The Start-up Paradox

What is the start-up paradox? Everyone knows that most businesses have a high probability of failure, but to succeed founders must believe that their idea and resulting business will be the exception that beats the odds. 

What is the start-up paradox? 

We cannot turn back the clock on things that have been done or left undone, but we can learn from the past. An essential aspect of my recovery from my defunct start-up has been the intense attempt to analyze where exactly I went wrong. This experience has led me to identify what I call: the “start-up paradox”.

What is this start-up paradox?

Everyone knows that most businesses — especially tech start-ups — have a high probability of failure, but in order to succeed founders must believe that their idea and resulting business will be the exceptions that beat the odds.

As an upstart founder, you must convince yourself, as well as potential partners, employees, customers, investors, and other funders that your idea is a winner and that you have the expertise and hustle to launch and grow the business. To do this, you must suppress your knowledge of a very likely outcome and promote your exceptional ability to overcome the odds. 

Three risks of the start-up paradox

Being caught in the start-up paradox – focused on the dream, tuning out reality – can be a precarious position for founders. 

  1. Founders can take dangerous risks, deciding to “fake it until you make it” by overselling your stage of development or achievements, which can return to haunt you. 
    • Elizabeth Holmes and her company Theranos – the Silicon Valley-based blood analysis enterprise that has been the subject of books, articles, podcasts, documentaries, and an HBO series – is a cautionary tale. The company misrepresented the capabilities of its blood-testing technology to investors, distribution partners and the public. Particularly egregious were that claims about what tests were possible on its equipment using blood from a finger prick, resulting in many patients receiving incorrect health data. Ms. Holmes was found guilty of wire fraud relative to her dealings with investors earlier this year. She was not found guilty of the fraud charges relating to the treatment of patients. Theranos COO Sunny Balwani – also Ms. Holmes’ former boyfriend – was convicted of 12 counts of fraud, including the charges relating to patients, in July of 2022.
  2. Founders can become blind to the signs that it is time to pivot. The need for goal revision can be ignored if you can convince yourself that success is just around the corner as long as you persist in the current direction. It is hard to admit that perhaps you were wrong, or to see that a different approach might result in a better outcome.
    • Imagine if Stewart Butterfield had missed seeing that the chat function his team had built to work on the massive multiplayer game (Game Neverending) that his company was developing was the better option for a business. The outcome of that pivot is the SaaS (software as a service) platform Slack. 
  3. Founders can make bad decisions about spending more money to ensure the earlier investments are not lost, rather than being realistic about the likelihood of actual success. Thus, throwing good money after bad.
    • Pets.com is a well-known example of a business that failed after spending large sums of money. The challenges with the business model related to the cost of shipping pet products should have been identified prior to the initial public offering (IPO) which raised over $80 million in 2000. The company filed for bankruptcy within a year of its IPO.

The start-up paradox is found in human nature

Two ancient stories from two different cultures show that the start-up paradox is consistent with observable human behaviour in a universal sense. What follows is something that I have learned from a professor friend that resonated with me. I then applied the insight to the start-up context.

The Bhagavad Gita – a part of the epic poem The Mahabharata – recounts a dialogue between Krishna, a god manifest, and Arunja a human member of a ruling family about to engage in a cataclysmic battle. According to Krishna, the mystery of human life is that all human beings know that they will die, yet they all behave as though they will live forever.

Turning next to the ancient Greek tradition, similar themes are apparent. It is widely thought that Prometheus was punished by the gods for bringing fire to the humans. In reality, the chief gift Prometheus gave our species – recounted in a single line in Aeschylus’s play Prometheus Bound – was liberating us from the knowledge of the day and hour of our death. This gift allowed us to live each day in freedom – a similar theme to that which is presented in the later Sanskrit text.

The start-up paradox creates possibilities

The start-up paradox leans into this ancient theme: that what is liberating and empowering to humans is our ability to live in the moment, as if there is no perceivable end – let alone the tragic ending which is the reality for most unsuccessful ventures.

As a founder, you must forget that most businesses fail, and act as if you are destined for great success. We may feel imposter syndrome. We may be faking it until we make it (without crossing the line to commit fraud). But if we are to have any hope of success, we must believe and evangelize that there is future beyond the disappointments of today. As soon as our ability to do this expires, the business is finished. While I continued to believe in my business’s potential and the underlying idea, I no longer had the stamina, confidence or courage to carry on. I had fallen out of the start-up paradox.

