Founders Dilemma – A Book Review

TheFoundersDilemmas_I have been listening to “Founder’s Dilemma – Anticipating and Avoiding the Pitfalls That Can Sink a Startup” by Noam Wasserman. I am 2/3rd done… it is very factual with examples and recommendations from startup founders going through a couple of case studies, more specifically the story of Ev Williams the founder of Blogger, Odeo and Twitter. It also has quotes and experiences from Dick Costelo, the current CEO of Twitter and serial entrepreneur. The book is written based on a data set the author created by running surveys on startup founders. The book’s narrative is sobering if anything, tells you how founders basically fall into a number of pitfalls despite the best of intentions. What was the saying again? The road to hell was paved with a lot of good intentions.

The author more or less documents categorically all the pitfalls, like founder’s background, the stage in their life when they found the company, what kind of co-founder relationships work and how that influences the equity split and how that is so detrimental to the success of the relationship or the startup. The main contention point in a startup always comes due to the two headed hydra, Economics vs Control. Who gets to run the company and what is the monetary compensation split between the original founding team. The data is sobering, friends do crazy things when money is involved. It even gets crazier when the Ego of the founding team is considered, who gets to be CEO and why that matters etc. I recommend the book, just to make sure every founder understands the pitfalls of splitting equity early in the game and how that dictates where the startup goes.

The following is the description of the book in Amazon:

Often downplayed in the excitement of starting up a new business venture is one of the most important decisions entrepreneurs will face: should they go it alone, or bring in cofounders, hires, and investors to help build the business? More than just financial rewards are at stake. Friendships and relationships can suffer. Bad decisions at the inception of a promising venture lay the foundations for its eventual ruin. The Founder’s Dilemmasis the first book to examine the early decisions by entrepreneurs that can make or break a startup and its team.

Drawing on a decade of research, Noam Wasserman reveals the common pitfalls founders face and how to avoid them. He looks at whether it is a good idea to cofound with friends or relatives, how and when to split the equity within the founding team, and how to recognize when a successful founder-CEO should exit or be fired. Wasserman explains how to anticipate, avoid, or recover from disastrous mistakes that can splinter a founding team, strip founders of control, and leave founders without a financial payoff for their hard work and innovative ideas. He highlights the need at each step to strike a careful balance between controlling the startup and attracting the best resources to grow it, and demonstrates why the easy short-term choice is often the most perilous in the long term.

The Founder’s Dilemmas draws on the inside stories of founders like Evan Williams of Twitter and Tim Westergren of Pandora, while mining quantitative data on almost ten thousand founders.

People problems are the leading cause of failure in startups. This book offers solutions.

It is not surprising to see that People problems are the leading causes of failure in startups. The solutions offered in the book so far are not earth shattering but could possibly work. One thing that I thought was interesting was the fact that people who have worked together in a professional setting tend to be much better founders than friends or family or strangers. Another lesson is to make sure there is a good open discussion about how the equity is split upfront and who gets to lead the team. In most cases a simple handshake and quick decision is not the solution, the author recommends a more ponderous road and says it increases the odds of the startup founding team sticking together and resolving challenges as a team.

Bottom line, I recommend the book. It is not inspiring but factual, data driven and to a certain extent impersonal although the author uses the case study of people, it felt cold to me. Maybe one needs to be cold when dealing with starting a company completely opposite to what you hear in the mainstream media, passion, camaraderie and everything is fine stories.

Inspiration is Perishable

I meet people. I enjoy meeting people, learning about them, their background and why do they do what they are doing. I am student of body language, language, attitudes, bias and perceptions of everyone I meet. I learn a lot about myself when I become a student of other people’s behavior. I try very hard to be empathetic, helpful, inspirational and positive in my conversations. I always greet people with a big smile, ask them how they are doing and when they reciprocate I always respond back saying I am always doing great. Another classic question I often get is how is life? I always respond saying that Life is Wonderful/Great. Sometime those I meet get disappointed that I don’t tell them what they want to hear. My tagline is that I am an investor, so I should just solve everyone’s problem by investing money on them. My first response is always, lack of money is never the problem. Everyone wants a quick fix, if only this Bala guy invests in me my problem will go away. Really? Are you that entitled? why do you believe it should be that easy? is it that simple? believe me raising money is hard. If you have been reading my blog for sometime you know that I have written a lot about it, I struggle with it everyday. I raise money all the time, I invest all the time but expecting anyone to invest in your idea is just so Silicon Valley-ish, even there you need to show something before anyone throws money at you.

