The Founder’s Dilemmas

Should you chase financial freedom or start something that gives you autonomy, power, and influence? The Founder’s Dilemmas helps you navigate these challenges.

1. The Motivations Behind Entrepreneurship

People choose entrepreneurship for reasons distinct from those that drive traditional careers. Unlike most employees who value security or recognition, entrepreneurs often prioritize autonomy, power, and influence.

Entrepreneurs find traditional office jobs constraining and crave independence. Genevieve Thiers, founder of Sittercity, left her prestigious IBM job because she felt like a cog in a machine. She desired autonomy and the chance to make an impact, which motivated her entrepreneurial leap.

Interestingly, gender differences also come into play. Male entrepreneurs emphasize financial gain and control, whereas female entrepreneurs tend to include altruism in their motivations. For example, while Evan Williams prioritized control when turning down a hefty buy-out offer for Blogger, female entrepreneurs like Thiers often merge personal success with their social mission.

Examples

• Genevieve Thiers leaving IBM to start Sittercity after feeling constricted.
• Evan Williams rejecting a buy-out offer to maintain control over Blogger.
• Female founders often showing blended motivations of altruism along with ambition.

2. Human Capital is Key

Being passionate isn’t enough; entrepreneurs need industry-relevant skills and understanding. Without them, chances of failure skyrocket.

Barry Nalls, who founded Masergy, succeeded because his 25 years of experience in telecommunications gave him the technical knowledge and confidence to navigate his industry. Entrepreneurs lacking foundational industry insight may struggle with unexpected problems or steep learning curves, as seen in the story of Curt Schilling. When Schilling started his gaming company, 38 Studios, his sports background didn’t prepare him for managing employees in the corporate world.

If you lack essential expertise, focus on gaining it first. Human capital forms the backbone of decision-making and execution when building a start-up.

Examples

• Barry Nalls utilized telecom knowledge from GTE.
• Curt Schilling’s gaming company struggled because he didn’t understand corporate workflows.
• Founders lacking applicable skills have higher failure rates.

3. Build a Strong Network

Social capital—your professional connections—is just as important as human capital when starting a business.

Barry Nalls credited professional connections built during his GTE tenure with helping Masergy succeed just six months after launch. A web of contacts provides access to advisers, investors, and opportunities. However, staying in one job too long to expand your network can backfire. Over-specialization leaves people unprepared for entrepreneurship's diverse demands.

The trick is balance: build meaningful relationships while remaining focused on launching your venture. Broad experience and well-rounded skills will set you apart when you leverage your network.

Examples

• Barry Nalls used his network to source employees and customers for Masergy.
• Entrepreneurs who linger too long in one role risk hyper-specialization.
• Social ties reduce start-up time and expedite business viability.

4. Find Complementary Co-Founders

Entrepreneurs who lack financial, technical, or social capital can bridge these gaps by choosing the right co-founders.

Pandora Radio’s Tim Westergren faced challenges building his music database idea alone. Waiting to find co-founders with technical expertise and business acumen ensured Pandora’s long-term growth. This partnership allowed the founders to share responsibilities, ensuring each brought a unique strength to the table.

Co-founders also help distribute workloads when start-up tasks are overwhelming for one person. They bring fresh perspectives, opening up creative pathways for solutions.

Examples

• Tim Westergren partnered with experts to launch Pandora.
• Co-founders split tasks between tech, business, and music industry relations at Pandora.
• Businesses unbalanced in expertise without a co-founder often falter.

5. Clarify Roles Early On

Start-ups thrive when founders have distinct, well-defined roles rather than competing over titles like CEO.

Apple succeeded, in part, because Steve Jobs led sales and strategy, while Steve Wozniak focused on technical development. Foundations crumble when roles overlap too much or titling revolves around emotions rather than capability. Founders with clear divisions can track accountability and avoid personal conflicts.

When setting up roles, prioritize each individual’s strengths. Building accountability in the early stages of operations positions your team for success as the business grows.

Examples

• Steve Jobs and Steve Wozniak divided Apple’s leadership based on skills.
• Smartix founders with overlapping roles delegated tasks flexibly.
• Pandora founders took on distinct areas of responsibility.

6. Be Cautious With Equity Distribution

Dividing equity too soon or wrongly can lead to conflict among founders down the road.

Evan Williams gave co-founder Noah Glass a 70% equity split early in their podcast publishing venture, thinking that was fair. But as Williams became more involved, disagreements developed over roles and equity. This discontent only ended when Glass left the business. Similarly, founders of start-up UpDown faced talent discrepancies among themselves and struggled to realign equity.

These examples show the importance of waiting to distribute equity until founders understand their contributions and commitment levels.

Examples

• Evan Williams learned the pitfalls of early equity splits while launching Odeo.
• UpDown founders underestimated one co-founder’s value during equity distribution.
• Delaying equity allocation prevents misaligned shares.

7. The Risks of Hiring Friends

Hiring friends or family for a start-up can create loyalty but also emotional complications if things go wrong.

While Pandora Radio’s founders recruited friends to cultivate dedication, the downside came when layoffs became necessary. It’s emotionally taxing to fire personal connections. A professional work environment sometimes calls for hiring experts within your field instead of relying on familiarity.

Balance personal loyalty with business goals to avoid challenging decisions in the future.

Examples

• Pandora Radio hired loyal friends, benefiting initially but facing challenges during layoffs.
• Evan Williams avoided hiring friends with Odeo, favoring professionals.
• Investors find start-ups hiring personal networks receive higher valuations.

8. Generalists Fit Start-Up Cultures

In early-stage start-ups, flexibility trumps specialization. Employees need to handle varied roles seamlessly.

Generalists can adapt quickly, unlike specialists used to rigid structures. For example, when Frank Addante hired a seasoned salesman from IBM, he found the employee struggled with ambiguity in a start-up. Similarly, hiring managers from large corporations revealed challenges as these individuals were unaccustomed to the hands-on nature of start-ups.

Focus on hiring versatile employees who can wear multiple hats to thrive in dynamic conditions.

Examples

• Frank Addante’s IBM-hired VP struggled with start-up challenges.
• Masergy’s Barry Nalls experienced issues with corporate-specialist hires.
• Generalists adapt to unexpected shifts in operations.

9. Raising Capital vs. Bootstrapping

Choosing how to fund your venture directly impacts control and speed.

Jim Triandiflou declined $2 million in investor funding for Ockham Technologies, relying on $150,000 of personal resources instead to maintain control. Meanwhile, Evan Williams sought venture capital for Odeo when intense competition demanded quick market entry. While raising funds speeds up growth, it adds complexity due to investor involvement and bureaucracy.

Founders must weigh the pros and cons of bootstrapping versus seeking external funding when scaling.

Examples

• Jim Triandiflou bootstrapped Ockham Technologies to avoid external pressure.
• Evan Williams raised $5 million for Odeo to beat competitors.
• Venture capital brings resources but reduces founder independence.

Takeaways

1. Define roles and responsibilities with co-founders upfront to prevent future disputes or operational confusion.
2. Delay equity distribution until contributions, commitment, and abilities are clear among all founders involved.
3. Build a team of multi-talented, adaptable workers who thrive in flexible, fast-moving environments.