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Entrepreneurship: Solving "People Problems"
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News flash: new ventures are risky propositions. For such a universally accepted truth, however, a consensus on why startups fail has eluded the practitioners, researchers, and policymakers that have generally supplied conventional wisdom over the last few decades. New work by Harvard Business School professor Noam Wasserman has uncovered that around 60% of failures occur due to “People Problems,” or issues dealing with the management and growth of personnel. Part of what’s mystifying about managing a new company is that even answers to problems seem to create an ever-expanding frontier of new questions that need to be answered for the organization to move forward. Below are some of the most salient People Problems that you should be aware of before you start your next venture.
Perhaps the first question an aspiring CEO must gauge is whether to get a cofounder and, if so, who it should be. Paul Graham, founder of what became Yahoo Store and the paradigm-shifting seed accelerator YCombinator, lists having only a single founder as one of the 18 mistakes that kill startups. Graham writes, ‘The low points in a startup are so low that few could bear them alone. When you have multiple founders, esprit de corps binds them together in a way that seems to violate conservation laws. Each thinks "I can't let my friends down.’ This is one of the most powerful forces in human nature, and it's missing when there's just one founder.”
Additionally, once you’ve found that special someone, it can be difficult to reconcile visions for the company, decide on equity splits, and carve out work niches even among the best of friends. Getting through this initial and quintessential problem unscathed can be the difference between becoming etoys.com and Amazon.
Idea Sharing: Collaborative or Risky?
Anyone who has seen The Social Network, a movie on the founding of Facebook, will recall the moment when the Winklevoss twins and Divya Narendra realize that Mark Zuckerberg had launched The Facebook after months of pretending he had been working to create their product. The clear lesson would seem to be that ideas have too much value to be shared without the comfort of a Non-Disclosure Agreement (NDA) at minimum.
Smart Bear Software founder and CEO Jason Cohen, however, disagrees. Noted venture capitalist Mark Suster even recommends 50 coffee meetings with VCs and Angels in which he recommends building relationships for the sake of it. The bottom line from both articles is that either your competitive advantage is defensible or it isn’t. If you’d like to leave out your secret sauce just in case your venture happens to be one of the few that are susceptible to first-mover advantage, this is acceptable practice. Most times though, relationships and a willingness to iterate will ultimately matter more to the success or failure of your business.
Scaling and Hiring
So you’ve forded the initial obstacles and crossed the metaphorical Rubicon to revenues and potentially greener pastures in terms of a coming IPO or acquisition. To continue to grow at a rate that allows your employees to take on increasing responsibility and your revenues to take up increasing market share will require a team of individuals comfortable with meeting these challenges. Unfortunately, all of the resumes you find work for Goliaths like Microsoft and Boeing. How do you find David?
According to the article linked above, potential hires that have shown an ability to adapt at previous jobs, worked internationally, or are self-aware about how their profile matches up to an early stage firm are more likely to succeed. In short, looking for traits that are transferable can be a strategy to filter the best from the rest.
For more insight on entrepreneurial decision making, register to attend the Inner City 100 Symposium on May 9th where Harvard Business School Professor Noam Wasserman will be presenting Founder’s Dilemmas based on his bestselling book of the same name. Former Apple evangelist Guy Kawasaki has said, “This book provides the rare combination of practical advice and scholarly research. It gets to the heart of the people issues that can bedevil every, and I do mean every, startup. Issues such as founder motivations, equity splits, and equity control can make or break a company. I guarantee that the price of this book is approximately one-thousandth of what you'll pay lawyers to clean up your mess if you don't read it."
March 12th, 2012