The Leading Edge - Summer 2009 - 6

cover continued from page 5 get the point Ann Dugan, founder and executive director of the University of Pittsburgh’s Institute for Entrepreneurial Excellence, likes to start conversations with entrepreneurs by asking them to draw a triangle—labeling the three points quality, service and price. “Rarely do you get a second chance,” he says. Quality service Price She then asks on which point the business owner sees the company competing. “If you’re competing on price, you’re telling me you’re going to be a volume business and you’re going to need to be national and international in scope,” she says. The bigger the footprint, the more capital the entrepreneur is going to need. That ultimately plays a role in determining if the company founder might need outside financing to build the business, Dugan says. A common mistake is an entrepreneur not taking time to assess where the business is going and what’s needed to get it there. “It’s hard to do that self-assessment in isolation,” Dugan says. “Reach out to your spouse, law firm, accounting firm, and say here’s where I’m at.” She recommends establishing an advisory board of professionals without ties to the company. They can be an important sounding board for entrepreneurs at any stage of a company’s growth. “cheerleader and cold-hearted realist,” he says. “The talents that make a good entrepreneur can get in the way,” Anderson says. A friend convinced Anderson, then 55, that it was time for him to consider selling the business. He’s proud to say he didn’t take the highest offer for Yankee, turning down the top bid from a company that didn’t have a strong track record with companies it acquired. “I would not let my child be taken over by a foster parent,” Anderson says. As a co-founder of Battery Ventures, which has raised more than $2 billion in venture capital, he says choosing a suitor is a lot like finding a spouse. He suggests researching a venture capital company closely before selling. Giving up a stake of a company to a venture capital firm typically leads to the founding entrepreneur exiting within a few years, Anderson says. He estimates that 70 percent of founders are gone within five years and 90 percent are out within 10 years. “Most entrepreneurs are only going to do this once in their life,” he says. Being on both sides of the aisle, Anderson offers a few guideposts for entrepreneurs as they navigate what to do next in the life cycles of their companies: 1. Are you as passionate about your business as you were five years ago? 2. What do you really want out of the business—money, fun, excitement? How much risk are you willing to take? 3. Can you live without your company? Post-partum depression can set in when a founder lets go. 4. If you had the human capital, do you see areas for expansion? 5. What’s your exit strategy? He thinks the entrepreneur’s age also is an important factor. If she’s young and having fun, Anderson says stay at it. If she’s 45 years old and facing expenses like college tuition, consider selling a smaller stake of the company. If she’s 50 or older and getting a little tired, that might be the time to consider selling the company. rich vs. king Noam Wasserman, a Harvard Business School professor who researches what happens to founding entrepreneurs, refers to the dilemma as “rich vs. king.” Rich-motivated entrepreneurs are far more driven by profit and personal rewards, and thus more willing to give up control to venture capitalists in exchange for the “rocket fuel” to accelerate their company’s growth, Wasserman says. Their decision means they will “at best remain a prince within the kingdom,” he says. King-motivated owners are more concerned about being in charge. They’re more willing to try it without the infusion of rocket fuel. Wasserman draws his conclusions from various research projects, including one in 2003 in which he tracked the fate of founders of 202 Internet companies. Within five years, 50 percent of those founders ceded the chief executive’s role. “First-time founders tend to get blindsided by this,” he says. Wasserman sees rich-vs.-king decisions playing out at multiple points in a start-up’s life cycle. It can enter the picture as early as when the entrepreneur decides he or she has a business idea. Will the entrepreneur go it alone or seek co-founders? It also becomes a concern when the entrepreneur builds a team. Is the entrepreneur going to be surrounded with professionals with vast experience or more junior workers? At every fork in the road, the entrepreneurs face tradeoffs. And that’s often a tough choice for them. “They want everything,” Wasserman says. “They want to build a valuable venture and remain in control. They gave birth to this baby and therefore are the best parents for it.” The two most critical junctures for founding entrepreneurs are at completion of product development and when it’s necessary to raise a new round of financing, Wasserman says. When a company completes product IF you WAnT To BuILD A LEGACy, THEn you HAvE To LET Go. VOLUME 9 n 6 ISSUE 4 n SUMMEr 2009

The Leading Edge - Summer 2009

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