both comprehensive as well as a true reflection of the early start-up world from the human perspective. Nine times out of ten, the "technology" or the "market" or just the "idea" are at the center of the entrepreneurs mind, while the most important, in fact the first and pivotal piece of the puzzle receives too far attention - the founder. No founder is looking further ahead than 3, 6, 9 or 12 months - early stage ventures are simply in too tumultuous a stage of development for that. Furthermore rarely do they think about the strategic interpersonal issues that are so often overlooked - I know I didn't. But they should. And this book provides an approach that structures the thought process.

Prof. Wasserman has done what few people (certainly not stressed entrepreneurs) could have done: he's asked the meta questions. Not to sound philosophical but it's a tough question to ask "why do we do what we do", and "what do we want [to achieve]". Even constricted to the startup space it's still a momentous question to answer but taking a data-centric approach has crystallized at least a framework within which Prof. Wasserman goes about exploring the motivations behind the people. That's what it's really about. What do the people (the founders) want?

The power of the framework lies in it's simplicity: you can be either rich, or you can be in control of your venture, almost never both, notable exceptions notwithstanding.

That's it. Nothing more and nothing less.

Few founders I have spoken to, have had that clear a framework in mind, much less have been able to articulate it (myself included). Eventually one comes to a realization of what it is that one wants, but often than not, one is in a situation that is suboptimal, and could have been solved better if those motivations / questions were properly known and answered.

This is truly a book written for founders. It must be mandatory reading in every incubator of which so many should be popping up; every VC should buy a case of the books and give every founding team (better late than never!); and every business plan contest should distribute this book to their contestants (charge an extra fee or do it free but do it!).

I am finishing chapter 4 now. This book has so much great insight and data from actual people and experiences of other founders. I find it an invaluable tool and companion before taking the leap into being a founder.

I appreciate the scientific approach to the surveys and statistics that back up the author's reasoning/findings and is not just a subjective opinion. I would have done 99% of the pitfalls others have, but now I am confident that I won't start my company without first finishing this book.

I recommend this to anyone starting or thinking of starting their own company. And it doesn't matter what stage your company/idea/industry is in.

I do not share at all any of the other reviewers' opinions that this guy got paid by the word or is too redundant or isn't insightful enough.

I have many years of experience in sales, running companies, managing projects, technical design and programming. This book has made me realize the gaps and strengths I bring to the table, the important decisions I need to make now and in the future, and the strategies I need to implement in order to succeed.

I've read millions of words on this topic over the past 40 years and worked with and in such companies for 30 years and find the depth of the author's research (10 years, thousands of companies especially compelling. His conclusions both ring true (actually unusual in so much poorly-researched writing on this topic by others) and have significant insights and patterns recognized on nearly every page. It's also writing about the most important and useful topic rather than a tangental one like strategy or funding nuances, how the founding management team comes together, works, and falls apart. Innovative companies and start-up businesses have far more volatile and random management teams than large stable organizations do but most writers and observers come from large stable organizations so the perceptual bias is subtle and considerable. This is a must-have book for people building innovative businesses that require considerable growth quickly to be viable and of great use to venture capitalists, angel investors especially, private equity analysts, commercial loan and credit officers at banks, business advisors, engineers and scientists, research funders, and economic development professionals.

The Founder’s Dilemmas is at the same time a fascinating and frustrating book. Fascinating because it’s providing very seldom seen (and mostly unknown) data about founders and high-tech start-ups. Frustrating because it is also seldom providing answers to the dilemmas founders may face. It took me the full reading of the book to finally understand that the answer Wasserman provides is that there is no best solution for a founder facing a problem, but that if he knows all possible situations, he might better decide based on his own motivation and … personality. So she or he might decide, not on rational criteria but more because of his personal inclinations!

