Noam Wasserman's "Founder Frustrations" blog

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: https://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 hires in LS ventures: For all non-CEO/non-CFO positions, CEO-as-source-of-hire has increased in 2009 by at least 14%
• Online comment from John Otroba, about upturn: "Challenge will be that most cos. have gotten into very bad hiring practices & selection criteria."

Cash Compensation

Salary

• [TECH] Average private-co. Tech CEO salary for 2009: $231K; potential bonus: $93K
• [TECH] First time in last decade that cash comp is flat within private Tech exec teams (even worse than in dot-com bust)
• [TECH] Diff'c in non-founder CEO comp between ventures with 1 or fewer rounds raised ($204K salary) & CEOs w/ 4+ rounds ($250K): +$46K
• [LS] Difference in non-founding CEO comp: In ventures w/ 0-1 rounds raised, $267K avg salary; w/ 4+ rounds raised, $303K ($36K higher)
• [LS] Life Sciences non-founder CEO comp: $273K salary in 2008 -> $285K in 2009
• [LS] 2nd-highest salary in Life Sciences ventures: General Counsel ($238K in 2009)
• [LS] Flash poll: 48% expect salaries to be flat in 2010, 30% expect increase up to 5%
• [LS] Comparison to other public-co study (200 multi-nationals): 75% expect to keep pay flat, 15% small increase, 10% expect decline
• [LS] Jonathan Fortescue: Surprised LS execs got the raises they did; "obvious that LS cos. march to a diff drummer than the IT cos."

Bonus data

• [TECH] 2009 is the first time that bonus as % of total comp has decreased (a little); did so across all positions except HR
• [TECH] After Head of Sales, next highest % for bonus: CEO potential bonus is 38% of base salary, Head of BizDev is 37% of base salary
• [TECH] Head of Sales: 2009 potential bonus is 61% of base salary; 2008: bonus received was 39% of salary, unachieved bonus was 26%
• [LS] Diff'c in non-founding CEO bonuses in LS ventures: 0-1 rounds raised = $75K avg bonus; 4+ rounds raised = $96K ($21K higher)

Bonus approaches

• [TECH] Aaron Lapat: Early-stage clients holding off instituting bonus systems until after they've reduced uncertainty sufficiently
• [TECH] "Discretion by the board" re: bonuses can introduce morale problems (esp in downturn) if employees perceive it as very subjective
• [TECH] However, in downturn, having that discretion is even more critical
• [LS] Panelist: As co. matures, bonus as % of base pay increases; we'll hopefully be able to delve into that more deeply next year
• [LS] Flash Poll about structure of bonus plans: 37% balanced scorecard, 22% purely discretionary, 12% milestones/non-financial metrics
• [LS] Panelist: "When you have a lot of variation in predictability, you see more discretion being applied with bonuses"
• [LS] Panelist: Pay programs should have positive motivational effect; can wreck that by having bad/no communications about the program

General compensation

• [TECH] Comparison to recent public-co. survey: Private ventures more optimistic abt comp increases for FY2010 than are public companies
• [LS] Panelist: TOTAL comp in LS ventures is down, given companies going away and existing ones reducing staff
• RT @compstudy Steve Hatfield of E&Y "Comp figures might be up, but total comp still down when accounting for decreased headcount"
• [LS] Audience Q: Will substantial layoffs in Big Pharma put dnwd pressure on small-co comp? A: Will have bigger effect on mid-tier cos

Equity Holdings

Individual equity stakes

• [TECH] Non-founding CEO equity holdings in 2009: median of 5.1%, mean of 5.9%
• [LS] Non-founding CEOs in LS ventures: own median of 4.5% of equity, mean of 5.8%
• [LS] After CEO, next highest equity holdings: COO (median 1.5%), CTO (1.1%), R&D/CSO (1.0%)

Team equity stakes

• [TECH] "The top 10 positions surveyed in this report hold on average 18.2% of the company, up from 15.7% in our 2008 edition"
• [LS] "The top 13 exec positions surveyed in this report hold on avg 17.6% of the co., down slightly from 18.16% in our 2008 edition"