When I meet “Wantapreneurs” – my definition of people who want to build a business but have made no effort to take the first step – they think that I should just invest in them because I agreed to meet with them. I really wish we could move past raising money part, focus on building a business, focus on getting your idea to reality, focus on helping your customers, focus on scratching your own itch etc. If you are not willing to invest in making something with all the tools and technologies that are out there already, why do you believe money is going to make any difference. I try to help every entrepreneur and startup founder I meet, it is in my nature to help. I believe very strongly in the “Give” and “Service above Self” philosophies. I really get disappointed when I get feedback that our meeting did not uplift the “Wantapreneur”‘s spirits. Is that my responsibility? to uplift your spirit? Really? Staying positive and doing things to make progress towards your goal is your responsibility, yes a lot of people can help you along the way. There was a great post by Dave McClure about this title “Engineering Minimum Viable Inspiration“, with a classic Dave’s twist aka: do you give a Shit + can you get others to give a Shit.

Inspiration is perishable, it only gets you to get a little motivated the rest is hard work, dedication and focus. I have written a lot about Focus and Perception. All the tools, mentoring, advice, strategies, tactics etc are only sounds bites, it is the responsibility of the entrepreneur to launch, sell and build a business. Raising money makes things difficult, I have written about this before I have seen too many entrepreneurs and startup founders prematurely raise money from the wrong sources and then regret the rest of the time why they did that. Believe me I wish there was an easy answer but it is not easy. My advice is always delay raising money as much as possible, hustle, bootstrap and do what it takes. It is your dream, now go make it real!

Founder Institute – Reykjavik Chapter

fi_logo_leaf_transparentThis fall we are kicking into high gear with Startup Iceland initiatives, I applied to lead the local chapter of Founder Institute in Reykjavik and I got accepted. I had to take a test, the same test that every wanna-be-entrepreneur takes when she/he applies to a Founder Institute program. I am looking for Co-Directors for this initiative. I have reached out to some of you to help me but I would like to open it up and see if there is more interest to help me get this started. Founder Institute is an idea-stage accelerator from Silicon Valley. A local chapter will build new technology companies, and these companies go on to enter other incubators, raise angel capital and create jobs. For those who are interested, it is a part-time opportunity that is requires one night per week, and you receive equity in all of the companies created.

Here is a description of Founder Institute in their own words:

The Founder Institute is the world’s largest entrepreneur training and startup launch program, helping aspiring founders across the globe build enduring technology companies. In the Founder Institute’s four-month, part-time program, promising startup entrepreneurs “learn by doing” and launch a company through structured training courses, practical business-building assignments, and expert feedback from a large network of business mentors. Plus, aspiring founders are not required to quit their day job to participate, so they can begin building a business around their ideas without putting their livelihood at risk.

Based in Silicon Valley and with chapters across 66 cities and 40 countries, the Founder Institute has helped launch over 1,230 companies, which have created over 10,000 new jobs. The company’s mission is to “Globalize Silicon Valley” and build sustainable startup ecosystems that will create one million new jobs worldwide.

The Founder Institute was founded in 2009 by serial entrepreneur Adeo Ressi. It is operated out of a small office in Mountain View, California.

I really like the philosophy of Founder Institute, it also aligns with my vision of building great companies out of Iceland. We have all the ingredients here and the Silicon Valley mind-set. Here is a gist of the Vision, Formula and Approach of Founder Institute.

