The Founder's Dilemmas

Wasserman, then at Harvard Business School, assembled data on roughly ten thousand founders and several thousand startups and used it to examine the decisions founders make about people: whether to found alone or with others, whom to choose, how to split equity, what roles to assign, when to hire, whom to take money from, and whether to remain chief executive.

The organising finding is what he calls the rich versus king trade-off. Founders who prioritise control, by staying chief executive, retaining board seats and avoiding outside investment, end up with a larger share of a smaller company. Founders who prioritise value, by bringing in professional management, accepting investor board control and diluting, end up with a smaller share of a larger company. His data shows that founders who gave up more control ended up with more valuable stakes on average, and that most founders make control decisions without recognising the trade-off.

The specific findings are useful. Equity splits agreed quickly and equally at founding correlate with later conflict, because they are made before information about contribution exists. Founding teams of prior friends and relatives are more fragile than teams of prior coworkers. Roughly half of founder chief executives are replaced within three years, and most replacements are triggered by success rather than failure, since raising capital and scaling both create pressure for professional management.

The data is from a specific period and is heavily United States technology weighted. The correlations do not establish causation, and Wasserman is generally careful about this.