Salary Inequality Among Co-Founders: How Common?

I have accumulated a backlog of interesting questions posed to me by founders and investors (and by my students!). For many of them, my quantitative CompStudy data should be able to provide some answers. In this post, I will tackle the first of those questions. In my past analyses of entrepreneurial compensation, I have focused on founder vs. non-founder salary differences (e.g., the Founder Discount), on founders’ equity splits (the Idea Premium, how teams split, when they split equally, and the potential implications for team stability), and on related issues (e.g., vesting and golden handcuffs). However, I recently got a question from a member of a founding team, asking how often co-founders are paid the same salary — i.e., founder-vs.-founder salary differences. To tackle this question, I combined my annual datasets from 2005-2009 (including both Tech and Life Sciences ventures), and focused on the ventures that still had at least 2 co-founders working as members of the venture’s executive team at the time of the survey. I ended up with a dataset comprised of 2,815 co-founders from 1,148 ventures. Across these ventures, 26.7% of the time, all remaining co-founders were being paid the same exact salary. However, this differed by 2 important dimensions: the number of rounds that had been raised by the venture, and the number of remaining founders. Number of Rounds Raised As shown in the chart below, the percentage of equal-salary co-founders was much higher when the venture had raised one or no rounds (37% equal salaries), than when it had raised multiple rounds (dropping to 27% after the B-round and 19% after the C-round). Note: Across the 1,148 ventures in these analyses, 43 ventures were pre-investment, 264 had raised one round, 367 had raised two rounds, 270 had raised three rounds, and 204 had raised four […]

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CompStudy Highlights: “Live Tweets” from the Webcast

Earlier this month, we had our annual webcasts to launch the 2009 CompStudy Reports for Technology and Life Sciences ventures. During the webcasts, I live-tweeted (via my @noamwass Twitter account) about interesting data tidbits and comments from the panelists. Below is a synthesis of those raw tweets. If any strike you as particularly interesting or surprising, please comment about it! Notes: Before each tweet, I indicate whether it came during the “TECH” webcast or the “LS” (Life Sciences) one. Because of Twitter’s 140-character limit, some of them are a little more cryptic than I would want. “Flash polls” are real-time polls of the webcast audience. To access the archived webcasts, you can go here for the Tech webcast and here for the Life Sciences webcast. Founders [LS] % of CEOs who are founders: 70% in LS ventures that raised 0-1 rds, plummets to 45% when 2-3 rds; research: http://bit.ly/8Tc5MP [TECH] The 2 positions with more founders than non-founders: CEO (62% founders), CTO (59%); all others below 50% [TECH] Positions with lowest % of founders: CFO (11% founders), Head of HR (2%) [LS] Within executive positions in Life Sciences ventures, 53% of CEOs are still founders, 61% of CTOs; all other positions below 50% [LS] Exec positions in Life Sciences ventures, LOWEST % of founders: 6% VP-HR, 6% VP-Manuf/Opns, 7% VP-Sales, 8% head of Clin. Res. Sources of Hires [TECH] How ventures found their CEOs: In 2008, 23% came from investors (3rd highest source); In 2009, 45% from investors (highest source) [LS] % of non-founding CEOs found by investors in LS ventures: 18% in 2008 (#4 source of CEOs) -> 42% in 2009 (#1 source) [TECH] Advice from panel (Aaron): As upturn starts, have to start pulling triggers a little quicker for both sides of hiring (co, hire) [LS] Sources of […]

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“Founders’ Dilemmas” Course: Franchising, The Full Life Cycle of a Venture, and Exit Decisions

Prior posts about my “Founders’ Dilemmas” MBA course included the following items: an overview of the course, details about the Introductory case and the cases in the “When to Found” module, details about four cases in the “Building the Team” module, descriptions of the core new-venture hiring cases, and details about the founder-CEO succession cases. This post describes a case that examines franchising as a growth option and as an entry point into entrepreneurship, from the perspectives of both the founder of the potential franchisor and the founder of the potential first franchisee (“Rubbish Boys“); three cases that trace the full series of founding decisions from idea through exit (“Evan Williams: From Blogger to Odeo,” “The Tale of the Lynx,” and “Lather, Rinse, Repeat: FeedBurner’s Serial Founding Team“); and a case that focuses on exit decisions (“Nantucket Nectars: The Exit“). For each case, this post provides the official case description, a list of the case’s core issues, and a link to its full HBS Publishing entry. As mentioned before, case studies are often valuable for helping founders, employees, and investors understand the difficult issues they are facing or will be facing in the future (or even help them gain insights into their past experiences!), so if you want to see any of the full cases, you can get them from the HBS Publishing site via the HBSP links below. FRANCHISING Case #1: “Rubbish Boys” (HBSP link) Case description: “It looked like founder-CEO Brian Scudamore might not be able to pursue franchising as a growth option for his junk-removal business after all. Over the years, he had overcome many hurdles, including buying out his ‘too-fiery’ co-founder, firing all of his employees so he could start all over again when he became disillusioned with the company’s developing culture, and failing at experimenting […]

