Uninvent helps startup founders with the most important factor in their success: their team. We help founders manage their own motivation, productivity, health, and relationships with co-founders. We’ll discuss hiring and managing a great team, building a great culture, and keeping people aligned and working on the right things. See the series overview in Welcome to Uninvent.
In “Choose Abundance,” we’ll cover a pattern that emerges over and over when you start a company: “scarcity vs. abundance.” We’ll talk about how to recognize this pattern and how to make choices that are most likely to lead to success.
If you have feedback or suggestions for future posts, please comment or contact us at uninvent@substack.com.
“If you want to go fast, go alone. If you want to go far, go together.”
― African Proverb
“Founders who consistently make decisions that build wealth are more likely to achieve what I call a “Rich” outcome (greater financial gains, lesser control), while founders who consistently make decisions that enable them to maintain control of the startup are more likely to achieve what I call a “King” outcome (greater control, lesser financial gains).”
― Noam Wasserman, The Founder's Dilemmas
“If we don't put aside our enmities and band together, we will die. And then it doesn't matter whose skeleton sits on the Iron Throne.”
― Davos Seaworth, Game of Thrones
How much do you want it?
Your ex-colleague Marcy would make a perfect co-founder. She’s a technical wizard who has built products for your market. You are a sales and marketing operator with a pipeline of prospects interested in your product. You work well together and would make an ideal “hacker and hustler” co-founder dream team.
But you hesitate before sealing the deal. You’d give almost half of your equity to her, and you worry that she’ll slow you down. You know the strategy you want to pursue and don’t want to spend time debating it with a partner. You wonder if you should strike out on your own as a solo founder and just hire a more junior person to build the product.
Your bootstrapped startup is showing signs of life. Your revenue already covers you and your co-founders’ meager salaries. You can grow faster by spending more money, but you’d need to raise funding. A seed investor approaches you and offers you $2 million for 20% of your startup. She also insists you set aside 10% of the stock in a pool for future hires.
You keep the investor waiting for several days while your team debates what to do. Is the extra growth worth 20% dilution? Can you hire some people who won’t demand so much equity? If you increase your burn rate, will it lead to more and more financing rounds until you eventually own only a few crumbs of your own company?
You are getting middling feedback on your product prototype from potential customers. Your co-founder spends the weekend mocking up a prototype of a related but different idea he wants to try. You show it to those same customers, and they love it. They tell you they’ve been hoping a startup would solve this exact problem.
You’ve lived and breathed your original idea for two years and are reluctant to let it go. Your co-founder’s idea might be a faster path to success, but adopting it would require a permanent identity shift. Instead of working at a startup based on your own idea, you’d be working for a startup based on someone else’s.
You are choosing between two venture firms that have given you identical term sheets for your Series A. The partner leading the investment would join your board.
The first investor has a hands-off reputation. He sees his role as deferring to the founders and only intervening when asked. The second investor is more prominent and respected, but she is known for taking her board duties seriously and pushing founders to grow as fast as possible. A recent Hacker News thread trashed her for ousting a founder from his startup after she lost faith in his leadership.
You debate if it’s more important to have a heavyweight in your corner who will push you and your company harder, or would you rather maintain the freedom to chart your own course and not lose sleep worrying about keeping your job?
Your new COO has worked for you for six months, and she is fantastic — so fantastic that she would be a better CEO than you are.
After six years of hard work and stress, you are tempted to promote her and demote yourself to a smaller role running product management. You’d keep all your equity, work less hard, and have a higher chance of building a great company. But you wonder if you’d be satisfied not running the company that you built. What will it feel like to see her picture on the home page of TechCrunch instead of yours? How will you feel listening to podcasts featuring her talking about leading the company you started?
These kinds of tradeoffs pop up at every startup. They require you to ask how much trust you are willing to place in others and if you are willing to take leaps of faith. They require you to ask what you are willing to give up if you might get more back in return. They require you to ask when to choose abundance.