Equity pool

• [TECH] Poll of webcast viewers: At 45% of their ventures, <10%>25% is reserved
• [LS] Flash poll, about size of current option pools: 42% of webcast audience have pool of <10%,>20%
• [TECH] RT @compstudy Laura Sachar: "Pressure to increase option pools as poor economy pushes liquidity events onto the horizon"
• [TECH] Laura Sachar: Challenges for founders, non-founding execs, existing investors & new investors to agree how to refresh option pool

Mix of equity vehicles

• [LS] In LS, mix of equity vehicles has changed very little between 2008 and 2009 (a little more change in IT ventures)
• [TECH] Emphasis on using incentive stock options (45% of all equity vehicles used): Driven by tax efficiency of acquiring the option

Golden Handcuffs: Severance and Vesting

Months of severance

• [TECH] 59% of non-founding CEOs have severance packages; Laura Sachar: surprised it's not even higher
• [TECH] All other positions are <50%>
• [TECH] Duration of severance packages: for CEOs, median of 6 mos (mean of 6.8); similar for COOs; all other posns have median of 3 mos.
• [LS] Mos of severance in LS ventures (almost all posns: median 6 mos) are signif higher than in IT ventures (almost all: median 3 mos)
• [LS] Mos. of severance in LS ventures: CEO median 10.5 mos (9.2 avg); Head-ClinRes 6 mos (7.4 avg); Head-R&D 6 mos (7.3 avg)

% of executives with severance packages

• [LS] % of execs in LS ventures with severance pkgs is consistently higher than % of execs in IT ventures with them
• [LS] % of non-founding execs with severance pkgs in LS ventures: 71% CEOs, 76% COOs, 57% General Counsels
• [TECH] RT @compstudy Perception of executive severance as "pay for failure" getting more scrutiny at public companies

Vesting

• [TECH] Panelists: Increase in performance-based vesting rather than time-based; dominantly for CEOs, but good idea for VP-Sales, too?
• [LS] Panelist: With downturn, execs negotiating harder for themselves re: change-in-control terms
• [LS] Is a shift toward performance-based vesting rather than time-based, except in earliest-stage cos that find it hard to implement
• [LS] Panelist advice about vesting: Evolve it as company does based on future milestones, or to manage retention (cascade the terms)
• [TECH] Audience question about vesting; for my past analyses of vesting terms, see https://bit.ly/8QAQf4, https://bit.ly/865RAo

Downturn

• [TECH] Flash poll abt plans: 37% hiring freeze, 26% shift comp pkgs to pay 4 perf'c, 21% RIF, 10% comp reductions, 7% more offshoring
• [LS] Flash poll abt plans in LS: 42% hiring freeze, 22% RIF, 19% shift comp pkgs to pay-4-perf'c, 10% cut comp, 8% more offshoring
• [TECH] Flash poll abt 2010 plans for capital-efficiency measures: "None planned" 22%, 44% plan mult'l measrs; cut admn expnse only (16%)
• [LS] Flash poll abt plans for "upgrading positions" this yr in LS ventures: 5% CEO, 12% CFO, 17% Biz-dev, 13% Sales, 37% no upgrading
• [TECH] Audience Q about severance: Shouldn't it continue to go up in 2010, as more people take jobs and demand it?
• [TECH] Panelists: In downturn, having severance program helps execs stay focused on building venture rather than looking for a diff job

Parting Shot

• [TECH] Advice from panel (Bryan): "Don't underestimate the power of psychic compensation"

Labels: compensation

Here's the updated "thematic index" to the entries and links in this blog.