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“Founders’ Dilemmas” Course: Founder-CEO Succession Cases

In prior posts about my “Founders’ Dilemmas” MBA course, I provided an overview of the course, details about the Introductory case and the cases in the “When to Found” module, details about four cases in the “Building the Team” module, and descriptions of the core new-venture hiring cases. This post covers the course’s founder-CEO succession cases. The first case (“Founder-CEO Succession at Wily Technology“) examines the antecedents of succession: What are the events and conditions that lead to the founder’s being replaced as CEO? Should the replaced founder be involved in the search for the successor, and how? Should the founder remain deeply involved in the venture after the successor takes over? The second case (“Les is More, Times Four“) examines the challenges of taking over as the first non-founding CEO when the replaced founder is still working as an executive in the venture and serving on the board. The third case (“The Tale of the Lynx,” a three-part case series that covers pre-founding through exit) explores in part the concept of a “bridge CEO,” and looks at the coalitions that can form between investors and the other (i.e., non-CEO) founders during the founder-CEO succession process. For each case, this post provides the official case description, a list of the case’s core issues, and a link to its full HBS Publishing entry. As mentioned before, case studies are often valuable for helping founders, employees, and investors understand the difficult issues they are facing or will be facing in the future (or even help them gain insights into their past experiences!), so if you want to see any of the full cases, you can get them from the HBS Publishing site via the HBSP links below. FOUNDER-CEO SUCCESSION:What causes it, Best practices and mistakes, Hiring the successor-CEO, Taking charge as the […]

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“Founders’ Dilemmas” Course: New-Venture Hiring Cases

In prior posts about my “Founders’ Dilemmas” MBA course, I provided an overview of the course, details about the Introductory case and the cases in the “When to Found” module, and details about four cases in the “Building the Team” module. This post covers the two core new-venture hiring cases in the course, one of which is part of the “Building the Team” module and the other of which is an end-of-semester synthesis. Both of these cases also focus on serial entrepreneurs, exploring the lessons they learned in their early ventures that they then applied to later ventures. Both cases include co-founder lessons, but focus more extensively on the hiring lessons. For each case, this post provides the official case description, a list of the case’s core issues, and a link to its full HBS Publishing entry. As mentioned before, case studies are often valuable for helping founders, employees, and investors understand the difficult issues they are facing or will be facing in the future (or even help them gain insights into their past experiences!), so if you want to see any of the full cases, you can get them from the HBS Publishing site via the HBSP links below. NEW-VENTURE HIRING ISSUES: Whom to hire when, How venture growth changes hiring choices, How to incent and compensate hires Case #1: “Frank Addante, Serial Entrepreneur” (HBSP link)Case description: “Frank Addante is a 28-year-old serial entrepreneur who is in the process of building his fifth venture. Of his first four ventures, two were sold, one went public, and in the last he decided to close the venture and return unused capital to his investors. With the passing of each venture, he has learned about forming founding teams, splitting equity with his co-founders, hiring executives to work for him, and when to […]

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“Founders’ Dilemmas” Course: “Building the (Founding) Team” Case Studies

In prior posts about my “Founders’ Dilemmas” MBA course, I provided an overview of the course and details about its first three case studies (which include the Introductory case and the cases in the “When to Found” module). This post covers the four founding-team cases in the “Building the Team” module. (Another case in the module covers non-founder hiring issues, and will be described in my next post.) Collectively, these cases cover wide variations in prior relationships, in role allocations, and in approaches to equity splits. For each case, this post provides the official case description, a list of the case’s core issues, and a link to its full HBS Publishing entry. As mentioned before, case studies are often valuable for helping founders, employees, and investors understand the difficult issues they are facing or will be facing in the future (or even help them gain insights into their past experiences!), so if you want to see any of the full cases, you can get them from the HBS Publishing site via the HBSP links below. MODULE #2: “BUILDING THE TEAM” – Should I be a solo founder, or should I try to attract co-founders? If I attract co-founders, who should they be (e.g., my good friends?); how should we split the roles; and, how should we split the equity? Case #1: “Smartix: Swinging for the Fences” (HBSP link)Case description: “Vivek Khuller has built Smartix by attracting classmates to co-found it with him, learning how to pitch it to top VC firms and potential strategic partners, and honing the concept and business model by testing it in smaller venues. Now, he is facing the implications of the choices he has made in each of these areas and has to decide how to manage those implications.” Core issues: Founding with classmates, Attracting […]

