Blog #1 (for week 2)
Updated: Nov 23, 2020
Maintaining Control Versus Maximizing Wealth
Outside providers often want 2 major things for helping with the value of a startup:
1) Economic ownership
2) Decision-making control (Wasserman, 2013, loc No. 5131).
Control of a startup is contested in 2 ways:
1) Whether the entrepreneur remains CEO or is replaced
2) Whether outsider or insiders control the board of directors (location 5132)
Founders who refuse this are less likely to find help and assistance and are more likely to fail. This dilemma forces founders to ask, “At what cost in our ownership and control?”
This is the hardest dilemma in this book because it pits the 2 most common entrepreneurial motivations– (wealth and control) against each other. Some people are forced to choose between one or the other.
“King” vs. “Rich” outcome. Founders who consistently make control decisions are more likely to reach the “King” outcome. The “King” outcome is when the founder retains the throne but does not rule as big and rich as a kingdom might have been possible.
Those who consistently make wealth decisions are more likely to reach the “rich” outcome. This is when the founder loses the throne but sees her venture pursue its business opportunity to the fullest.
What cost will I pay in ownership and control?
Few founders can maximize both goals because at every stage of startup, the actions that maximize one can possibly hinder the other. There is tension between achieving wealth or control.
There are 2 types of founders:
1) Founders who make control decisions:
a) Remain solo founders or choose only cofounders who allow the founder to retain control
b) Hire inexperienced people and keep control of decision making
c) Self-fund or raise capital only from investors who won’t interfere with the founder’s control of the startup
d) Choose to remain CEO throughout all stages of startup evolution (location 5160).
2) Founders who prioritize building value over maintaining control
a) Strives to attract cofounders whose expertise fills important holes
b) Hires experienced people who take control of their domains
c) Raises money from investors who add enough value to startup to justify the control they demand over decisions
d) Watches for the point when someone else will be able to do a better job leading the startup during its next stages of development
Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can
Sink a Startup (The Kauffman Foundation Series on Innovation and Entrepreneurship). Illustrated, kindle ed., Princeton University Press, 2013.