"Founders' Dilemmas" MBA Course Content

NEW Post: Course Overview
NEW Post: Introductory Case and "When to Found" Module
NEW Post: "Building the (Founding) Team" Module
NEW Post: New-Venture Hiring Cases
NEW Post: Founder-CEO Succession Cases
NEW Post: Franchising, The Full Life Cycle of a Venture, and Exit Decisions

Rich vs. King: The Entrepreneur's Dilemma

NEW Article: New Article in Harvard Business Review: "The Founder's Dilemma"
Post: Rich vs. King, Around the World
Post: Your Thoughts on Achieving Rich&King?
Post: "Rich vs. King" in HBS's Working Knowledge
Post: "Rich versus King": Charts and Impressions
Post: "Rich versus King": The Core Concept
Paper: Rich versus King (Academy Proceedings 2006)

Co-founder Issues

NEW Post: New: "A Note on the Legal and Tax Implications of Founders' Equity Splits"
Post: The Idea Premium: How Much (Equity) is Your Idea Worth?
Post: Idea People and Their Initial Roles Within Founding Teams
Post: A Second Look at "Idea People" as CEOs: Should vs Do
Post: Equity-Split Results, Part 2: Implications for Team Stability
Post: Equity-Split Results, Part 1: When Do Teams Split Equally?
Post: Splitting the Pie: Jumping the Gun?
Post: Splitting the Pie: Founding Team Equity Splits
Post: Neverland, or Dictatorship?
Post: Founding with Friends, Founding with Strangers?
Post: Equity-Split Adjustments: Not Painful? (third bullet)
Case: Ockham Technologies: Living on the Razor's Edge

Founder-CEO Succession

Post: Yahoo's New Founder-CEO
Post: Interview about Founder-CEO Succession
Post: Bridge CEOs, Revisited
Post: Doomed CEOs and Bridge CEOs
Post: Nike, Cyberposium, and Jim Estill: 3 Takes on Founder-CEO Succession
Post: Succeeding at Founder-CEO Succession? (first bullet)
Post: After the Firing: Initial Research Questions
Post: Founder-CEO Succession
Paper: Founder-CEO Succession (Org Science 2003)
Case: Founder-CEO Succession at Wily Technology

Career Issues

NEW Post: The Gender Gap in Startups, Part 1: Women in IT and Life Sciences Ventures
NEW Post: The Gender Gap in Startups, Part 2: Compensation
Post: The Perils of Being a (Successful) Serial Entrepreneur
Post: Harvard Business Online: "Don't Wait Too Long to Become an Entrepreneur"

Entrepreneurial Compensation

Annual survey site: Compstudy.com (for IT and Life Sciences ventures)
NEW Post: The Gender Gap in Startups, Part 2: Compensation
Post: New Items on Entrepreneurial Compensation
Post: Founder Discounts in "Working Knowledge"
Post: Executive Compensation and the Founder Discount
Post: Changes in Founder Attachment (second bullet)
Paper: Founder Discount paper (AMJ 2006)
Paper: Entrep. Compensation paper (Academy Proceedings 2004)

Vesting and Other Equity Issues

Post: Unlocking Your Golden Handcuffs: How Common is Accelerated Vesting on Change of Control?
Post: Golden Handcuffs and Vesting: Initial Interpretations
Post: Golden Handcuffs and Vesting: Early Analyses
Post: Golden Handcuffs: Summary of Vesting Data

Hiring Issues

Post: Investors (and Managers) as Headhunters: Sources of New-Venture Executives
Post: Hiring Into -- and Demoting Into? -- Executive Positions
Post: Hiring Frustrations: Can Goliath Work in a David-Venture?
Post: HR 101: Hiring and Scaling Challenges

Building a Board

Post: Board problems: Even numbers? Multiple founders?
Post: “Do I Have an Effective Board of Directors? (How Can I Tell??)"
Post: Building a Board: Mentorship? Monitoring?
Post: Building a Board: The Impact of Company Stage
Post: Building a Board: Composition by Company Stage
Case: Ockham Technologies: Living on the Razor's Edge