Our Vision

Starting a company is an arduous and lonely journey, and technology entrepreneurship is a constantly evolving discipline. The Founder Institute aims to improve the rate of startup success by creating local startup ecosystems that emulate the unique characteristics of Silicon Valley.

Our Formula

Great People + Expert Training + Collaboration = Exponentially Better Chance of Success

Great Companies Start With Great People

It’s very hard to judge a new founder by the quality of their idea, because there is too much subjectivity involved. To apply to the Founder Institute, you do not need to provide an idea. Instead, we use a proprietary Predictive Admissions Test to find the most talented people.

To date, over 20,000 people have applied, and the Founder Institute can predict with 85% accuracy somebody’s potential to become a successful technology entrepreneur. Our revolutionary entrepreneur research has been featured in The New York Times, CNN, and Forbes.

Structured Training

The best way to learn is by doing. Through a structured, 4-month curriculum of weekly training courses and business-building assignments, you graduate the Founder Institute as the Founder of an enduring company.

The curriculum was built using Silicon Valley best practices, and each training course is led by members of the Founder Institute’s worldwide network of over 3,100 entrepreneur Mentors, that are founders themselves.

So, if you have read this far and interested send me a note.

Sustaining vs Disruptive Innovation

Cover of "The Innovator's Solution: Creat...

Cover via Amazon

I have been listening to Clay Christensen and Michael E. Raynor‘s book “The Innovator’s Solution: Creating and Sustaining Successful Growth“. Really impressed with the systematic approach to innovation and why innovation can be categorized and built within existing companies or even in Startups. I believe this book is one of those classics that outlines how anyone from Venture Capitalist to Startup Founders to Managers of Businesses or CEO’s can bring a culture of innovation into any organization. This is clearly important given the changes that we are starting to see. I believe this way of thinking can really help entrepreneurs as well, there are some theoretical and empirical frameworks that suggest that Sustaining innovation is rarely the realm of startups and Disruptive Innovation is rarely the realm of incumbent businesses. One of the first question that I ask a startup founder or entrepreneur is if his idea or business is disruptive, if it is not then I suggest they do hypothesis testings to make it disruptive otherwise it is a fools errand trying to beat an existing business with a 10% or 15% improvement in the startup’s offering. For a startup to really disruptive it needs to be good enough but has dramatically different pricing, convenience or value being delivered to the customer.

The internet itself is a sustaining innovation, whereas Cloud Computing is a disruptive innovation. I believe what Elon Musk has done with Electric Car technology is also very disruptive. I think it will be not long before Electric cars become a main fixture of our culture.

I highly recommend the book and I think VCs, Entrepreneurs and Angel investors who are serious about investing should really read the book and try to understand the solution for the Innovator’s dilemma presented in this book. It has opened my eyes to transformational views of startups and investing in startups.

GuidetoIceland.is – A Startup Profile

GuideToIcelandTourism in Iceland is growing rapidly, this much is true and with the growth of tourist, the need for investment in infrastructure, innovation and services to cater to the market demand is also growing. I believe startups or entrepreneurs are more suited to rise to this challenge. It is difficult for established companies to move quickly, read why I believe this to be true.

Guidetoiceland.is is one of the startups that has been accepted into the GreenQloud Startup Program. I believe for startups to be successful there are a number of requirements, the most important of all is the founding team. I met Elmar Johnson and Ingolfur Shahin, the CEO and COO. Elmar, wait for it… is a medical doctor with a passion for travel. I am very impressed with the team that Elmar and Ingolfur have assembled to take this company forward. Their concept is quite simple target bloggers and drive traffic through their content to sell services and packages as it relates to travel in Iceland. The emphasis is on locals blogging about the culture, what and where to go for the best sushi in Iceland etc I believe the long tail of this type of content drives Mavens to the site. They have built a booking engine connecting a hodge-podge of tour operators, hotels and destinations into a single source that any tourist can easily navigate and also solicit the services of locals to go on guided tours. The way the website operates is by providing free tours from tour operators to bloggers and thereby creating a affiliate program for real services. I think this is brilliant, here is a Google Adwords meet Tupper ware network marketing and selling. All of this surrounded by beautiful images taken by Iurie Belegurschi, who takes just amazing pictures.

