Wasserman Chapter 2: Career Dilemmas

Pre-founding questions of the chapter:

1. Should I become an entrepreneur?
2. If so, when should I make the leap into founderhoodearly in my
career or after I accumulate more career experiences?
3. How can I dispassionately evaluate my idea?
-

Despite the popular conception of entrepreneurs as risk takers, risk

aversion does not seem to affect the decision to become an
entrepreneur.
Two factors can separate entrepreneurs from non-entrepreneurs:
o Early influences
o Natural motivations/valued rewards

3 characters in the chapter: Humphrey Chen (little experience), Barry

Nalls (experienced)
Early Influences
- A found is greatly influenced by the family and culture in which he
or she grew up and, in some cases, by specific role models.
o Powerful messages about whats important, what success is,
what counts for achievement and what doesnt.
o E.g. Humphrey grew up in a family that doesnt value
entrepreneurs,
but Barry learned to appreciate business ownership from
the entrepreneurs in his family I saw the whole
makeup of how you get an idea, how you move forward
with it, how to get customers to care about what youre
going, how you treat customers.
Founder Motivations: The Centrality of Wealth and Control
Motivations
- 13 possible motivations (from CareerLeader1 Database):
o affiliation, altruism, autonomy, financial gain, intellectual
challenge, lifestyle, managing people, positioning, power and
influence, prestige, recognition, security, and variety.
o Differences between entreps and non-entreps were striking,
but fewer differences between the genders, and even fewer
among the age cohorts.
Whats going to keep me motivated to stick with it and run this for a
period of time?
Top 4 motivations for Males in their 20s:
1. Power & influence (E) / Security (NE)2
1 Careerleader: 27,000 surveys in the database, separated by gender, age
cohort (20s, 30s, 40s and older), and entrepreneurial status (yes/no)
2 E = Entrep, NE= Non-entrep.

2. Autonomy (E) / Prestige (NE)

3. Managing people (E) / Financial Gain (NE)
4. Financial Gain (E) / Affiliation (NE)
Top 4
1.
2.
3.
4.

motivations for Females in their 20s:

Autonomy (E) / Recognition (NE)
Power & influence / Affiliation
Managing people / Security
Altruism / Lifestyle

These motivations are relatively stable throughout life, with most of

the top-ranked motivations for people in their 20s persisting into
their 30s and 40s and beyond.
o Though there are still changes, as shown in the tables below.

Entrepreneurs and Non-Entrepreneurs are motivated by very

different rewards, especially early in their careers.

o For the people whose motivations are similar to those of

entreps: When in my career should I found?
Would-be founders should look before they leaplook at
whether or not their career experiences have prepared
them for the lead into founderhood.
Reason to Wait
-

A well planned pre-founding career can arm the potential founder

with the:
o Human capital
o Social capital and
o Financial capital appropriate to a start up.

Building Human Capital

-

Defn.:

the skills, knowledge, and expertise needed to launch and

build the start up.
o E.g. general: leadership ability, ability to speak and write
clearly
o E.g. specific: knowing how a particular product is
manufactured
Includes formal human capital acquired through schooling and tacit
human capital acquired through life experiences (e.g. knowing how
to negotiate with equipment sales reps).
Founders approaches to building their stratups are powerfully
shaped by the mental models they bring to those stratups.
o Accumulating more experience is far less valuable if that
experience does not shape the mental model in relevant ways.
A broad range of work and educational experiences is associated
with a significantly higher willingness to become self-employed.
o More education increases the likelihood of being S-E.
Attending a targeted program (e.g. focused business-function
program or industry-specific credentials) can be a shortcut to amass
human capital vs. spending years on a job.

Functional Backgrounds
-

Founding a startup requires the knitting together of all the function

required to make an organization run effectively, from product dev.
to marketing to sales to finance to HR.
o Having prior experience in those arms you with the ability to
understand the bigger picture.
o Founders with gaps in their functional backgrounds can be
blindsided by problems in those areas.
o An execs functional background can also have a powerful
effect on the company's strategy and focus.

Industry Knowledge

Specific knowledge of an industry can help a founder avoid

potentially fatal problems.
o E.g. Barry had enough industry experience to be his own inhouse expert on (1) potential target customers, (2) what those
customers would find desirable, and (3) what his value
proposition could entail.
o more than half of the entrepreneurs start business in
industries other than those in which they had been previously
working
o Past research suggests that founders who launch stratups in
industries in which they havent worked raise less capital,
have lower employment growth, and have a higher rate of
failure than founders with prior industry experience.
Switching industries requires for you to shift your mental
model, but even such shifts can cause you to be
blindsided in your vision (e.g. by unconsciously making
industry-specific assumptions).

Working in Small versus Big Companies

-

Working in someone elses startup helps you develop tacit

knowledge about entrepreneurship that increases the likelihood of
becoming a founder yourself.
o More entrep. experience = more ways to recognize and
evaluate potential opps.
Employees of small companies are more likely to leave and become
a founder than those of large companies.
o Also, VC backed firms more likely to create entrepreneurs
A more developed startup is a better training ground than two guys
in a garage. A startup that is more mature, and has brought in
experienced executives who will be good mentors, will prepare you
better
In startups [investors] really care about, number one, the team.

