The Problem With Founders

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The Problem With Founders

“Just go start a company.” The ultimate panacea to all of life’s problems, the one solution to rule them all. I have personally received Silicon Valley’s most popular advice line more times than I can count, and my friends seem equally likely to have this help foisted upon them.

Feeling bored at work? Just go start a company. Feeling depressed about life and lack any direction? Just go start a company. Broke up recently? Just go start a company. Had a parent die and can’t move on? Just go start a company.

(To be fair, I overheard that one last year. Apparently the idea is that you get so busy you can’t think about anything else. Grieving 2.0?)

The irony of all of this advice is that it almost invariably came from people who had never founded a business before. Our generation’s just go start a company is pretty much like our parents’ “just go join the army.” Regardless of where you stand in life, somehow the experience of going through hell will shape you up and make you a productive human being.

And yes, being a founder is a sort of hell. For most founders, the intensity of building a company and the stress that comes from making payroll is almost unimaginable and can break even the strongest-willed entrepreneurs. We can see this darker side of Silicon Valley in Gideon Lewis-Kraus’ article about Boomtown, and in Nikki Durkin’s personal reflection on building 99dresses. This is not an atypical experience, but rather the average experience of a founder in today’s Bay Area ecosystem. And yet, the standard advice remains the same.

That persistence is easy to understand if we observe how Silicon Valley operates. What was once a work environment lauded for its egalitarianism has now become something akin to Hollywood: a world of stars amid extras and hopefuls.

That’s why you never hear a startup founder say they are in it for the money. Striking it rich is déclassé in a world of missionaries.

This of course is not a new theme – Steve Jobs certainly captured the limelight from Steve Wozniak and others who built Apple in the early years. But we have never seen quite the level of focus on founders at the complete expense of the rest of the ecosystem. They attend exclusive events like Sun Valley and Summit Series, stand on stage at Disrupt, and get front-cover profiles on the most prominent magazines in the country.

The secret of Silicon Valley is that the benefits of working at a startup accrues almost entirely to the founders, and that’s why people repeat the advice to just go start a business. There is a reason it is hard to hire in Silicon Valley today, and it isn’t just that there are a lot of startups. It’s because engineers and other creators are realizing that the cards are stacked against them unless they are the ones in charge.

We need to find a way to build up the profile of that quiet army of people who are developing products behind the scenes, the engineers and product managers who took risks to build their founders’ dreams. We need to democratize our startups again, to recapture some of the communalist culture of the 1960s that once pervaded the Bay Area. And we in the media need to do more to critically analyze the mythmaking that happens around founders and bring our stories back to reality.

The Gods Who Walk Among Us

The act of building something from nothing is deeply cherished by Silicon Valley. For good reason, too, since it is among the most challenging tasks a human being can undertake. Whether it is in the creative space with art and literature or in the economic world with startups and new products, entrepreneurs (very widely defined) bring progress to our civilization by pushing the boundaries of what is possible.

Such invention is fundamentally an act of dissent, a protest against the status quo. For creators, it almost always requires some level of arrogance, because creation is about assuming that our vision for the world is more correct than what others have previously decided.

It’s the next ten employees who are taking a real risk in joining a startup. They don’t get to build their own personal brands and networks when they join that early

Silicon Valley is a rare place where the status quo is always subject to transformation. Everyone is looking for the next revolution, the next great product, the next ingenious business model to join and support. It’s the reason why San Francisco residents and startup-types are such a toxic mix: one wants to preserve the past, while the other wants to erase it and completely repaint the canvas.

This might be called the core myth about founders. The world is a dark place, filled with bureaucrats and decision-makers who would prefer to stop innovation and see nothing change in society. Founders are the glorious ones who carry the torch of progress, no matter the cost.

That’s why you never hear a startup founder say they are in it for the money. Striking it rich is déclassé in a world of missionaries. This makes the “narrative” key for startups, and so founders have to concoct the most bizarre stories imaginable to ensure that their goals fit the particular altruism permissible by our culture. It’s always about delightful products, compelling user experiences, disruption, and innovation.

And a founder can’t just be excited for their product. No, they have to be crushing it. Killing it. A founder must be supremely confident in their plan for global disruption, a hardened rebel fighter. It’s all part of the mythmaking of overcoming adversity, of accepting a lower paycheck because the cause is fundamentally good. The militarism in the language is striking.

Silicon Valley protects these individuals because they are the rare wellsprings of innovation. Or at least, they used to be. Many years ago, starting a business was difficult, needing vast reserves of capital and requiring founders to give up their careers just to try a new idea. The bar was extraordinarily high, and the talent that joined in these early days was equally high.

The bar is so much lower today. Starting a company requires little capital to get started, and even then, dozens of seed funds will cover a startup’s first bills. Top students from engineering and business are gravitating toward Silicon Valley to build their company, since everyone is starting a business and everyone wants to change the world.