Investor Issues

Post: Due Diligence As a One-way Street
Post: Due Diligence on Your Investors, Revisited
Post: Thanksgiving Dinner ... With Your Investors (or, "Funding from Friends and Family")
Series: "Upside-down VCs" (internal VC structure and hiring decisions)
- Part 1 (The "First Morning" That Sparked It)
- Part 2 (The Costs Versus Benefits of Junior Hires)
- Part 3 (Synthesis of Comments)
- Part 4 (Other Factors, and Performance Implications)
Series (by Matthew Louie and Cali Tran): "Investor/Entrepreneur Value Expectation Gap"
- Part 1 (Project Overview)
- Part 2 (Entrepreneur Results)
- Part 3 (Entrepreneur vs. Investor)
- A Postscript (Entrepreneur-Investors)

Other Topics

Post: Looking for (Movie) Suggestions: Your Favorite Founder Scenes?
Post: A Look Back, A Look Forward ... and a Request
Post: A Note on My Research Approach and Data

Thanks again to everyone who has been actively participating in this blog-dialogue -- I really appreciate your input!

Labels: thematic index

This year’s CompStudy survey – our tenth-anniversary survey – ended up being our biggest ever (by far), with more than 700 private ventures responding to our detailed Entrepreneurship and Compensation survey. (Thank you again to all participants!) From our humble beginnings in 2000, when we attracted 211 Technology ventures, we have grown to having 489 Technology and 214 Life Sciences ventures in the 2009 edition.

Free Webcasts This Week

Each year, we use webcasts to unveil the survey results. Once again, we will have separate webcasts for each of the Technology and Life Sciences surveys. Here is the official announcement, with details and links for registering for them.

Executive Compensation: Insights From the Global 2009 CompStudy Survey

Technology company focus
Date: Thursday, 3 December 2009
Time: 11:00 a.m.-12:30 p.m. EST New York
Registration: To register for this event go to Technology company focus

Life sciences company focus
Date: Thursday, 3 December 2009
Time: 1:30 p.m.-3:00 p.m. EST New York
Registration: To register for this event go to Life sciences company focus

Join us on 3 December as a distinguished panel of representatives from Ernst & Young LLP, J. Robert Scott, the Harvard Business School and leading venture capital firms reviews the results of the global 2009 CompStudy survey and discusses the key take-aways for technology and life sciences companies.

Profiles of 2009 Respondents

This year, participants in each survey included the following:

Technology survey

• Geography: 33% were from California, 24% New England, 14% South, 14% West, 10% Mid-Atlantic
• Business segments: 49% were software, 14% hardware / semiconductors, 13% content / information, 10% clean-tech
• Company size: 51% had 1-20 employees, 14% had 76+ employees
• Company funding: 12% were pre-funding, 25% had raised 1 round, 22% had raised 2 rounds, 12% had raised 5 or more rounds
• Company revenues: 31% were pre-revenue, 41% had revenues of $5M or less, 8% had revenues of $20M or more

Life Sciences survey

• Geography: 30% were from California, 25% New England, 16% Mid-Atlantic, 12% South, 10% Midwest
• Business segments: 42% devices, 40% therapeutics, 12% tools / instrumentation
• Company size: 66% had 1-20 employees, 5% had 76+ employees
• Company funding: 9% were pre-funding, 20% had raised 1 round, 23% had raised 2 rounds, 15% had raised 5 or more rounds

High-Level Compensation Summaries

In the coming weeks, I plan to post various slices of the data, including compensation analyses, fund-raising charts, and profiles of founding teams (e.g., do they look different between East Coast and West Coast? Between IT and Life Sciences ventures? How old are Tech and Life Sciences founders?).

For now, here are two high-level compensation charts we’ll be showing (in addition to a lot of others) during the webcasts on Thursday. The first is position-by-position 2008 vs. 2009 compensation numbers for selected non-founding senior executives in private Technology ventures, in thousands of dollars. Across all senior-executive positions we track, base salary increased an average of 0.8%, the lowest in the ten years of the survey.


The second is position-by-position 2008 vs. 2009 compensation numbers for selected non-founding senior executives in private Life Sciences ventures. In these ventures, across all senior-executive positions, base salary increased an average of 3.2%.


