Wednesday, March 05, 2008

Founders' stories

If you want to know what it's like to found a technology startup, read Founders at Work: Stories of Startups' Early Days by Jessica Livingston (Web page, Google books, Amazon). She interviews 32 founders of companies such as Apple (Steve Wozniak), Hotmail (Sabeer Bhatia), RIM (Mike Lazaridis) and ViaWeb (Paul Graham). I haven't finished it yet, but so far the stories ring very true.

One complaint I might have is that all these startups succeeded. It would be good to hear from a few founders who crashed and burned! You do get a bit of exposure to failure in this collection, because in almost every story there are close brushes with defeat -- founders running out of cash, having to radically change business models, lay off employees, etc. -- but ultimately there's a happy ending.

I guess I'm an old Silicon Valley hand, because I knew the broad outlines of the stories of almost all the companies in the book, but each interview so far has revealed fascinating details I'd never heard before.

Another nitpick about the interviews, which I think kind of reveals that the author Livingston is not herself an entrepreneur, is that they don't go into very much detail about the financials of the company -- the real nitty gritty of valuations, equity stakes, acquisition prices, how key negotiations (like exits) went. I guarantee you that almost any startup guy (emphasis, perhaps, on "guy"), when hearing the story of another startup, is doing a running calculation in his head of the founders' equity stake and how much they ended up making. It may sound crass but it's absolutely true and I've experienced it many times in conversations ("Hmm, what was the price? What was his stake?").

The best in-depth account of a startup I've read is High Stakes, No Prisoners by Charles Ferguson, who doesn't leave out any of the key details. I read it before I started my first company, and I'm very glad I did. Ferguson is a very interesting character (Times profile); I can't wait to see his new movie on Iraq.

A note to scientists, academics and economists: even if you have no plans to ever start your own company, I recommend this book for the insight it gives into the workings of technological innovation -- Schumpeter's all important process of creative destruction, as wrought by individual entrepreneurs. on Schumpeter:

Capitalism, Socialism, and Democracy was much more than a prognosis of capitalism's future. It was also a sparkling defense of capitalism on the grounds that capitalism sparked entrepreneurship. Indeed, Schumpeter was among the first to lay out a clear concept of entrepreneurship. He distinguished inventions from the entrepreneur's innovations. Schumpeter pointed out that entrepreneurs innovate, not just by figuring out how to use inventions, but also by introducing new means of production, new products, and new forms of organization. These innovations, he argued, take just as much skill and daring as does the process of invention.

Innovation by the entrepreneur, argued Schumpeter, led to gales of "creative destruction" as innovations caused old inventories, ideas, technologies, skills, and equipment to become obsolete. The question, as Schumpeter saw it, was not "how capitalism administers existing structures,... [but] how it creates and destroys them." This creative destruction, he believed, caused continuous progress and improved standards of living for everyone.


Anonymous said...

Steve Hsu said...

Good example! If I recall correctly I had trouble with that movie because of the handheld camera, but otherwise it was a good documentary. Definitely bubble era, though :-)

I think it would be beneficial for prospective startup founders to hear the stories of the many startups in which the founders were just as smart and determined as the 32 in Founders at Work, but didn't have good luck and ultimately failed. The stories are not as entertaining (perhaps), but are just as instructive, I think.

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