The team is tenacious, detailed, and really passionate about how they want to build this business. This is the kind of team that I love to mentor. They are always bubbling with ideas and ways to drive the business forward. IMHO, you have seen nothing yet from this team and really excited to be working with them.

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Strategy is always about Action

Garry Kasparov and I, Luxembourg Q1 2006

I joined the Executive team in Glitnir in February 2006. The bank had an event in Luxembourg called “Meet the CEOs” and one of the keynote speaker was Garry Kasparov. The title of his talk was about Strategy, being a Grand Master of Chess, Garry probably knows a thing or two about Strategy. What I distinctly remember from the talk was that he emphasized on the fact that Strategy is always about Action. A deliberate, calculated and result driven action. As an Entrepreneur or a Startup, we are always faced with numerous paths based on a deliberate product, marketing, sales or funding strategy. I talk to a number of startup founders and entrepreneurs, the striking similarities between all those conversation when it comes to Strategy is that they always have too many strategic priorities and try to do too many things at the same time. This IMHO is a failing strategy. At the very early stage of the product/service development it might work because you are prototyping and you have not figured out the product to market fit, so it is fine to throw a number of ideas into the market and see what sticks. Again, the Strategy is deliberate, you are trying many things because of a hypothesis that one of those ideas will gain traction. It takes a lot of work to focus on a single strategy and execute around that. If entrepreneurs can get this one thing right the odds of failure can be reduced considerably.
Being an entrepreneur or a startup founder is f#$king difficult, and getting disciplined to focus on 1 to 3 strategic priorities is even harder. Even Elon Musk the quintessential serial entrepreneur has been focusing only on the Electric Car and leaves all his other ideas and companies to be executed by others.
Do yourself a favor, ask yourself what is your Product to Market fit strategy if you are in the early stage, if you don’t have one, get back to the drawing board and get that straight without that your startup will fail or run out of money or both. After you have crossed the chasm of Product to Market fit, you need to go back to the drawing board and determine your business scaling strategy. Yes, building a company is hard and takes a lot of work but there is nothing more insane than trying to do the same thing over and over again and expecting a different result. You need different strategies for different stages of the company.
The founder/CEO of the company is responsible for the Strategy, the success of the company depends on the CEO who can morph into different modes depending on the stage of the company. Ben Horowitz, has a very interesting post about “Why Founders Fail: The Product CEO Paradox“. There are gems of advice for Product centric founders. Once you have a strategy then the mode you need to get into is action, tactics and expected results. Another one of the best of Ben Horowitz post is “The Struggle“, I wrote about it… one of the best paragraphs in that post goes like this:

This is not checkers; this is mutherfuckin’ chess – Technology businesses tend to be extremely complex. The underlying technology moves, the competition moves, the market moves, the people move. As a result, like playing three-dimensional chess on Star Trek, there is always a move. You think you have no moves? How about taking your company public with $2M in trailing revenue and 340 employees, with a plan to do $75M in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.

You always have a move without strategy you will not know which one to take.

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Video

On the road of building Startup Communities in Iceland

English: Jim Collins (James C. Collins), an Am...

English: Jim Collins (James C. Collins), an American business consultant, author of “Built to Last” and “Good to Great”. (Photo credit: Wikipedia)

Brad Feld interviewing Jim Collins, two of my favorite business thought leaders and authors talking about a topic that I extremely engaged in and interested in developing in Iceland. I was pretty bummed that I could not make it for the Startup Phenomena Event in Boulder, Colorado. There are a number of pearls of wisdom in this discussion. The most important of which is the concept of doing big things, focusing on the who and the role of luck or chance. I believe that in order to build an antifragile or lasting startup community it has to be a long term thinking which makes sense because doing things like this well… takes a long time. I believe the startup community in Iceland is starting to hum, the biggest lead indicator of this is when a young software engineer who came to me and wanted to work at GreenQloud, he was brilliant, talented and with a lot of energy so I was only thrilled to get him to join our team. 3 months in he wanted to quit and I was baffled because he loved the culture and environment that we are creating in GreenQloud, really liked the people he worked with and was really on board with the Mission of GreenQloud… when I asked him what has changed, he told me that he and his friends are doing a startup and they wanted to go out on their own and do that. I knew then and there the vision I had for Iceland is starting to take shape.

