a while back, a pair of entrepreneurs—I’ll call them Jen and Jeff—approached me seeking advice on launching their new business.
They were looking for help in formulating their go-to-market strategy, tightening up their business plan, and figuring out how much capital they’d need to raise and how to raise it.
So I sat with the partners for an hour or so hoping to size them up as people while also getting a sense for their business concept.
I came away impressed.
They were coming to the table with four things I love to see in a startup team: a truly innovative new-business concept; a running head-start on developing the product; domain knowledge in their industry; and what I call useful scar tissue—they’d both previously experienced the stresses and challenges of startups.
They offered me substantial stock in exchange for my advice and a board seat, and I said I’d seriously consider their offer.
So why, two days later, did I choose to turn them down?
Because, as I reflected on our conversation, I realised that the partners had been manifesting all the symptoms of the dreaded founder’s disease. Here are the classic tells:
1. They insist on a C-level titles, even if they aren’t qualified: It’s OK to start out as president or even CEO, but savvy entrepreneurs know that, at some point, they may need to bring in professional managers who’ve managed rapidly-growing teams.
2. They’re not coachable: They approach most situations thinking they’ve got the answers already, and they’re not good at seeking and accepting advice from outside experts and investors.
3. They’re controlling: They have trouble letting go, and feel the need to be involved in even the smallest decisions.
4. They want to raise OPM (other people’s money, from angel investors or VCs), but they’re not willing to play the game the way it’s played: On the one hand, they want (or need) investors’ money to launch and grow their business, yet are horrified by the level of equity dilution they’ll suffer and the number of board seats and preferred voting rights their new investors might have.
Founder’s disease is widely considered a total turn-off by outside investors, A-list talent, and in-demand advisors and board members. Why? Because companies led by such founders inevitably remain small. Success tends to be constrained by the founders’ capabilities, and by the fact that their attitude scares off talent and capital.
By contrast, “disease-free” founders do what’s right for their business, not for themselves. They focus on bringing in the best and smartest capital. They relish taking advice and counsel from the pros. They’re not threatened by surrounding themselves with people who are smarter than they. And they focus on growing the whole pie, not on the size of their proportional slice. By creating a successful whole, good entrepreneurs create a virtuous circle with a vibrant work environment, engaged customers, and strong returns for their investors and shareholders.
Disease-infected startups, meanwhile, remain struggling and under-resourced, with the founders so often directing the blame at the potential investors, customers and employees who turn them down, grousing that those folks “just don’t get it.“
Jim Price is a serial entrepreneur and Adjunct Lecturer of Entrepreneurial Studies at the Zell Lurie Institute at The University of Michigan Ross School of Business. ©2012, James D. Price.
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