Investing, to be honest I have never looked at business through an investors point of view. I just kind of though that when the time came for me to start my own business, I would prepare a great business plan and if I needed help people (investors) would throw money at me. Naïve, I know. After reading more of Noam Wasserman’s book The Founders Dilemmas I am learning that Investors actually face their own set of problems and as a founder it is not always easy to secure funding from investors. When a start up is created it is from the founders dream and vision. As much as a potential investor wants to be on board to help fund your dream they also are trying to reduce their own personal risk and that comes with the potential for them to press some of their own ideas and direction for the company. This pushes many founders to not reach out to investors. In my opinion it can sometimes be a pride issue. No one likes asking others for money especially if that means they have some kind of control over how you spend the money.
Investor dilemmas can also be one of the scaling issues that come with growing your business. However they can also be a resolution to one of the problems growing business face. That problem being “growth” itself. As startups begin to grow many entrepreneurs fail to grow with their business. The Fortune.com Article Transitioning from a startup to growth-stage company suggest, “to get better as you get bigger.” The age-old saying “If ain’t broke don’t fix it” does not apply here. Reaching out to investors and even forming partnerships with the competition can help push your business forward in times of rapid growth. It may seem impossible to collaborate with the big names when you are just starting out but that is where investors and the right set of board members can come into play. Another issue that plaques entrepreneurs in the growth stage is focus. When your initial business becomes successful you start to look at other ventures and opportunities and take your eye off your core business. I personally, foresee this as being a problem for me. When I think about my vision for a start up, I often began thinking 10 steps ahead at what other businesses I can tie in. This takes my focus off my original idea and does not give it the full attention it deserves to be really developed. I can see how this is problematic. In my current 9-5 I find myself multitasking amidst my projects which is effective in most cases but if not done correctly it leaves a lot of unfinished work and some projects suffer because they were not given the attention early on to sustain their value. It was interesting to read of the of the many issues growing companies face in their growth stage. I expected finances to be top on the list but many of the problems relate back to core values and in some cases good old common sense.
Hiring is a constant theme and task when running a business. Founders have many dilemmas in the hiring process. One of those being whether to consider relationships in the hiring process. In addition, you must take into account the stage that your start up is in. In a fairly new business you are faced with many uncertainties and hiring the right people is at the forefront of those uncertainties. The obvious choice is to choose people that are already in your networks. However, as your business grows, and you gain investors you are faced with yet another dilemma as who you want to hire may not align with who investors want to hire. Once the investor tries his hand at hiring this can lead to more issues as the hire the investor chooses may side more with that investor and their lies potential loyalty problems. Hiring also comes with firing and the creation of new positions. It is really hard to let people go or address conflicts with people you have drawn from your own network or even your family and friends. The same holds true for positions. A small restaurant in my hometown is family owned and mostly ran. The time came for the owner to retire and he has 2 children but he could only choose one to be his successor and manage the business. When he made his decision of course the other child was not pleased and left the business altogether. So not only was he faced with the dilemma of choosing a Manager (CEO) but he also lost a valued employee that will need to be replaced.
So how do you keep top performers? Top performers believe that their success is tied directly to the success of the company, hence one of the reasons that they work so hard. A good founder has to find ways to communicate to these employees that as a founder they are thinking about the longevity and ways to build their business. The company I work for recently went through a name change. This scared me, I immediately thought that we were being sold or there was some sort of ownership change. My employer is a very large company tied to a bank, so I assumed that they were ridding themselves of the insurance business. The CEO sent a message publicly and even internally reassuring the future of my company and the future of the employees that work there. Another way to keep top performers is to make them feel valued and set apart. Growing up as the eldest child my parents would sometimes call me in on their family discussions and even sometimes asked for my input. They would let me know how responsible I was and how they valued my opinion. This in turn was incentive for me to be on my best behavior and an example to my younger siblings. This same principle can be applied to how you should treat the top performers in your business.