The best illustration of this is Evan Williams who was a founder of Blogger, and then of Odeo (and then after the book was designed of Twitter). Williams had a very different behavior with the two start-ups. He was “control-oriented” with Blogger, hiring people in his close network, taking friends and family (and close network) money only and keeping management control to the point of firing everyone including his former co-founder and girlfriend. With Odeo, he had initially a “wealth-oriented” attitude, taking VC money and having a different hiring strategy. His inclination made him however buy back his investor’s stake, as he needed to control his start-up again.

Wasserman shows that the “3Rs” (Relationships, Roles & Rewards) are key features for decisions about the key dilemmas founders may experience. These dilemmas are classified according to the chapters of the book: Career, Solo-vs.-Team, Weak vs. Network, Positions, Compensations, Hiring, Investors, and Succession. Wasserman explains (or better-said describes) the various dilemmas founders face when taking decisions and shows that their decisions are very often dependent upon their motivation. Do they want to be Kings (power or control-oriented) or Rich (wealth oriented)? He does it with anecdotes (not so good and quite well-known) and with statistics (very good and not so well-known)

In summary I saw it more as a book for academics than for entrepreneurs and founders who apparently will not take better decisions after reading this book as they will be driven by their motivations, not their experience! At least they will be aware of it. It may be another illustration that youth and enthusiasm are as important as experience and rational behaviors!

One interesting puzzle Wasserman addresses is why individuals decide to become entrepreneurs, often thinking that they will become wealthy whereas this is entirely wrong. This has to do with control vs. wealth. You will need to read Wasserman if you want to know more.

This book came with recommendations from every other author you know who writes about entrepreneurship- Eric Reis, etc. That makes sense, since it is designed to impress them, not actually help a founder. It is also really, really good if you want to teach entrepreneurship, and want to be ready with answers to many many questions founders may ask you.

But it is also like telling a 21-year old young one to read the [1000-year-old philosophy/religious text of your choice] that really does have all the answers. It is true, but it does not help them. "Do not steal" is true, but we have all learned only after facing the consequences (hopefully it was just candy from your sibling when you were 4).

Other reviewers have summarized the book beautifully. I will point you towards them if you want the bullet point take-aways.

No really- read this. This book is like the veggies you did not like as a child. Good for you, but you will realize that only when all the smoking and drinking catches up with you.

This book helped me make the decision to start a technology company with a previous coworker. It does a great job of laying out the pros and cons to decisions that are too often prone to emotional thinking, like who to start a company with, who to take funding from, how to distribute titles and equity amongst cofounders, etc. Large portions of the book are amenable to speed reading, but useful, informative content is distributed evenly throughout the book. The author does a great job helping you think through starting a high-growth company off on the right foot wrt structure, and paints complex decisions in appropriate shades of grey. This book will not help you find an idea, an it will not motivate you to start a company, but it should make the decision clear. This book is less suitable for people who want to start small businesses, but I would highly recommend it to people thinking about that anyway with four stars. It's a definite fiver for those more interested in the decisions around starting a high growth company.

Excelente livro

Clairement sur le web, d'après notre propre expérience, ou auprès de son entourage, on va trouver toutes les théories et leur contraire décrivant les bonnes raisons de s'associer ... ou de fuir l'association.

Pour une fois, tout cela repose sur des statistiques, des agrégations d'expériences passées, des commentaires qui vous parleront si vous avez déjà eu l'occasion de créer auparavant et dresse la liste des bonnes et des mauvaises raisons de s'associer. Bref des conseils, de la méthodologie, une lecture aisée, un petit bonheur.

Bonne lecture à tous

This is fully of research-backed insights into the pros and cons that flow from some of the most key choices a founder has to make as they move from start up stages. As someone with a keen interest in starting businesses, I found the book a great source of practical, validated guidance. The writer tends to labour the point on occasion and this is the only reason the book doesn't get 5 stars.

This book is mainly for statistics and interpretation of such. I wish it was simpler and more direct. Very useful for research purposes though!

If you are entrepreneur, and if you like data and not just assumptions, go for it. If you have a startup, this book is a must, will save you loads of time. Top 3 for me besides being not that new.