Maintaining Control vs. Maximizing Wealth – Week 2

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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.


Sources:

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

What did you think? Leave some feedback! :)

18 thoughts on “Maintaining Control vs. Maximizing Wealth – Week 2

  1. Hi Austin,

    Facing and constantly making the decisions – good decisions, is a tough game for Entrepreneur.
    It’s thoughtful and detailed by bringing up the 3 realistic questions for any potential founders on the pursue of their dream.

    Mary

  2. Hey Austin! Great post! Very insightful! We as entrepreneurs do indeed have some tough choices to make. I love that you posted the realistic questions — every one of us should look at those questions and answer them honestly. I love being an entrepreneur but sometimes it’s hard! Tough love, hard work and determination will get me through though. Great job!

    1. Hi Christina! I appreciate the kind words, thank you for reading my article. Being an entrepreneur can and will definitely be a challenge, but as you said, it’s very possible to make it work if we keep the right attitude!

  3. I do wonder if Wasserman imposes a tyranny of the “either/or” when examining wealth and control. Certainly there can tension between them, but we do have some high-profile examples that show they aren’t mutually exclusive. Jeff Bezos had the initial idea for amazon.com, but he sought out Shel Kaphan to actual build it. Fast forward a couple of years and Bezos pushes Kaphan to the side – and we’d all take Bezos’ paycheck now.

    Maybe there are different periods of time during the life of a company where control is delegated out and then reeled back in.

    1. Very interesting point you bring up, Nick. I think for the most part, his observations would ring true to businesses – with the exception of high-growth tech companies, Amazon being one of those. Tesla Motors also comes to mind with Elon Musk owning majority stake in the company while also being one of the founders.

      I also wonder if another exception (or at least different outcome) to this rule would be if an entrepreneur chooses to give up control in exchange for wealth, and then uses that wealth to later buy back more control of the business through company stock.

  4. One thing I would like to research further, because I have experienced this working with entrepreneurs, is what percentage are choosing control over wealth. The majority of small business owners (where they employ less than 50 people) that I work with are more willing to forego wealth to be able to control their “baby.” I believe the decision is heavily reliant on the size of the business, much like what you discussed in your first question.

    1. That would be a really interesting statistic to have. I think you could be right in your assumption of small business owners wanting to control their business more than grow wealth. For many owners, their business is like a child – and they want to shape its destiny.

  5. Austin,
    Very thoughtful and insightful post about the difficulty between wealth and control when creating a startup. Although I’ve read about motivations of entrepreneurs, I did not realize there was so much behind the motivations to being an entrepreneur until this assignment. It has given me much to think about with my own motivations. I especially enjoyed the three questions with their detailed explanations to help people think the decisions behind their motivations.
    Cece

    1. Thank you, Cece. I hadn’t given the subject so much thought until this assignment, either. But it seems that the tradeoff between wealth and power is very real for the vast majority of business founders. I’ll definitely be examining my own motivations as well!

  6. Hey Austin. I like the 3 key questions you asked in order to make the most of a very complex decision. I think these questions can be used as a 3-step process for almost any decision an entrepreneur makes in founding a new venture, providing critical thinking points that maximizes the benefits of growing a business while still maintaining a firm grip on operations and steady profits.

    1. Thanks, Trevor! Come to think of it, you’re right – those questions could be used in a variety of different scenarios we face in business. That’s a really good observation, thanks for reading!

  7. Well Written. Analyzing potential outcomes through set questions is a very pragmatic way to make decisions. In my opinion, one large unknown determining factor is the management of emotions.

    1. Thank you, Christopher. I think you bring up a very valid point – the management of emotions can really influence each of the decisions we face, including this tradeoff between wealth and control. We really have to constantly keep things in perspective and take time to look at the big picture and plan before diving into the weeds to accomplish what needs to be done – and then have the tenacity to stick with our decisions in spite of changing emotions.

  8. Austin,

    I enjoyed reading your thoughts and your blog design is awesome, by the way. All three questions that you posed to your readers are absolutely essential when making large decisions, both inside and outside of a business. Good work!

  9. Excellent perspective on the topic. I appreciate the series of questions an entrepreneur should consider while starting a business. The first question resonated with me, which was considering the type of industry the business falls under. I had never considered that one thing could mean the difference between maximizing my wealth versus maintaining control. I wrote a blog on the similar subject. Please check it out and leave a comment. http://muindagblogspot.com/2016/08/23/maintaining-control-v-maximizing-wealth/.

    

    1. Thank you, Muinda! I appreciate that. It didn’t really occur to me either before writing this article and researching the topic. I went ahead and read your article, too and commented!

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