Without the start-up paradox, it would seem that innovation and experimentation would be limited. The start-up paradox taps into the part of our nature that enables us to take risks and be creative. The challenge for founders is to be aware of the start-up paradox so that you are able to avoid the pitfalls and reap the benefits.


Vision and Blindspots

Upstart Founders know that having vision is a requirement for your start-up. This is positive; but founders also need to be sure that your vision does not create a blindspot that can harm your business.

In my experience operating a start-up and talking with other founders, typically one person on the founder team is the visionary and has the most attachment to the big idea behind the business.

Vision and passion are essential aspects of any start-up. Start-ups need an evangelist that can excite people about the work. This vision is what you are selling to prospective customers, employees, investors, and partners. It tells them why would they want to be involved with your business. Vision is a requirement necessary to drive your business forward.

There is a downside to be aware of too. This attachment can be a source of blindness when there’s a need to pivot. If a founder is too invested in a singular path to realize the vision, that becomes a business risk. That’s when the co-Founders, mentors, advisors, or employees must challenge the visionary, to help prevent the start-up from missing opportunities or red flags.

The vision provides a framework, but it has to be flexible like a business plan. Things are always changing. Successful founders are guided by their vision and plan as they consider their responses to the external forces that influence their business.

So founders, when challenged, ask yourself if your reaction is guided by the operating realities, or if you are missing important inputs because they’re in your blindspot. Don’t just rely on the mirrors, turn your head and make sure with your own eyes that there is nothing obscuring your view.

Co-Founders

Upstarts discusses the pros and cons of choosing and working with co-founders. The Co-Founder can help move your start-up forward if you choose wisely. Learn how to make smart choices and set your business up for success.

The truth about partners

I don’t want to burst anyone’s bubble, but things are not going to turn out as you expect. Whether you’ve known your co-Founder a long time, or whether you are relatively new acquaintances, having a business is going to put you and your partner(s) in unexpected situations. These new and unanticipated realities will mean you’re going to be surprised by how someone behaves. You will even surprise yourself! All you can do is be as prepared as possible to mitigate some potentially problematic situations.

Did you come up with the idea on your own? One of the most important decisions you’re going to make early in the venture is whether or not to have co-Founders and partners. 

It is possible that original concept may have been dreamed up by two or more people. If that’s the case, you will have to address questions related to ownership and responsibilities, as you will if you decide to bring someone into the business to work on your idea as a co-founder. 

There are advantages to having partners in your business: but there are also challenges. 

First, let’s discuss the positives:

  • Co-founders or partners can share the burden, work and stress. Having a start-up is can be lonely. Partners can support one another when things are tough.
  • Having people to discuss ideas, plans and approaches with is a good thing. Other people can offer perspectives that force you to challenge your own assumptions and build ideas.
  • As mentioned on the funding page, if you’re going the investor route, the “team” is one of the key decision-making considerations.

The biggest risk is in any partnership is conflict, which can be bad for you, bad for your partners and bad for the business. (A bit of healthy conflict can be good, but in this case, I’m referring to the destructive kind.) Conflict can result from different personalities, work habits, personal and professional objectives, expectations, poor communication.

Questions to ask about yourself and your partner

Based on my personal experience, I can share some learnings:

  • Before going into business with someone, think carefully about your strengths and weaknesses, as well as those of your perspective partners. Optimally, but not necessarily, you want to create a team with complementary skills. 
  • How well do you know your perspective partners? Be really honest when you ask yourself if they share your:
    • Commitment – is this business the most important thing everyone is doing or is it a side-hustle? What other professional obligations do you have? What about personal priorities? Co-Founders should have roughly the same level of commitment to avoid conflict. 
    • Work ethic – do you know whether your partner(s) are willing to work as hard you work on their responsibilities within the business. This can become a serious source of friction if there’s a misalignment in this important aspect of the business. It is possible to share a work ethic and have totally different styles. You might be someone who logs a lot of hours in the office, while your co-founder does their best thinking in a coffee shop. The question to ask yourself is knowing that they have the same work ethic whether you can feel confident, over time, being tied to someone who works differently than you. 
    • Vision for the business – maybe you imagine becoming a billion dollar global business, but your co-founder is happy running a regional operation. Talk about your vision, short, medium and long term goals and make sure there’s alignment before moving forward. This includes the type and timing of any potential exit.
    • Financial situation – this can be uncomfortable to discuss, but personal finances need be part of the conversation between prospective co-founders. Are you expecting salaries? When? How much? We all want to be optimistic when we think about our business, but 9 times out of 10 it’s going to take a lot of time and patience to generate revenue. How long can you manage within getting paid your “fair market value”? If there’s a disparity between co-Founder’s ability to thrive during the bootstrapping phase, this is something that needs to be understood and mitigated.
  • Be clear up front about what each person is bringing to the business and what each person’s responsibilities will be. Are you bringing the idea and your co-Founder is offering technical expertise or networks or cash? Are you responsible for overseeing manufacturing and your partner is doing sales? Is everyone willing to invest “sweat equity” or are some looking to be paid? Any combination is fine as long as everyone is clear about each person’s responsibilities and agrees about the value of the contributions. 

