The Founder’s Dilemmas | Noam Wasserman

Summary of: The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup
By: Noam Wasserman

Introduction

Embark on a journey through ‘The Founder’s Dilemmas’, a comprehensive guide to the challenges faced by entrepreneurs, and the critical factors that can make or break a startup. Authored by Noam Wasserman, this book dives deep into topics like identifying entrepreneurial motivations, the importance of human, social, and financial capital, effective team management, and the complexities of equity distribution. Learn from real-life examples such as Apple, Pandora Radio, and Masergy and understand how these business juggernauts navigated the trials and tribulations of the startup landscape. So, if you’re considering taking the entrepreneurial plunge, or simply want to refine your skill set, this summary offers valuable lessons and vital insights that will shape your journey towards building a thriving startup.

What Motivates Entrepreneurs vs. Career-Oriented Individuals?

The difference between entrepreneurs and career-oriented people lies in their motivations. While security, prestige, financial gain, and affiliation drive career people, entrepreneurs seek financial gain, control, power, influence, autonomy, managing people, and altruism. Evan Williams, the male founder of Blogger, turned down a buy-out offer worth millions of dollars to retain control of his company, driven by his main motivations – power and autonomy. Similarly, Genevieve Thiers, the female founder of Sittercity, quit her job at IBM to start her own company as she felt stifled and craved autonomy and influence. Notably, female entrepreneurs are driven by the same motivations as their male counterparts, with the addition of altruism and without financial gain. In contrast, female career people prioritize recognition, affiliation, security, and lifestyle. The key to becoming a successful entrepreneur is understanding your motivations and evaluating whether you possess the entrepreneurial character.

The Importance of Human Capital in Entrepreneurship

Before starting a business, it is essential to acquire human capital, which includes skills, knowledge, and expertise in your business and intended industry. The founders who launch start-ups without relevant human capital have higher failure rates than those who have previous experience in their industry. For instance, Barry Nalls, the founder of telecom service provider Masergy, was an employee at GTE for over 25 years before gaining enough relevant experience to start his own company. Similarly, baseball star Curt Schilling launched his gaming start-up, but he lacked experience in managing people, which almost caused the company’s failure. Understanding your product’s industry will help you avoid potentially fatal problems. Therefore, aspiring entrepreneurs need to acquire human capital and industry knowledge before starting a new venture, increasing their chances of success.

The Power of Social Capital

Social capital complements human capital in building a successful business venture. It is the set of social and professional networks that founders bring to their companies. These networks can provide access to resources and opportunities critical for business success. The stronger the network before starting a business, the faster the business takes off. However, founding members must balance the time spent building social capital with their entrepreneurial goals. Spending too long in one company risks specialization and narrow knowledge, limiting the chances of effective entrepreneurship. Barry Nalls, founder of Masergy, built his social capital by establishing professional connections with potential employees, customers, advisors, and investors before launching his business. His model was to spend no more than two years in any one position before moving on to the next opportunity. Founders must be intentional about building their social capital while still free-flowing enough to pivot towards their dream of entrepreneurship.

The Value of Capital and Co-founders

Starting and sustaining a business requires financial capital, social capital, and human capital. While some entrepreneurs are fortunate enough to have enough of each, others require a co-founder to address crucial gaps in their skill set, experience, and funding. Identify your gaps in capital and determine what attributes your co-founder should bring to the table. Co-founders can help balance your company’s roles and ensure that you can handle the day-to-day tasks and focus on raising essential financial capital. Successful entrepreneurs, like Tim Westergren of Pandora Radio, recognize the value of waiting to identify appropriate co-founders to help bring their business ideas to fruition.

The CEO dilemma for co-founders

Choosing the right CEO for your start-up is critical to its success. However, the coveted title of CEO can lead to conflict among co-founders. As a better strategy, delegation of roles according to each co-founder’s actual skills can lead to accountability within your organization and greater long-term success.

Being the CEO of a start-up is coveted but who gets to be the CEO when there’s more than one start-up founder is less clear-cut. Usually, the person who invested the most seed capital, quit their day job to work full-time or came up with the original idea for the company is the CEO, regardless of their actual strategic or leadership abilities. But the question arises: does this actually work?

A better strategy for the long-term health of your company is to delegate roles according to each co-founder’s actual skills. If co-founders share similar skills, roles may overlap but preferably, co-founders bring different skills to the table and assume clearly separated roles leading to greater accountability within the organization.

Take the example of Apple where the early interplay between Steve Jobs’s sales skills and Steve Wozniak’s technical skills led to Jobs being the natural CEO while Wozniak headed up research and development. At electronic ticketing start-up Smartix, the skills of its three founders overlapped, thus giving each the flexibility to delegate and better manage daily tasks.

A proper division of labor helps to develop distinct roles and responsibilities for co-founders. Each success or failure could be traced to its source, and no one could be blamed for someone else’s mistake. And most importantly, all tasks were completed when they needed to be. Thus, delegation of roles according to skills should be considered as a better strategy for the long-term success of a start-up.

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