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When to Found

MODULE #1: “WHEN TO FOUND” – Should I start a company now, or work elsewhere first? What are the pros and cons of different career paths vis-à-vis my ability to successfully start and run a new venture? Case #1 (Early career decisions): “Humphrey and Cecilia” (revised video case, based on original case by Monica Higgins) Case description:“Addresses the career decision-making process of Humphrey Chen as he graduates from HBS with an MBA. In choosing between an offer from a top-tier consulting firm and launching a start-up entrepreneurial venture, Chen must weigh the expectations of many people–family, fiancee, friends–as well as his own desires.” Core issues: Founding early in a career, Founding with a technical background, Personal career management, Self-evaluation. Case #2 (Late career decisions): “Big to Small: The Two Lives of Barry Nalls” (HBSP entry) Case description: “Barry Nalls describes lessons learned during his 25-year career–his rise at GTE and shorter-lived ventures–and how these prepared him to found MASERGY, a telecommunications start-up. Even as a young boy in a family of entrepreneurs, Nalls had a reputation as a hard worker, but instead of becoming an entrepreneur himself, he built a long career at ‘the biggest company around,’ GTE. After years of working there in sales and marketing, he decided to venture out on his own. His GTE experiences armed him for some entrepreneurial challenges, but also caused additional problems as he tried to start, build, and grow MASERGY. Four years after founding the venture, he now feels that he should have ‘taken the entrepreneurial plunge’ much earlier in life.” Core issues:Founding late in a career, Founding with a sales-and-marketing background, Founding with big-company experience, Personal career management, Learning how to manage a board of directors, Scaling a high-growth venture. (Note: The third session in the “When to Found” module is an in-class Careers Panel.) Up next: The “Building the […]

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Introductory Case

As promised, this post outlines the first three cases of my “Founders’ Dilemmas” MBA course (see my previous post for the course overview). This post covers the Course Introduction case and the two cases from the “When to Found” module, and provides for each case the official case description, a list of the case’s core issues, and a link to the HBS Publishing entry for that case. As mentioned before, case studies are often invaluable for helping founders, employees, and investors understand the issues they are facing or will be facing in the future (or even help them gain insights into their past experiences!), so if you want to see any of the full cases, you can get them from the HBS Publishing site via the HBSP links below. COURSE INTRODUCTION – Provide an overview of key issues from across the course. Case: “Apple’s Core” (HBSP entry) Case description:“Steve Jobs and Steve Wozniak are best friends who enjoy pulling pranks together and talking about electronics. After several small collaborations, Jobs pitches Wozniak on starting a company together to sell computers based on Wozniak’s design for a personal computer. Wozniak faces decisions about whether to quit the job he loves at Hewlett-Packard to join Apple Computer, how to define his role within Apple, whether to take on Jobs as his co-founder, whether to accept a third co-founder proposed by Jobs, and how to split equity with his co-founders. Early on, they add an outside investor who changes the company’s trajectory and who brings in a new chief executive. Later, tensions rise between the two founders as their strategic visions diverge and as the company grows. Wozniak has now learned some disturbing news about his co-founder and has to decide whether that news will affect his continuing collaboration with Jobs.” Core issues:When […]

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Course Overview for “Founders’ Dilemmas”

Educating founders about the upcoming decisions and challenges they will face Last week was HBS Graduation Week, marking the official end of the debut semester for my “Founders’ Dilemmas” course. I had a great semester with a terrific group of very sharp students (who generously bestowed on the course the 2009 HBS Teaching Award). In honor of those bold, risk-taking students who were willing to bet on a new course, I’m going to devote my June posts to outlining the course’s structure and content and to delving into the case studies I developed for it. In addition to their being useful for educating the future founders in my classroom, I have also found that these case studies are useful for educating current and future founders who are already off campus. Below is the official course overview. The bottom half describes each of the course’s four “modules.” Each of my next four posts will describe the cases in those modules. In the meantime, I would love to get any comments or feedback on the high-level structure or any of the rest of the content! Founders’ Dilemmas: Money and Power in Entrepreneurial VenturesAssociate Professor Noam Wasserman20 sessions + Paper CAREER FOCUS For students who plan to become involved in new ventures now or at some point in their careers. This involvement can occur in any of the following ways: As founders of a new venture As early hires, early advisors, or board members in new ventures As potential investors (e.g., VCs), customers, partners, or acquirers of new ventures This course was designed to help these potential founders, hires, and investors prepare for the decisions they will face both before and during their involvement with new ventures. EDUCATIONAL OBJECTIVES This course examines the early decisions that have important long-term consequences for founders and […]

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Founder Cases in the News: Evan Williams (Twitter) and Apple

One of this week’s more intriguing (and controversial) rumors in the IT industry was about Apple’s possible interest in acquiring Twitter. I was planning to use my next blog-post to give an overview of my new MBA course (“Founders’ Dilemmas: Money and Power in Entrepreneurial Ventures”), followed by posts on its individual case studies. However, given the Apple-Twitter rumors, I decided to jump the gun regarding two individual cases. As it turns out, the course’s introductory case is about the early founding fireworks at Apple, and the middle of the semester features a case looking at Evan Williams’ approaches to founding Blogger and to founding Odeo (which evolved into Twitter). If anyone is interested in seeing those cases, they’re available on the HBS Publishing site, with “Apple’s Core” here and “Evan Williams: From Blogger to Odeo” here. The broader course overview will be coming up soon!

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