ENTREPRENEUR/STARTUP SPECIAL...Heart VS Head

Heart VS Head 

Start-ups fail because of people problems, says Harvard's Noam Wasserman

n oam Wasserman has spent over a decade analysing the impact founders' decisions have on start-ups. The Harvard guru's research has resulted in the bestselling book The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Wasserman also teaches a course on 'Founders' Dilemmas' at Harvard Business School (HBS) for which he was awarded the HBS Faculty Teaching Award and the Academy of Management's 2010 Innovation in Pedagogy Award. According to Wasserman, most times it's people issues that really impact the business, and that's what founder CEOs should be on the lookout for. He spoke to Corporate Dossier on how to handle the most common founder CEO dilemmas, and why at times, it's best for the founder to step away. Edited excerpts:
According to you, what are the most common dilemmas that a founder-CEO faces?
The most common overarching dilemma is 'heart vs. head'. Founders usually like to follow their gut and intuition - the 'heart' - without considering (or knowing) that their gutlevel decisions are likely to heighten the chances of failure rather than glory. My research has focused on the key forks in the road where founders should use their 'head' to check those decisions before they make them. Those decisions are most critical when the founders are making people decisions: which people to involve in the startup, and how to involve them. The leading reason for failure within high-potential start-ups is people problems, i.e. the destructive tensions between the cofounders or between them and the others they involve in the start-up. For the last 13 years, I have focused on delving into those problems and finding ways to avoid them, by studying three dozen start-ups deeply and 10,000 founders quantitatively. A recurring theme in that research is that the most common people decisions are the ones that are the most fraught with peril and the ones requiring founders to think hard before they default to following their hearts.
What's the best way to work around these?
The best way is to have a roadmap at two levels: A roadmap of the venture (i.e. the upcoming stages, during which the outcomes of my decisions will become evident) and a roadmap of themselves (a clear picture of their strengths and weaknesses, and of their motivations for founding). First-time founders tend to lack both roadmaps, which is why they make early decisions that tend to get them into trouble. To the extent that we can teach founders about the first roadmap and force the self-reflection that will develop the second roadmap, we might be able to make a considerable improvement in our founders' success rates.
Why do founder CEOs not last the distance in most cases, given that the ones who do, have gone on to be extremely successful?
The most prominent founders are indeed those who went the distance while growing very valuable companies. However, the data show that those founders are by far the exception - the vast majority of founders (especially first-time ones) either don't go the distance or don't grow valuable companies. (That's why those prominent founders get the attention they do). I call that trade-off the 'Rich vs. King' trade-off. At its core, the trade-off is caused by two factors. First, few founders have all of the resources and capabilities needed to grow their start-ups to full potential, but attracting those resources and capabilities requires them to give up ownership and decision-making control to the cofounders, hires, and investors who can add those resources and capabilities. Second, the job of CEO in a fast-growing start-up changes dramatically at each stage, requiring skills that the typical first-time founder lacks but can't learn fast enough to keep up with the demands of the position.
Does the founder mystique carry as much potential to succeed as it does to fail?
It depends why you mean by founder mystique. During the early days, the founder's passion for the idea and confidence in the start-up's prospects is often a key to getting the start-up off the ground. It convinces people to join the founder in his or her quest to change the world and enables the founder to persist through the early challenges of building something from scratch. However, over time those strengths can become Achilles heels. For instance, the passion and confidence can lead founders to underestimate their resource requirements and overestimate their abilities to deal with upcoming challenges, both of which can imperil the start-up. To the extent that the founder's natural inclinations aren't checked, they can turn into vices rather than virtues.
Once the business reaches a certain scale, do you think it's better for the founder CEO to step back and let somebody else run it?
It depends on both capabilities and motivations. If the founder lacks the skills and abilities necessary to lead the start-up through the next stage of development, and if the founder is not motivated by maintaining control of the idea and the start-up that's trying to bring that idea to fruition, then yes, the founder-CEO should see if there's someone more suited to leading the charge. The major tension arises when the founder lacks the abilities but wants to maintain control, in which case the venture is much less likely to reach its potential if the founder keeps control. My data show that in high-potential ventures, founders who maintain control of the CEO position and of the board have significantly less-valuable equity stakes, highlighting the real tension between keeping control and growing the value of the start-up.
What advice would you give a first time founder CEO?
Before starting on your founding journey, get a clear roadmap of both the venture and yourself. Understand which decisions are likely to heighten the tensions within the team or to harm the start-up's ability to grow, and understand which tradeoffs you are willing to make (such as control over value creation). Then, from the beginning, make decisions that in the long run will help you avoid the people problems that tend to sink even the highest-potential of ventures and will help increase the chances of getting to an outcome that you will celebrate rather than regret.

Priyanka Sangani CDET130316