You gotta give to get
It’s easy to incorporate a company, declare yourself the CEO, own 100% of the stock, and make all the decisions. You only need to file a few forms and pay a small fee to the state of Delaware or your country’s equivalent.
But you own 100% of nothing. Turning that nothing into something requires a series of decisions that involve taking risks, giving things up, and putting faith in others. Adding investors and employees means diluting your stock. Building a strong board requires giving up some control. Adding senior people means sharing the credit and risking that they outshine you.
Most of these tradeoffs are some form of the “Rich or King” dilemma, best described in Dr. Noam Wasserman’s seminal book “The Founder’s Dilemma."1 You’ll also hear it described as “economics versus control” in the context of a round of funding.
I prefer to frame these in terms of the “scarcity vs. abundance mindset,” which describes how a person tends to approach important life decisions, especially those involving placing trust in other people.2 (Thanks to my lovely wife, Mary, who alerted me to the concept.)
At a startup, scarcity vs. abundance manifests in most of the big decisions you’ll make:
Team — Do you bring in confident and experienced people who will ask for more stock and might challenge your decisions? Or do you recruit cheaper, more junior staff who will be more pliant and accept a role where they just do exactly what you tell them to?
Ownership — Do you accept that you’ll give up some of your ownership as you bring in investors, board members, advisors, and hire a team, or do you optimize for keeping the biggest piece of the company that you can, even if it means you get less help?
Idea — Do you stick with your original idea, even if customers aren’t excited about it? Or do you accept that your ideas aren’t as great as you thought and pivot until you find something that resonates, even if it’s not your original idea?
Delegation — Do you delegate important work to your team, even if they don’t do it as well as you would have (or worse, do it better)? Or do you approve all important decisions?
Co-founders — Do you add co-founders, even though you’ll give up a big piece of your ownership, share the credit, and risk co-founder conflict? Or do you stay a solo act and bet only on yourself?
Funding — Do you raise money to grow more quickly, even though that will dilute your stock and add more stakeholders with opinions on how to run your startup? Or do you grow more slowly but keep control of all aspects of the business?
Board — Do you build a strong board that will challenge you and your team and provide strong governance? Or would you rather go it alone and forego both the oversight and the help a board can provide?
Choose abundance, but wisely
My bias is probably obvious: I lean towards the abundance side of the spectrum. I know you have to take leaps of faith to build a successful company, even if that means having a smaller role and less control. I want to have the biggest possible impact on the market, build wealth, and bring a fantastic team along for the ride. It’s also more fun.
I’ve met founders who put their energy into “not getting screwed.” They obsess about dilution, giving the smallest equity grants possible when they hire people. They don’t trust investors, even ones with stellar reputations. They hire junior people who won’t challenge them, or they even try to outsource critical functions. I’ve never seen one of these founders do well.
But abundance doesn’t mean abandoning caution and being indiscriminate about who to trust and what risks to take. Some decisions should be approached with abundance, and others with scarcity. Abundance decisions, which usually involve who you want to invite into your startup, need to be made carefully. You need to do plenty of due diligence and take risks only when you have a good chance of getting more in return.
You can do a few things that help you anticipate and react to these kinds of decisions.
Know thyself and know thy startup
Some startups are capital-intensive and need funding and experienced staff to get traction. Founders of those companies should be realistic that raising money and adding skilled people to the company requires giving up some equity and control and brings along all of the hard work, stress, and messiness of managing a growing team.
Other startups have products that are cheaper to build and distribute. They can push off hiring and fundraising until further down the road. But even those founders are often too optimistic about how much money and talent it will take to remain competitive. A startup that needs less funding to launch also has fewer barriers to entry. Markets that grow quickly attract competition. Winning a market usually requires adding money and talent.
One way or another, you’ll face scarcity vs. abundance decisions, probably earlier than you think. Discuss them ahead of time with your team to ensure you are in sync about what kind of company you want to build and what you’re willing to give up to get it.