Building Social and Financial Capital

-

Defn. social:

the durable network of social and professional

relationships through which founders can identify and access
resources
Defn. financial: a cash cushion that will keep them going after work on
the startup.
o Size of this cushion can determine the amount of time the
founder is able to give the startup, the amount of stress and
urgency he or she feels to become cash-flow positive, and the
decisions he makes to build the startup.
Research shows that people who accumulate more social capital
before founding are able to attract more human capital (such as co-

founders) and financial capital (such as seed capital) with which to

launch the startup, and to do so more quickly.
The Perils of Waiting
-

Founders with more than 25 years of work experience faced higher

probabilities of startup failure than did founders with approximately
25 years of experience.
By working for a long time, founders may get handcuffed to their
pre-founding position and may also become less fit to become
founders.

Strong Career Handcuffs

-

Working for many years can strengthen the handcuffs tying the
potential founder to his or her employer. These include:
o Psychological handcuffs
E.g. social status of an impressive job title/well known
employer
o Golden handcuffs
E.g. high salary or a vesting schedule that requires one
to keep working to earn stock awards.
o Legal handcuffs
E.g. non-compete or an employers claims on IP
developed by the employee while working for the
employer.
These handcuffs raise the opportunity cost of leaving the employer
o Reduce the likelihood of leaving to become a founder.

Lower Fitness to Found

-

Working as an employee for a long time can decrease both

o a persons willingness to found
o his fitness to do so
as people rise in their careers they develop certain
skillsets and acquire deep knowledge and contacts
within their industry/business.
Employees get used to relying on organizational
infrastructure, processes, support functions, etc.
The when-to-leap decision can be affect by the would-be founders
perception of the risks involved and how that perception changes
over time.

Stronger Family Handcuffs

Single, childless founders are much less constrained in their

founding decisions.
The family handcuffs often tighten as spouses and children enter
the picture.
It is important to have 100% support of family (mainly spouse)
An entrepreneur may also be constrained by his personal financial
situation
o Mortgage, college loans, credit card debt, etc.
A working spouse can be crucial in this situation.

Developments That Release the Handcuffs

-

Although high-paid employees may be less likely than lower-paid

employees to walk away from their salaries, if they have saved a
high percentage of their earnings over the years, that nest egg may
make them more likely to make the leap than if they hadnt saved.

An Employers Change in Strategy

-

The employers acquisition or change of strategy may spark the

potential founders leap.
Employment Shocks
-

For founders, probably the most drastic career trigger is the loss of a
job.

Financial Shocks
-

Triggers can also be positive.

o Unexpected personal windfalls can spark the decision to leap.

Family Developments
-

Moving to a country o region that is more supportive of

entrepreneurship may also release the potential founder from
familial or cultural handcuffs.

How can I dispassionately evaluate my idea?

-

To ensure that the best decisions are being made about whether and
when to launch their startups, potential founders should also be
evaluating as objectively as possible the potential ideas on which
they might base them.
o A founders natural confidence and passion can prevent an
objective evaluation and set up the founder to fail.

Evaluating Ideas

Study of fast-growing startups: 71% of them, the founder got the

idea while working at a regular job.

A key step in the decision to leap into founderhood is the evaluation

of the ideas potential whether the market window of
opportunity is favorable.
Questions about market window of opportunity that provide
guidance:
o Market Potential: Are customers willing to pay for such a
product or service? How big is the market? Is it growing?
Startups with broader potential reach have higher
survival chances.
Products that disrupt the market by introducing a new
component are more likely to succeed
o Competitive Landscape: Is it favorable? Are many companies
competing for scarce resources?
Startups in highly competitive environments have lower
survival chances than in lower-competition
environments.
o Ticking clock: Is there a ticking clock that requires me to
move quickly to pursue my idea? Is the window of opportunity
about to close?
TC industries:
(a) those in which products and services are
quickly derived from and just as quickly outdated
by tech/scientific advances,
(b) those with strong network effects (value
increases as more people use), and
(c) those with significant economies of scale.
Such industries tend to have stronger first mover
advantages
Startup ideas must also be evaluated in light of the specific persons
capabilities and skills.

Clouding Judgement: Passion and Optimism

-

Founders who are optimistic tend to act more quickly and to launch
faster-growing businesses.
o However, optimistic founders also tend to create unrealistic
business plans based on rosy projections and to
underestimate their competition.
o Higher-optimism entreps. have 20% lower revenue growth and
25% lower employment growth than lower-optimism
entrepreneurs
o Optimism can also cause for a founder to leap
sooner/sometimes too soon/when they shouldn't at all.

Closing Remarks

Potential founders should avoid the mistake of thinking that their

passion excuses them from a rational assessment of their
circumstances.

Founders who make the leap early in their careers should be more
inclined to look for help from complementary cofounders, hires, or
investors and should be more willing to give up the equity, decisionmaking control, and compensation required to attract them.

In contrast, late-career founders who already possess much of the

capitals needed to launch the startup should be able to consider the
option of being a solo founder and should also be able to attract
complementary players by offering less attractive packages.

Each of these career paths thus leads to very different potential

outcomes.