As a founder you ignore “people problems” — your own and those of your team — at your peril. Understanding your own decisions, where your instincts can mislead you, and how choices about when to found, with whom to found, and how to share equity could make the difference between success and failure.
What are the big mistakes that entrepreneurs can make in the founding and early execution of their companies that make the difference between success and failure? This series with Noam Wasserman examines the crucial choices that entrepreneurs must make — about their own path, their goals as entrepreneurs, the nature of their founding team, and the equity agreements into which they enter – and the effects these choices will have on the present and future trajectories of their companies.
I’m going to start off with a happy subject, that being failure, in particular entrepreneurial failure. This is something we all wring our hands about. This is something that we all see mentions of on a recurring basis. And it feels like it is hard for us to get our arms around this issue. How can we go and be able to take this high rate of failure within startups and do something about it. I got some hints of a way to be able to start tackling.
Back about 13 years ago when I read an article that now a close colleague of mine, Bill Sahlman, had done published almost a quarter century ago. There’s one small part of the paper though where they went in and said forget all the things we always hear about, all of your successes, all of the things that you would today be posting on your website, the portfolio companies that you’re really proud about. Let’s go and burrow into the sources of failure within your portfolio companies that have failed.
What he found number one on the list, 65 percent of the reasons for failure were the people problems. The interpersonal tensions within the founding team, the tensions between the founders and the people who were brought in as hires to be able to augment the team to be able to fill in their holes. And that these were what were attributed as the highest by far reasons for why these ventures had failed. And so to the extent that we can go and hopefully map out a bunch of those early people decisions, give founders an idea of what are those things that they don’t anticipate are going to come back to bite them as they get further down the road. That’s what the goal of the research has been for us to be able to go and do that.