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May 25, 2012 AT 7:24 am

A Harvard Professor Analyzes Why Start-Ups Fail

Pt 1069

A Harvard Professor Analyzes Why Start-Ups Fail @ NYTimes.com.

The predominant pattern I’ve seen is that the most common choices people have to make are the ones that are also most fraught with peril. For example, one of the most common decisions is to co-found with someone you have a prior social relationship with — friends or family – and not a prior professional relationship. But that type of team is the least stable. It’s the most likely to end up in disaster.

A second example: 73 percent of founding teams I’ve studied divide the equity within a month of founding. That is when the uncertainty is highest. The majority of those teams are also setting that split in stone. That’s the predominant model they use – split early and split in a way that’s static – but that means teams can’t adjust and are setting themselves up to get burned down the road. What are the chances that you are all going to be contributing to the venture on an equal basis? It’s a recipe for team tensions to increase.

And a third example, which was actually the biggest surprise for me: In my data, by the time start-ups raise the third round of financing, 52 percent of founder C.E.O.’s have been replaced. In three-quarters of these situations, the board fired the founder. In the remaining cases – by far the minority – the founder raised his hand and said, “There’s got to be someone better than me to lead us to the next stage.” And I found that the most successful of founders, the ones who led their start-ups to completing key milestones the quickest, were actually the first ones to get fired.


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