That single rare diamond is now mass-manufactured cubic zirconia.

Yet our myths about founders haven’t caught up with this reality. It’s the reason there is so much derision about founders today from some corners of the press. Heck, it’s the reason this article exists at all. The issues surrounding founders this year, from sexual harassment to physical assault to drunk driving are not problems of heroes, but quotidian problems of everyday life. Founders are normal people, yet are treated like deities.

Who is really taking the risks?

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Founders are not normal people in any of the ways that matter of course. For them, the benefits of building a business are many-fold. They can connect with journalists, advisors, mentors, new business partners, and most importantly, investors — relationships that all continue well past the success or failure of their current startup. Plus, they get to define the equity they receive at the conception of the company.

It may never have been easier to start a business, but the upside of startups still largely accrues to the founders themselves. Today in Silicon Valley, there really is no risk in entrepreneurship provided you are cognizant of your personal finances. Seed funding is plentiful, and you can essentially be paid to walk around and build up your own brand (and build a product of course).

We can’t live in a world where everyone wants to be a founder. Starting a business may be hard, but scaling a business is where all the value of a company gets built.

This is why people say “just go start a company.” Even though there can be times of stress and hell in the journey of a startup, the collection of benefits is never at risk like the rest of the business. The personal networks a founder builds will continue to function, and a failure at a startup isn’t even harmful to a personal brand. In fact, it may even accentuate it.

It’s the next ten employees who are taking a real risk in joining a startup. They don’t get to build their own personal brands and networks when they join that early. Nor do they get the equity package to compensate them for their risk, receiving only a sliver of what a founder will receive. Even YCombinator President Sam Altman has discussed this equity inequity.

Even worse, some startups don’t even list the names of their employees (or use only their first names) nor allow them to add the startup as their employer on LinkedIn, because the company is in “stealth” or more likely, because they are afraid of losing their employees to recruiters.

The only way for an early employee to get some sort of credit for their risk is for the startup to exit successfully. But that bar is quite high, since the value of the exit directly correlates with the depth of employee numbers considered influential.

What’s a shorthand way to see this? Credit really only goes to founders when a startup exits for less than $250 million. Under a $1 billion, a handful of the early employees will be able to receive credit. And above $1 billion, the number of early employees who can claim credit continually increases with exit value all the way up to a Google or Facebook, where people will mention and receive acknowledgment for even their triple-digit employee number.

We often hear that there is an engineering crisis, that there aren’t enough engineers able to do the work needed by our industry. But like all labor markets, the talent looks at the risk-adjusted benefits of a position and chooses an optimal option. Given the amount of equity and the low level of credit and benefits they receive, it should be no surprise that many engineers choose to look elsewhere than early-stage startups for their work.

Democratizing our ecosystem

We can’t live in a world where everyone wants to be a founder. Starting a business may be hard, but scaling a business is where all the value of a company gets built. For every founder, we need dozens or more engineers, product managers, business developers, salespeople, marketers, and others to build a startup into a sustainable, economically-competitive entity. Silicon Valley’s founder premium needs to adjust accordingly.

Equity is one valve for making this a bit more democratic. Having a startup’s talent, especially those with single-digit employee numbers, receive a bit more equity would probably assist startups in recruiting, and may also allow them to focus more of their attention on getting the best people.

But, we also need to shift our culture and empower our employees to build their own careers, networks, and ultimately, dreams. Companies should take the opportunity to encourage their engineers to give technical talks, release open-source code libraries, and receive external credit for the work that they are doing. The same is true on the business-side as well. Interestingly, these sorts of practices are fairly common at Silicon Valley’s top companies — evidence that such practices are ultimately beneficial to startups.

Our culture won’t change, however, as long as the media continues to fawn over co-founders at the expense of every other individual. Reporters are often too willing to engage in the narrative-building of startups, since it helps in crafting a story. We need to take a wider lens, and report more than just what the CEO has to say. It’s one of the reasons why I read sites like High Scalability, where employees who often don’t get much attention have an opportunity to demonstrate their innovations and skills.

It’s been fashionable to call Silicon Valley and startups a “hits” business, but we are not Hollywood. Ultimately, the names on our “About Us” pages matter little unlike the movie actors that grace a film poster. The only narrative, the only thing in the whole universe that truly matters is the product we build for our users. Silicon Valley’s roots are in the communalism of the 1960s, and the egalitarian ethos of the Bay Area in the 1930s. We need to bring that egalitarian spirit back into our startups. Just start a company — like that.

Chess photo by G CACAKIAN used under a Creative Commons 2.0 license. Notebook photo by Matt Cornock used under a Creative Commons 2.0 license.