Founder’s dilemmas in the entrepreneurial ecosystem of Bangalore

Abstract

Drawing on a decade of research including around 10.000 founders and numerous case studies, Noam Wasserman analysed the dilemmas faced by entrepreneurs, how they typically approach them and how their behaviours can impact the probability of success of their start-up. By dilemmas the author identifies all the difficult decisions faced at important phases during the entrepreneurial journey by founders. Indeed, according to his study, despite the experience of the entrepreneur and the type of enterprise, the dilemmas faced by entrepreneurs are similar and recurrent. The author categorized them based on the phase they occur in. The pre-founding phase is characterized by the career dilemmas. The founding team phase is the more complex and the richer in terms of dilemmas faced (solo vs. team dilemma, relationship dilemma, role dilemma, reward dilemma). Finally, the beyond-the-founding-team dilemma contains the hiring dilemmas, the investor dilemmas and the founder-CEO dilemmas. The dilemmas do not happen always in the order specified by Wasserman. In particular, the phase of idea and the phase of founding team are interchangeable (idea-then-team vs. team-then-idea). Finally, there is the dilemma between wealth and control, which refers to the trade-off between building financial value for the entrepreneurs and their desire to maintain some control over their enterprise. This differs from other dilemmas because it is recurrent over different stages of the development of the company. The two objectives, maximizing the financial value and retaining control, are clashing since in order to create value it is necessary to attract resources from the external environment and those require the entrepreneur to give up some control (e.g. VC bringing in capital by receiving equity in return). Besides analysing the dilemmas, the author analysed the so-called “natural biases”. The terms refer to the perils of passion, to optimism over reality, to instinct over strategic and rational planning. The mix of these three can hinder a founder from questioning his choices and from exploring alternative approaches and making necessary adjustments. In particular, according to Hmieleski et al. (2009), optimism causes failure because it makes entrepreneurs holding unrealistic expectations, discounting public information and reconstructing past experiences to avoid contradictions. Besides the three major biases mentioned before, also the excessive attachment to ideas, startups, and employees over reasoning can represent a serious threat for start-ups. According to Wasserman, a mix of conflict avoidance, path dependence, natural biases, and ignorance of the long-term consequences of choices makes entrepreneurs taking harmful decisions for their start-ups. Hence, the aim of the books to help entrepreneurs preventing to damage themselves (“it is unfortunate but true: if entrepreneurship is a battle, most casualties stem from friendly fire of selfinflicted wounds”) since, according to Gorman and Sahlman (1989), within the portfolios of VCs approximately 65% of failures is caused by problems within the management of start-ups. In particular, the author tries to help entrepreneurs by explaining how to anticipate and avoid mistakes, given the huge impact the early decisions have on the future of start-ups.