Startup companies are most likely to fail due to personal disagreements within their management teams, according to a new book by Noam T. Wasserman, an associate professor at Harvard Business School.
Released last month, “The Founder’s Dilemmas” focuses on the early decisions that a startup team is faced with and advises entrepreneurs on the best ways to navigate tough scenarios. According to Wasserman, choices such as whether to co-found, how to split equity, and whom to hire as the first employees often have drastic effects on the long-run vitality of a startup.
Wasserman’s book draws upon statistics and narratives he gathered from nearly 10,000 founders of technology and life sciences startups in the U.S. over the past 12 years. He tracks the individual experiences of founders as models of the early mistakes that he cautions future startups to avoid.
“If we can warn them [prospective founders] about those pitfalls, they will be able to be much more effective at bringing their ideas to the world and having the impact we want them to have,” Wasserman said.
For example, 73 percent of the founders in Wasserman’s survey made an equity split decision in the first month, resulting in many cases in an equal split among co-founders. Wasserman found that such a decision avoids tension within the team but often leads to problems when a co-founder decides to back out later on.
“That is where along the way you’re punting early on and avoiding a real discussion about commitment,” Wasserman said. “That is where you’re causing even bigger problems as you try to undo those early mistakes.”
According to Wasserman, passion and confidence often lead founders to see their companies in rosy terms while neglecting pitfalls. Failing to acknowledge these problems can come back to haunt a company later on.
“The model that I outline is having that really serious early discussion...about the really deep uncertainties that you still face,” Wasserman said.
Among other dilemmas, Wasserman’s book also studies the trade-off faced by many founders between maintaining control of a company and promoting its growth as an enterprise.
Just days after the book’s publication, it was the bestselling management book on Amazon.com.
“The Founders’ Dilemmas” is based on a course of the same name that Wasserman has taught at the Business School since 2009. The class was named one of the top 10 entrepreneurship courses in the country by Inc. Magazine in 2011.
—Staff writer Brian C. Zhang can be reached at firstname.lastname@example.org.