Founder’s Dilemmas
Founding a new company is a risky endeavour. You steadily consume your life savings, put your personal and family stability on shaky ground, and have no certainty of success or failure.
Key notes
- Involving family and close relationships in your business can lead to business failures
- The inclusion of these relationships however may be necessary in order to dare to take the leap
- Founders should reflect on what drives their desire to include close relationships in their business and whether this drive is well-reasoned
On this journey, many new entrepreneurs are prone to missteps. Noam Wasserman’s book The Founder’s Dilemmas explores the typical mistakes first-time founders make. In particular, he highlights a concept called “playing with fire,” which refers to the risks involved when founders mix personal relationships with their start-ups – whether by primarily seeking investment from friends and family or by founding and hiring within their close circles. His research shows that such start-ups tend to perform worse, as founders prioritise preserving relationships over making the best business decisions.
If this is so consistently the case, why do founders keep making this mistake?
My theory is rooted in a concept explored by psychotherapist Esther Perel in her book Mating in Captivity. While the book focuses on romantic relationships, Perel describes in it a fundamental human characteristic: the need for both safety and adventure. She argues that the pursuit of adventure alone leads to insecurity and discomfort, while the pursuit of only safety leads to boredom. Ideally, we seek a balance – taking risks from a foundation of security. From a safe home, supported by a partner, family, or close friends, we feel emboldened to take on challenges, knowing we have something stable to return to.
Wasserman suggests that founders turn to close relationships due to ease of access, but I believe Perel’s idea of safety versus adventure also plays a role. The uncertainty of starting a business can feel overwhelming, too precarious. To counterbalance this instability, founders often mix their entrepreneurial endeavours with the familiarity of close relationships.
However, Wasserman argues that including close relationship in the business creation ultimately erodes the very foundation of security. By entangling personal relationships in a business, founders risk losing not only their company but also their personal support system. To protect these relationships, they may make decisions that are detrimental to the business – thus, “playing with fire.” Paradoxically, what feels like a strategy to mitigate risk actually increases it.
Yet another factor may be at play. The leap from dreaming about a business to actually founding one is immense. Involving close relationships can make the process feel more tangible and attainable, providing a psychological bridge between an abstract idea and its realisation. Wasserman views the inclusion of close relationship in founding firms as a pitfall, but could it also be a necessary stepping stone? If first-time founders avoided these pitfalls entirely, would the anxiety of the unknown and fear of failure be too paralysing? And if so, is it better to found a business with close relationships than not to found one at all?
However, while making entrepreneurship seem more accessible, involving close relationships can also make it feel less serious. When you entrust strangers – and they, in turn, entrust you – you are forced to take the venture seriously. You wouldn’t partner with an unknown investor and risk your life savings just to create a trivial product.
This brings us to another perspective: the tale of the lonesome founder. With the rise of individualism, many entrepreneurs emphasise the need to distance themselves from their existing networks, especially if those networks are unsupportive or lack ambition. Some founders believe that in order to succeed, they must separate themselves from those with different goals. Is this approach beneficial or harmful?
I believe it is both. For some, embracing solitude is necessary to escape limiting environments and fully commit to their ambitions. However, overemphasising individuality can undervalue the benefits of collaboration and the historical importance of human interdependence.
As you pursue your next goal, I urge you to strike a balance: establish a strong foundation of security while embracing the risks and solitude necessary for true transformation. The key to success lies in knowing when to rely on others – and when to venture forward alone.