As in past surveys, the data showed strong founder discounts (see blog post, summary in Working Knowledge, and journal article), gender gaps in some areas, and some strong golden handcuffs for senior executives (past data, analyses, and interpretations).

If you would like to see some analyses that I haven't done yet, please post your thoughts and requests!

Labels: compensation

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 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, including whether to take on a co-founder, how to reverse a bad co-founder decision, the growth challenges involved in growing a people-intensive business, franchising as a potential growth option, and the negotiations over franchising terms.

FOUNDER DECISIONS THROUGHOUT THE VENTURE LIFE CYCLE

• Case #2: “Evan Williams: From Blogger to Odeo” (HBSP link)
  
  Case description: "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: To examine alternate approaches to founding and building new ventures, by examining the decisions and actions of a serial entrepreneur regarding co-founders, hiring, investors, and exits. [Note: Evan is now better known as the founder-CEO of Twitter.]
  
  
• Case #3: “The Tale of the Lynx” (HBSP link)
  
  Case description: "The founders of Lynx Solutions have survived tensions within the founding team, the firing of Lynx's founder-CEO, and a crisis sparked by media allegations that it had been spying on its users. Now the founders are considering a proposal from one of their directors to make a dramatic shift in the venture's strategy and have to decide how to react."
  
  Core issues: Managing the board of directors, Bridge CEOs, Founding teams, Hiring challenges, Venture growth, Raising venture capital.
  
  
• Case #4: “Lather, Rinse, Repeat: FeedBurner's Serial Founding Team” (HBSP link)
  
  Case description: "'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: To examine the lessons learned by serial entrepreneurs during their early ventures, regarding building strong founding teams, hiring and incenting employees, dealing with investors, and making exit decisions.
  

EXIT DECISIONS

• Case #5: “Nantucket Nectars: The Exit” (HBSP link)
  
  Case description: "The founders of Nantucket Nectars are trying to decide whether and how to sell their company."
  
  Core issues: Exit decisions, strategic sale, M&A, power of auctions.
  

Labels: exit decisions, franchising, MBA course content, serial entrepreneurs

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 successor

• Case #1: “Founder-CEO Succession at Wily Technology” (HBSP link)
  
  Case description: "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.
  
  
• Case #2: “Les is More, Times Four” (HBSP link)
  
  Case description: "'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.
  
  
• Case #3: “The Tale of the Lynx” (3-part series, covering pre-founding through exit) (HBSP link)
  
  Case description: "The founders of Lynx Solutions have survived tensions within the founding team, the firing of Lynx's founder-CEO, and a crisis sparked by media allegations that it had been spying on its users. Now the founders are considering a proposal from one of their directors to make a dramatic shift in the venture's strategy and have to decide how to react."
  
  Core issues: Managing the board of directors, Bridge CEOs, Founding teams, Hiring challenges, Venture growth, Raising venture capital.
  
  

Up next: Founder exits, Franchising decisions, and Other Special Topics

Labels: board of directors, founder-CEO succession, MBA course content

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 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.
  
  
• Case #2: “'Lather, Rinse, Repeat': FeedBurner's Serial Founding Team” (HBSP link)
  
  Case description: “'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.

Up next: Cases in the "Beyond the Team (Investors and Other Outsiders)" module

Labels: hiring, MBA course content

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 co-founders, Process of splitting equity within the team, How outside job options can constrain strategic and financing decisions.
  
  
• Case #2: “Savage Beast” (HBSP link)
  
  Case description: “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.”
  
  
• Case #3: “Negotiating Equity Splits at UpDown” (HBSP link)
  
  Case description: “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.
  
  
• Case #4: “Ockham Technologies: Living on the Razor’s Edge” (HBSP link)
  
  Case description: “Describes the issues facing a founder-CEO regarding building a board of directors, assembling an executive team, managing tension between 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.

Up next: New-Venture Hiring Cases

Labels: co-founders, equity split, MBA course content, roles

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 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.
  

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 Team” module and New-Venture Hiring Cases

Labels: careers, MBA course content