Face your “scarcity” demons
Human nature comes with the “loss aversion” bias, which is when the fear of losing something we have motivates us more than the opportunity to gain something we don’t have.3 This bias was helpful a thousand generations ago when our ancestors were fleeing lions on the savanna, but it can slow a startup down.
Your life experiences also impact your scarcity vs. abundance mindset. Some founders tend to be more cynical about other people's motives, less trusting, and thus less able to take the leaps of faith that building a startup requires. Other founders land too far in the other direction, where they are too trusting of others and don’t do enough due diligence when choosing who to work with.
Uninvent can’t psychoanalyze you, but you probably already know your natural tendencies. If you tend to approach situations from a place of distrust and spend more time worrying about what might go wrong than right, work on taking a step back and asking what you can do to get comfortable with abundance decisions.
Learn the intricacies of control
Some founders are reluctant to raise money or build a strong board of directors out of fear that their company will get “stolen” from them. This occasionally happens, but it doesn’t mean your only two choices are to never raise money or hand over the keys to your startup. You have plenty of options that lie between those two extremes.
Control is exerted along several dimensions, including operational control, financial control, voting control, and board control, each of which breaks down further into individual terms that are often part of the negotiation for a round of funding. Most of the terms you negotiate involve which decisions your investors and board will need to approve.4
We won’t get into the technicalities here, which are complex and vary by the type of company you are and where it is incorporated. You’ll need to work with your attorney in the context of a specific funding offer. But get familiar with the topic so that when the time comes, you can approach the tradeoffs with more nuance and have already thought about what you’re willing to give up and what you aren’t.
Keep control by deserving it
Many founders’ nightmare scenario is getting kicked out of their own company by their investors or even by their own co-founders. It doesn’t happen often, but when it does, the story is almost always the same: the team has lost confidence in the founder’s leadership.
The loss of confidence usually starts when the startup starts missing its goals, but it usually takes more than that. Most startups go through difficult stretches, and the founders survive them as long as they are still seen as the best people to lead the startup. When it goes bad, it’s usually because the founders isolate themselves. They stop sending investor updates. They stop asking their investors and board for help. They don’t share the bad news with their teammates or enlist their help to solve it.
Even if you don’t have a board who can kick you out of your company, you don’t have the control you think you do. You can’t force great people to join your company or to stay with you during hard times. If you don’t communicate and don’t trust your team, they’ll leave, and you’ll realize that you “control” less than you thought you did.
Do due diligence on team additions
You probably know how expensive a bad hire is, and we’ll certainly remind you in future chapters. A bad hire can slow you down, damage your culture, and heap a pile of stress on you. But you always have a simple remedy for a bad hire: you can ask them to leave.
You can’t ask investors to leave. They are with you for the long haul. Amazingly, founders often do more due diligence when they hire a new team member than when they add a new investor.
As you would for a key hire, spend as much time as you need to with a potential investor to get a feel for how well you’ll work together. Check lots of references from other founders who have worked with them, both ones the investor gave you as well as ones you’ve hunted down on your own. A good investor welcomes this and will respect you for it.
Choosing abundance helps set you up for a successful startup, but it’s no guarantee. You can increase your odds further if you Know Why You Get Paid.
If you have feedback or suggestions for future posts, please comment or contact us at uninvent@substack.com.
Noah Wasserman’s The Founder’s Dilemmas is a must-read for startup founders.
Scarcity vs. Abundance was introduced in Steven Covey’s The 7 Habits of Highly Effective People. You may have also heard of Carol Dweck’s Growth Mindset, which is a related concept.
Loss Aversion is another on our growing list of conceptual biases that trip up startup founders.
Many resources are available on the specific items you negotiate in a term sheet, but Venture Deals is an excellent place to start. A good attorney will also help you understand the implications of the decisions you’ll have to make.