Finally, ask yourself how you would feel if your relationship with your co-Founder changed for the worse. This is more relevant if you have a long-term professional relationship or personal relationship.

With all of these considerations carefully thought through, you can then determine ownership based on the relative value of what everyone is bringing to the table. Setting up equal ownership may seem like a good idea when all you have is an idea, however, it is most likely not the best approach. 

Getting started with partners

  1. Consult a lawyer – this may seem like a big expense, but it will save you time and aggravation in the future. Most lawyers that work with start-ups will have templates of shareholder agreements, employment agreements, stock options, and other basic forms. Some have fixed fees for start-ups.
  2. Incorporate the business –  incorporation provides a structure and makes the business a legal entity, de-personalizing it from the founders. Again, it is an investment worth making in the early stages. Incorporation is an eligibility requirement of many funding programs and may be needed to open corporate a bank account.
  3. Have a shareholders agreement – this document formalizes the relationship between shareholders. It’s absolutely necessary.
  4. Write job descriptions with titles, even though these may change as the business evolves. Defining roles and responsibilities from the outset is a smart strategy. The titles may seem unimportant, but they can become a source of irritation.
  5. Develop a decision making structure and dispute resolution approach before there’s a problem.
  6. Define outcomes and associated timelines for the responsibilities everyone on the team is taking on. As co-founders you want to be focused on deliverables, not the steps to get there.

Yellow flags

Working in a start-up requires a high degree of flexibility. You can’t be good at just one thing. You also have to be ready to pitch in and do things you don’t enjoy with as much dedication and attention as you give to your passion projects. Obviously you should try to have people doing work that they’re capable of, but beware of anyone who is unwilling to work outside of a narrowly defined area as a start-up co-Founder.

There’s no room on a founder team for someone whose main skill is leading large teams and reviewing and commenting on the work of others. Founders need to be able to produce work to build the business. If there’s someone on your team who just wants to be the “boss”, that’s a yellow flag you should address before you incorporate. Perhaps they’d be better suited to an advisory role.

5 Facts for Founders

About one third of businesses fail within two years. Upstarts, a community for founders, identifies five questions founders should know the answers to before starting a business.

Welcome to “Upstarts”! A website community for founders and wannabes.

About one third of businesses fail within two years. Here are five questions you should know the answers to before starting a business. Thinking about these questions will increase your chances of success.

  1. Do you have supportive friends and family? In my opinion, this should be the number one consideration for anyone starting a business. Being a founder is hard and time-consuming. If you don’t have the backing of those people you are closest to, it will be a long, lonely road.
  2. Do you have a really good business idea, that solves a clearly defined problem? Did you take the time to validate your solution with your prospective customers before you make large investments? Talking to people will help you understand the strengths and weaknesses of your concept. You can also learn the key words that will help you audience connect with your idea.
  3. How do you answer the question why you are the right person (or team) to build this business? For example, is your business in a field you are already connected to? Your business will have more credibility if you have knowledge and expertise recognized by the industry you have targeted. And of course it is easier to get a meeting if you have relationships. A larger network also means a significantly larger extended network. Associates can make introductions, helping you get in front of the right people more quickly and giving you a better chance of being taken seriously.
  4. Are you expectations reasonable and realistic? In my business, we had to adjust our expectations related to time and so have most of the founders I’ve encountered. Time expectations include questions such as: how quickly can I develop my product or service, attract customers to generate revenue, or engage investors? Expectations also relate to how you define success for yourself. Are you looking to build a long-term career or hoping to build and sell? Not everyone wants or expects to become Mark Zuckerberg, but many founders start with unrealistic goals.
  5. Are you really committed? To be successful you have to demonstrate determination, tenacity and flexibility.  You can be committed to the idea or vision, but you need to be prepared to pivot and adapt as you learn. Read the article.

Is it easy? Absolutely not! But if you believe and work very hard, it might just be possible.

Until then, remember: you’re not alone!