When really smart people are willing to risk their jobs, careers and possibly a lot of their time to build a company we have the right ingredients to building an antifragile startup community. What is really missing is the Big Hairy Audacious Goals that Jim Collins referred to in the talk. I have some ideas up my sleeve, GreenQloud is one of those big ideas. If you have not been following what we are doing with GreenQloud, you should really look at it. I believe GreenQloud could be a bigger company than any company built out of Iceland and I am not saying it because I am the CEO. GreenQloud is in the business of changing the world and it takes time, effort and passionate people. We are on that journey and starting to really accelerate our execution. I also have a couple of projects that I am really excited about launching, you will hear about it in the near future. We are currently kicking off the preparation for Startup Iceland 2014.

Circle of influence and circle of concern

Deutsch: Viktor Frankl

I was reading a blog post by Seth Levin of Foundry Group on “Handling Rejection“, where Seth blogs about an interaction he had with a 54-year old startup founder, who reached out to Seth and the Foundry Group to see if they were interested in his idea. Seth replied that they have a clear strategy of investing in broad themes and the said founder’s business did not fall in that category, so they were not interested. Instead of thanking Seth for his response and continuing to build the relationship with him, this founder just ranted about how hard it was for a 54-year old Entrepreneur who is on the outside looking in and trying to break into the inside of the VC world, how he did not have a pedigree or from the right family and on and on and took his anger out on his response to Seth’s email. The Founder was blaming everything that was hard about being an Entrepreneur or a startup founder.

It got me thinking, I had written about “The Excuse Department is Closed” and also the material in the book 7 Habits of Highly Effective People by Dr.Steven Covey where he talks about the Circle of Influence and the Circle of Concern. What do I mean by the Circle of Influence and the Circle of Concern? Well, it is quite simple actually, the Circle of Influence is the space that contains everything that you can do something about i.e you can take an action and the Circle of Concern is the space that contains all the external things that you cannot do anything about like the state of the economy or a financial collapse, response of people to your efforts etc. As an entrepreneur and/or a startup founder it is very easy to get sucked into thinking about everything that is beyond the scope of what you control thereby you can wallow in self pity how the whole world is out to get you. This is the wrong way to look at things. I see the above founder’s behaviour in may entrepreneurs and people I meet, they continually focus on all the things that are outside their Circle of Influence. If you want to win the battle of Entrepreneurship, you need to be laser focused on your Circle of Influence, for most people it is their own actions. If you have not worked on building that internal strength, Entrepreneurship is a very hard road.

I love the work of Dr.Viktor Frankl on Logotherapy and Existential Analysis, which was one of the big influencers of Dr.Steven Covey in his writings. Frankl’s approach is based on three philosophical and psychological concepts:

Remember between every stimulus that you receive and your response to it, there is a space, in that space lies your personal growth and your free will and your will to act, to meaning and your meaning of life. If you are an entrepreneur, you have to choose to carry your own weather, you have to handle rejection well because deep within you lies the internal security. The internal security of free will, the purpose of why you are doing what you are doing. If you have not worked on yourself to build that internal security, I strongly encourage you to build that first because without that internal strength it is very hard to fight the battle of entrepreneurship.

