When to Found

Building the Team

Beyond the Team: Investors & Successors

Achieving the Entrepreneurial Ideal

 


When to Found
Should I start a company now, or work elsewhere first? What are the pros and cons of different career paths vis-a-vis my ability to successfully start and run a new venture?

“Humphrey & Cecilia”
This case addresses the career decision-making process of Humphrey Chen as he graduates from Harvard Business School 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, fiancée, friends–as well as his own desires.

Core issues: Founding early in a career; Founding with a technical background; Personal career management; Self-evaluation.

 

“Big to Small: The Two Lives of Barry Nalls”

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.

 

“Curt Schilling’s Next Pitch”

This case examines the implications of Curt Schilling’s choice to found a startup as his major league baseball career was coming to a close. More generally, it examines the challenges faced by “industry switching” founders who found in an industry in which they don’t have prior work experience, a founding profile that will be discussed further in the Foundational Research section of this note. From a research perspective, it deepens our understanding of the origins of founders’ mental models or blueprints (extending research that examined the effects of their pre-existing blueprints) and the ways in which those models shape their founding decisions (often in counter-productive ways).

Core issues: Founding late in a career; Founding without an industry or technical background; Personal career management; Self-evaluation.


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?

“Apple’s Core”

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 to leave a comfortable corporate career; Founding with your best friend, Taking on a third co-founder; Shaping a new venture as an (active) outside investor; Growth tensions; Exit issues.

 

“Savage Beast”

For several months, things had been spiraling downwards at Savage Beast, the music-recommendation company started three years before by Tim Westergren. The company’s founder-CEO had recently left due to pressures both at home and within the venture. Dozens of investors had turned thumbs-down on the venture; salaries had been cut; and, tensions had risen within the founding team. Now Westergren, the founder who has taken over as CEO, is facing even deeper pressures as he finds out about a lawsuit filed by former employees, and he is wondering if it is time to give up on ever achieving his vision.

Core issues: Founding with strangers/acquaintances; Adopting a strong division of labor within the team; Splitting equity equally; Salary deferrals; Founder persistence; The entrepreneurial “roller coaster.”

 

“Playing with Fire at Sittercity”

In August 2000, right out of college and while working full-time for IBM, Genevieve Thiers founded Sittercity.com. Six years later Thiers was working as full-time founder-CEO at Sittercity, which she had built into the nation’s leading online babysitting service. During that time Thiers had worked closely on Sittercity with Dan Ratner, her boyfriend for the previous five years. Initially Ratner had offered Thiers informal advice but at Thiers’ request, he joined the board in 2002. In 2005, Ratner became vice president. In August 2006, Thiers planned to expand Sittercity to it next stage by adding pet, elder-care, house and tutoring services over the upcoming year, and would probably need to raise outside capital to do so. Even more importantly, she and Ratner had recently decided to move their personal relationship to its next stage by getting engaged. What new challenges would these dual “next stages” introduce for them? How should they deal with such challenges?

Core issues: Founding early in career; Founding with significant others; Self-financing; Social relationships as funding source; Division of labor within the team; Implementation of firewalls to limit social-business risks; Slow development of business.

 

“Negotiating Equity Splits at UpDown”

Michael Reich is having severe doubts about how he split the equity with his co-founders two months ago, when they completed a one-page ‘November Agreement.’ Since then, Michael has found an angel investor and has worked non-stop on the business, while one co-founder was off enjoying the winter break with his family and the other worked on lucrative consulting contracts for other companies. Michael has just sent his co-founders a proposal that would re-allocate the equity within their founding team, and all three founders are getting ready to reopen a negotiation they thought had been finalized.

Core issues: Adding co-founders, Negotiating equity splits within the founding team, Allocating equity to a drop-out co-founder, Re-opening equity negotiations.

 

“Ockham Technologies: Living on the Razor’s Edge”

This case describes the issues facing a founder-CEO regarding building a board of directors and raising capital from venture capitalists or angel investors, assembling an executive team, managing tensions between him and his co-founders, and outsourcing system development work.

Core issues: Founding with prior co-workers; Adjusting roles as the venture scales; Dynamic equity splits; Outsourcing system development; Investor decisions (Angel vs. VCs); Building a board.


Beyond the Team: Investors & Successors

What are the tradeoffs involved in attracting outside resources? How will my decisions affect my ability to keep control of my venture and also build its value? How should my motivations for becoming a founder affect the choices I make?