I have heard it said “more money more problems” but I think a more accurate statement is more roles more problems. Titles can create many problems for the founder. Many founders dream of having the title of CEO. They feel that this automatically comes with starting their own company. However there comes a dilemma when you enter a business with multiple people. There may not be much conflict if everyone has the same vision for the company, but you could face extreme adversity when more than the title is up for grabs such as the direction of the company itself. For example, Curtis and Prestley Blake the founders of Friendly’s, a restaurant chain, ended up feuding over the direction and future of the company. It not only ruined their personal relationship but also their business relationship. They eventually sold. Another dilemma that plagues titles is that sometimes titles can be tied to commitment. I have heard numerous times in my career someone complain “that is above my pay-grade.” most times pay-grade as in compensation is not really in question but it is more so a title or position. Employees do not usually like to go the extra mile if they feel they do not have a title that warrants the extra effort. Sometimes it can even be a bit rebellious. People that feel they should be in the coveted role of CEO may not push themselves to assist a vision that they do not support or do not feel they will be credited in doing so.
So now let’s take the focus off upper level management and the prized title of CEO and focus on finding talent where you would least expect it. Most companies flock to colleges to recruit young professionals that at the mere excitement of having a “real” job will work for nothing, have computer skills, and a “education,” but that does not always guarantee an “A Player.” My first job out of undergrad was a glorified call center for an insurance broker. They came to a job fair at my school, did a couple short interviews and hired me. Not only did they hire me, but they hired my husband and a slew of other candidates in my business school. We were all excited to have jobs awaiting us after graduation. However, they admitted to us this was the first time they had done so and looking around we were the youngest employees in the building. Not having worked in a professional environment before our training class had attendance issues, behavioral issues (saying inappropriate things), and relationships were formed, and those same relationships were ruined within the same month. The rest of us had to deal with the backlash. Eric Herrenkohl the author of How to Hire A-Players recognizes that the targeted pool has to be more specific. Instead of just college students he brought attention to college athletes who are hardworking and committed. He also focused on a group of women that I have had the pleasure of working with, Women re-entering the work force. In my experience these women are extremely hard working and are happy to get back into a life they once thrived in while still being available to their number one priority, their family.
For better or for worse
This is was my first thought when Wasserman turned a leering eye on Homogenous teams. Homogenous teams are comprised of people who are similar with similar thoughts, experience, and education. I am personally looking to build my potential business with my Husband and include relatives and close friends. The author gave an example that was disheartening in the case of Evan Williams. Evan being the founder of a couple of businesses that employed his family, friends, and girlfriend. He was met with multiple challenges that ultimately his business could not withstand. Although I did not like what I was hearing, the problems he faced such as not be able to discuss tough issues and conflicting roles were actually some of my own personal fears that I had prior to reading The Founder’s Dilemmas. However, I breathed a sigh of relief when I found that there were short-term benefits of homogeneity. One of those being speed. When you are working with people that are familiar to you, you are able to hit the ground running. For example I feel I know my husband very well, I am able to most times guess his next move, we communicate well, and there is already trust there that does not have to be built, opposed to if I was working with an acquaintance or stranger. In the long term these same benefits can lead to risk. When I look at those that I would select for my potential business we all have worked in the same profession and carry many of the same strengths and weaknesses this will leave holes that only “outside” help can fill.
It is important for founders to build teams with top notch performers and these superior employees are not always friends and family. Eric Herrenkohl refers to these workers as A-Players in his book How to Hire A-Players. Herrenkohl encourages founders to get excited about finding immense talent. Entrepreneurs and non-entrepreneurs alike know that many hours are put into running a business but instead of trying to play every role in the company which after awhile can become problematic and unhealthy you need to find value in your team. Good employees want to work with other good employees. If you devote time and resources into finding “A players” other “A players” will follow. It is also important to know that sometimes you can NOT turn lemons into lemonade. I have seen many times in my professional career were an employee was under performing and management took many strides to coach and develop the employee hoping to turn them into a very high performing worker. As a founder you must recognize that the majority of the time the “A players” are not made but rather already possess the traits that make them “A players.” As a founder, in order to build a successful team you have to be willing to let go of the reins of your “baby” and the only way to fully do this is to leave your business in capable hands. In the hands of “A players”.