Mentoring, Teaching and Training

“We can’t solve problems by using the same kind of thinking we used when we created them.” – Albert Einstein

I strongly believe anyone can learn any skill given the right guidelines, tools, mentoring and time. It is not easy to help or teach someone to acquire a new skill. Ask your teacher how she got through her day while you were in her class. God knows I am blessed with many teachers and mentors who took the time to show me the ropes and helped me get better at many things. Believe me it was a struggle for them, I was not the sharpest cookie in the room. I get extremely frustrated when people don’t want to spend the time to help or mentor or teach their colleagues, interns and their own customers because it is hard, it is painful and the other person does not pick up the skill as fast as they expect them to. To all those out there thinking that way, I say rubbish. There is nothing more important than building your team and helping your team, there is nothing that a company can do that is more important than training and building a world class team. I understand the frustration of those who have the experience, they focus on the efficiency side of things, it is efficient if they can get a team member who has the same experience or background as them. It is easier to get through the tasks, there is no struggle, there is no conflict or the effort needed to understand, explain and be patient with people. It is hard, remember with People, fast is slow and slow is fast.

While you are a startup, resources are limited, you need to do more with less, you will not be able to recruit the smartest girl in town or the smartest guy because the smart ones are not sitting idle, they are busy with other things and they are usually compensated handsomely for their time… because they are smart and can get stuff done. So, how does a startup compete for talent in a tight market? this is an age old question and I think there is a way. What if you could get people who believe in what you do but don’t have the right skills? well, you get them on-board and give them the mentoring, time and tools to see if they can go through the struggle. I know I know if you are teaching people how are you going to build the startup… well, no one said it was easy if it was then everyone would do it really well. A Startup is an experiment, you need to experiment with people as well. So, the next time you are planning to hire someone, take a chance, wait for the one who believes in what you are doing and is willing to volunteer their hearts and their minds. Give them the tools, methods, mentoring and time, they just might surprise you.

For those who are mentors and teachers, there is nothing more nobler than providing a service that helps your brother or sister in need. I believe very strongly if you want to learn something or get better at something there is no better way than to teach it. The minute you assume the role of a teacher/mentor you see things differently, your paradigm changes, only if you have an open mind and are willing to volunteer your heart and your mind. Take a chance on yourself, spend the time to teach your colleague a skill that you want to get better at, as I said before you might just surprise yourself and learn something about yourself.

S.M.A.R.T Goals or Metrics

Scoreboard FB

Scoreboard FB (Photo credit: Wikipedia)

Do you have a ScoreBoard for your Startup? Well, if you don’t you need to get one. Once you have a scoreboard you need to determine what you are going to measure and there are some time tested definitions for establishing goals for your team, your startup or how you are executing. Remember Vision without Execution is Hallucination. So what do you need to define your team’s Goals? Goals or Metrics need to be S.M.A.R.T

1. Specific

2. Measurable

3. Achievable

4. Realistic

5. Timeframe bound

I have written about Metrics that matter before, but I don’t believe I have written about how to define goals. The above acronym has always helped me when working on defining a goal. Every startup is different but end of the day most of the things relating to a startup is based on serving a human/organizational need. If you can translate that need in terms of S.M.A.R.T goals then you are doing 99% better than most of us out there trying to navigate this thing called Entrepreneurship. S.M.A.R.T goals are not just for your startup, they are an effective tool to define Win-Win Performance Agreement with your team.  As part of building a world class team, one of the most important thing the founders/leaders/executives can do is establish a Mentorship based Win-Win Performance Agreement with each and every team member. We are starting to work on this at GreenQloud. Building a startup is hard, raising money for your startup is harder but the most important thing you can do is build a World Class team. It is well within your circle of influence. If your team is effective then all other things fall into place. I always like to say, you cannot guarantee success but you can easily increase your odds of success. One attribute that can exponentially improve your odds is the time you spend in building an effective team around you. I have written about the importance of Team Building. I am surprised when I talk to startups and even investors here in Iceland, how little weightage they give to the Team attribute. IMHO, it is the deciding factor, everything else can be defined, designed, built, scaled or modified, but you can never execute at world class level without building a trusted, aligned and self-motivated team. I love the Avengers movie, how 5 different people, who don’t always like each other come together to fight a good fight. I don’t see a Startup any differently.