“Founder-CEO Succession at Wily Technology”

Before he accepts the new CEO position, Richard Williams wants founder Lew Cirne to step down as chairman. While considering Williams’ incredible demand, Cirne reflects on everything he has already given up to get Wily Technology to this point. He agreed to step down as CEO and take what could be a largely symbolic CTO title. He also agreed to give Williams roughly as much equity as he himself owned and far more in salary. As the founder, CEO, and chairman of Wily Technology, Cirne had worked hard to build the skills necessary to lead his start-up. He had developed Wily’s early technology single-handedly, had hired 50 employees to help him build his company, and had successfully spearheaded a strategic transformation of his company. He had led Wily to the point where several important customers bought its flagship product and had successfully raised two rounds of financing from top investors. Cirne wonders what he could have done to be pushed to the side like this. What should he do now?

Core issues: Antecedents of founder-CEO succession; Searching for the successor-CEO; Managing your board of directors; Venture growth; Raising venture capital; The founder’s post-succession role.

 

“Les is More, Times Four”

‘I’ve had enough! I’ve decided that I need to resign,’ read the email from the founder of Webpoint to the company’s board of directors. Les Trachtman, the CEO of Webpoint, has to figure out how to react to the founder’s ‘it’s Trachtman or me’ ultimatum. Webpoint was Trachtman’s fourth job as CEO, and in each case he had been hired as the first non-founding CEO, taking over from the founder-CEO of a tight-knit founding team. Trachtman had first taken over from a mother and son team, then from two brothers, then from a wife and husband team, and now from serial co-founders who were best friends. From these ventures, Trachtman had learned how to manage founders who had strong relationships, but those experiences had not prepared him for the current situation.
Core issues: Founder-CEO succession; Successor-CEO’s perspective; Organizational change; Managing the founder; Managing the board of directors; Doing due diligence on potential employers; Raising venture capital; Taking charge.

 

“The Tale of the Lynx”

Lynx Solutions is a wireless-advertising company that was started by James Milmo with two friends. This three-part case series follows Lynx from before the team is formed through its exit. In between, Milmo faces personal decisions, such as whether to found the venture with a past co-founder of his and whether to drop out of school when it looks like the venture will be raising its first round of financing. Once the founding team is formed, the team faces its own choices regarding how to split up the roles within the venture and how to split the equity among themselves. Beyond the team, they face hiring issues (is it good to hire generalist “Renaissance people”?), the replacement of the founder-CEO, and the addition of outside investors as board members.

Core issues: Managing the board of directors; Bridge CEOs; Founding teams; Hiring challenges; Venture growth; Raising venture capital.

 

“Frank Addante: Serial Entrepreneur”

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 take outside funding. Now, he’s facing pressure from investors who aren’t happy with how he is building his current team and are questioning whether he should remain CEO.

Core issues: Lessons learned by young serial entrepreneurs; Hiring “best athletes” vs. specialists; Hiring stars vs. team players; Hiring executives older than you; Working with older co-founders; Splitting equity with co-founders.

 

“Evan Williams: From Blogger to Odeo”

For several months, founder-CEO Evan Williams has felt trapped, unable to control Odeo and its strategic direction. He longs for the ‘simple’ days of Blogger, the previous venture he had co-founded. Although his Blogger experiences had included a major blow-up with his co-founder that had resulted in legal proceedings, a brush with near-bankruptcy, and the laying off of his entire team, Williams has become even more disillusioned with his current venture, Odeo. Odeo, a podcasting pioneer, had debuted almost two years before and had gotten off to a very strong start, with a high-profile debut at a prominent industry conference, coverage on the front page of the New York Times’ Business section, and the raising of a large round of financing from a top-tier venture capital firm. His attempts to find an acquirer have failed, layoffs have begun, and he is now facing a meeting with an increasingly hostile board of directors. At that meeting, he is very tempted to resign so he can move on to his next project and regain the thrill of being an entrepreneur.

Core issues: Serial entrepreneurship; Decisions and actions regarding co-founders, hiring, investors, and exits; Decision consistency; Losing control of startup.


Achieving the Entrepreneurial Ideal

How have some founders managed to build valuable ventures while still maintaining control of them? What general lessons can we learn from these founders about the decisions we should make at the outset and throughout the building of our ventures?