In this next blog post in a series of reflections on “the Founders Dilemmas” I will focus on building social and financial capital. Wasserman brings attention to a point that I was very encouraged by. He advises that “People who wait to become founders can use their pre-founding career experiences to prepare for the extreme challenges of founding.” I currently work a 9-5 in the insurance industry and have done so since college. When I initially read this quote, I was excited, but I am glad that I kept reading as there is more to this antidote. Not all experience is valuable, and some can even be counterproductive. Although every business venture involves property and casualty insurance, I am not planning on starting an insurance agency so my background leaves some holes in “capitals” that I will need to successfully start a business.
Let us take a deeper look at Social capital. When searching for a definitive definition for “social capital” I could not find one. However, when I look at the bare bones of the numerous definitions it seems that they all refer to social capital as resources and the impact these resources have on each other. The first resource that usually comes to mind is money and financial resources however we will delve into financial capital later in this post. I want to focus on networking and social relationships. It seems that professional networking is being highlighted now more than ever. There is even a whole social media platform dedicated to this such as LinkedIn. I am invited to more and more happy hours with the mere purpose of connecting individuals so that they can mutually benefit each other and their respective businesses. Although I use the term networking there is a new term surfacing that I was previously unaware of, “Super Connector.” There is an argument that “networkers” are short term thinkers with selfish motives whilst the super connectors are long term thinkers that are emotionally invested and connected to others. Me personally I am glad that there are terms to distinguish the two. There have been many times I have walked away from a “networking” event where I felt that I was in the midst of a pyramid scheme and never made any real connections. It has become apparent in my research that a serious founder is looking to connect with others, their ideas, and values to accomplish something. A successful founder is a “super Connector”.
Connecting with others can lead to another important form of capital, financial capital. Money is needed to form any successful business. You need money to secure the goods and services. Most founders do not have this capital readily available or at startup; but by forming relationships and gaining the before mentioned social capital it is much easier to secure investors. These two forms of capitals go hand in hand but I think it is important to note that you don’t have to have financial capital to start obtaining social capital. In short, money is not needed to start “real” professional relationships.
Tug of War
This post will be the first in a series of reflections on Noam Wasserman’s book The Founders Dilemmas. The dilemma that I want to focus on in this post is maintaining control vs maximizing wealth. In terms of entrepreneurship, I had a preconceived assumption that control and wealth went hand in hand. I just figured that you could control your business entirely and that same business would be very successful. However after reading Wasserman’s words it became more apparent that this only happened in rare cases, Bill Gates being one of the most notable examples. The deeper I dug into the writer’s theories and examples the more it felt like the game Tug of War. Dictionary.com describes the sport of Tug of war as a situation in which two evenly matched people or fractions are striving to keep or obtain the same thing. In my mind I see the rope (founder of the company) , with control on one end and wealth on the other in end.
There comes a sense of pride with saying you run your own company but to be a true entrepreneur you must think about the longevity and success of said company by maximizing the potential of your business; this does not always include you the founder. By choosing control you have to be prepared for sacrifice. Wasserman brings out a very sobering point, that as an entrepreneur that chooses to work their own business you are in turn choosing to make less money than you would working for someone else. The statistics show that over a 10-year period the percentage is actually 35% less that a self-employed worker would earn. In addition, another pitfall that comes with choosing control is that the position of CEO that you coveted so much could be lost or in most instances taken away. To me this is the scariest dilemma with choosing control. My focus is not on those that have been pushed out by scandal and misconduct take for example John Schnatter (Papa Johns) and Travis Kalanick (Uber). But more so on CEOs like Rob Kalin (Etsy) that struggled with expansion. It just seems heartbreaking to have to admit to yourself that you are doing your business more harm than good because you are not equipped to manage it’s growth.
A founder that is focused on maximizing wealth and producing a company that is going to yield great value knows that such a feat comes with the task of relinquishing control. The author points out that in order to get the most out of your company you need resources. Many entrepreneurs do not have the resources needed so they have to look towards investors and to those that are able to provide knowledge and ideas that could take the company further than the founder is able to do on their own. In the end it is simple math and common sense. If you are giving up most of your shares but your business is growing at a faster rate because of the resources obtained in those deals, the dollar amount is still greater than if you would have kept your full stake in the company. This was enough for me to see the importance of maximizing wealth as I hope you do as well.