When founding a business, an entrepreneur is faced with a huge number of decisions, yet as the business grows, having to constantly make choices remains one of the chief responsibilities of the entrepreneur. One of these choices involves what kind of position and role the founder will play in the business as it grows, and in turn, the level of impact that the business will have on the founder. This impact and benefits that the founder can reap from his or her business range along a scale between “control” and “wealth.” For the vast majority of businesses, these two rewards are often mutually exclusive. In other words, the founder can either maintain a high level of control over the business, but must be prepared to receive less wealth as a result. Similarly, a founder who decides to give up some or all of the control of his or her growing enterprise may find that a greater wealth payoff occurs. In the book, The Founder’s Dilemmas by Noam Wasserman, Noam explains how this phenomenon is all too real for so many businesses today. “Founders need to attract outside resources – people, information, and money – in order to pursue opportunities and build the greatest value.” says Wasserman. He continues “But acquiring these resources typically requires that founders cede more and more control.”
Perhaps when we first thought of starting a business, this collision of goals never seemed mutually exclusive. Many entrepreneurs would insist that they would like to control the destiny of their business while simultaneously getting rich from the venture, yet as we saw, the growth of a business often requires a founder to make the difficult choice of which benefit they wish to receive for their work. An article from Entrepreneur.com by Larry Alton titled “The 5 Motivations that Drive People to Entrepreneurship” lists money as the number one motivator for entrepreneurs. Coming in third place is the motivation that comes from controlling their business. So how do we decide which route to take when this fork in the road approaches, and when do we begin planning for it?
Asking ourselves the following set of questions may provide an answer to which route to take:
Question #1: Which industry is my business in? If I am in an industry largely characterized sole proprietorships (even at maturity), then I may be able to have the best of both worlds, to an extent. Since my business does not typically require any or many outside investors, I am free to maintain control over the business without undercutting my financial return. On the flip side, if the industry I find myself is typically made up of large businesses requiring venture funding, I will have to prepare to give up control over my business in exchange for the growth of the venture – which leads us to the next question.
Question #2: Am I willing to sacrifice control over the business in order to let it grow and compete with other industry competition? If I find myself in an industry where many partnerships and funding methods are critical, then I have to accept the fact that without losing a degree of control over my business, the growth of the business may very well be stifled and unable to effectively compete with industry competition.
Question #3: If I give up control in exchange for wealth, what value could I create from that influx of wealth? Although I may have to (unfortunately) relinquish control over my business, there may be the possibility of a new opportunity as a result of the financial gain from that business. Starting a new business with that money may lead me on the path to greater achievement and success than a single business could provide.
Finally, as to when we should give thought about the issue at hand, I believe that it is wise to consider the trade-offs involved early on in the founding process. By knowing what we are willing to give up or receive, we won’t be caught by surprise when the scenario finally arises.
Wasserman, Noam (2012). The Founder’s Dilemmas. Princeton, NJ: Princeton University Press
Alton, Larry (2015). The 5 Motivations that Drive People to Entrepreneurship. Entrepreneur.com. Retrieved from https://www.entrepreneur.com/article/249417