“Earl Martin Phalen: Ready to ROAR?”

Earl Martin Phalen is a serial non-profit entrepreneur who first founded Building Educated Leaders for Life (BELL), and then later, Summer Advantage. Both organizations were born from Earl’s conviction that providing school children with after-school enrichment programs was critical to their educational development. Earl faced many dilemmas in funding the programs, building the right team, and relating to his board. This case examines those dilemmas and addresses Earl’s consideration of an offer to be the CEO of Reach Out and Read (ROAR), which would require him to leave his post as CEO of Summer Advantage.

Core issues: Founding a non-profit/social-enterprise organization; Venture growth; Raising venture capital; Founding teams; Hiring challenge; Managing the board of directors; Making exit decisions in the non-profit sector.

 

“Lather, Rinse, Repeat’: FeedBurner’s Serial Founding Team”

‘Is this the right time or is it still too early?’ Dick Costolo wondered as he reflected on the latest acquisition offer. He had been building FeedBurner with his three co-founders for almost four years and was staring at the details of an acquisition offer from Google. He and his co-founders had founded three prior ventures together, each of which had had increasingly attractive outcomes, but none of which had reached their full potential. The number on the table from Google was a big one. Should the deal be completed, it would be the biggest win the founding team had ever had. However, was this the right time to exit? If Costolo didn’t think so, would he be able to convince his co-founders who all had different personal risk profiles? This was going to be the biggest decision in the life of FeedBurner and its co-founders.

Core issues: Serial founding teams; Lessons learned by serial entrepreneurs; Pros and cons of hiring specialists vs. best athletes; Challenges scaling an organization; Crafting compensation packages; Making exit decisions.

 

“Knight the King: The Founding of Nike”

It had taken Phil Knight sixteen long years to build Nike into the number one athletic-shoe company in the country. When Knight had first conceived of the company for an MBA class project, Adidas had had more than 80% market share, but Knight’s marketing approach had revolutionized the industry, his company had developed several ground-breaking shoe technologies, and Nike’s brand had become one of the most recognizable in the world. In 1980, the same year that Nike had knocked Adidas off its throne, Nike had gone public and Knight, its founder-CEO, still owned close to half of the company. However, now, barely half a decade later, Knight had just received the news that Nike itself had been dethroned by Reebok, an upstart competitor. Knight closeted himself in his office, faced the wall, and sat there, weak and sick and devastated for hours.

Core issues: Leveraging your background when founding; Building a founding team; Hiring; Outsourcing and partnering; Financing alternatives; Growth stages and challenges; Crisis management; Initial public offerings (IPOs).

 

“Rubbish Boys”

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 with student franchising to increase the rate of growth. Now looking to expand within North America, he had turned to a professional franchising model and had developed a new brand to help grow the business. Paul Guy, his first franchisee who was beginning his operations in Toronto, had just called. ‘Brian, my wife’s relative just told me that I’m crazy to open here because the city picks up things for free. It’s crazy to charge $300 to pick something up when they can get the same service for free! We had never heard of that in Vancouver, but that’s a big problem here!’ Was Guy over-reacting, or had Scudamore made a major mistake in his growth strategy?

Core issues: The growth challenges faced by entrepreneurs; Whether to take on a co-founder; How to reverse a bad co-founder decision; Growth challenges involved in growing a people-intensive business; Franchising as a potential growth option; Negotiations over franchising terms.

 

“Nantucket Nectars: The Exit”

Tom Scott and Tom First met while students at Brown University. During their summers, the two created Allserve, a floating convenience store serving boats in the Nantucket Harbor. The founders decided to return to Nantucket after graduation to continue this service business. During the winter of 1990, First recreated a peach fruit juice drink that he had discovered during a trip to Spain. The drink inspired the two founders to start a side-business of making fresh juices. In the spring of 1990, the founders decided to hand bottle their new creation and sell them off their Allserve boat. Everyone loved the product, prompting the founders to open the Allserve General Store on Nantucket’s Straight Wharf. Soon thereafter, other Nantucket stores started carrying the product. The case follows the founders of Nantucket Nectars from founding to exit, as they are faced with many decisions, including and especially whether and how to sell their company.

Core issues: Exit decisions; Strategic sale; Mergers and acquisitions; Power of auctions.