Tug of War
This post will be the first in a series of reflections on Noam Wasserman’s book The Founders Dilemmas. The dilemma that I want to focus on in this post is maintaining control vs maximizing wealth. In terms of entrepreneurship, I had a preconceived assumption that control and wealth went hand in hand. I just figured that you could control your business entirely and that same business would be very successful. However after reading Wasserman’s words it became more apparent that this only happened in rare cases, Bill Gates being one of the most notable examples. The deeper I dug into the writer’s theories and examples the more it felt like the game Tug of War. Dictionary.com describes the sport of Tug of war as a situation in which two evenly matched people or fractions are striving to keep or obtain the same thing. In my mind I see the rope (founder of the company) , with control on one end and wealth on the other in end.
There comes a sense of pride with saying you run your own company but to be a true entrepreneur you must think about the longevity and success of said company by maximizing the potential of your business; this does not always include you the founder. By choosing control you have to be prepared for sacrifice. Wasserman brings out a very sobering point, that as an entrepreneur that chooses to work their own business you are in turn choosing to make less money than you would working for someone else. The statistics show that over a 10-year period the percentage is actually 35% less that a self-employed worker would earn. In addition, another pitfall that comes with choosing control is that the position of CEO that you coveted so much could be lost or in most instances taken away. To me this is the scariest dilemma with choosing control. My focus is not on those that have been pushed out by scandal and misconduct take for example John Schnatter (Papa Johns) and Travis Kalanick (Uber). But more so on CEOs like Rob Kalin (Etsy) that struggled with expansion. It just seems heartbreaking to have to admit to yourself that you are doing your business more harm than good because you are not equipped to manage it’s growth.
A founder that is focused on maximizing wealth and producing a company that is going to yield great value knows that such a feat comes with the task of relinquishing control. The author points out that in order to get the most out of your company you need resources. Many entrepreneurs do not have the resources needed so they have to look towards investors and to those that are able to provide knowledge and ideas that could take the company further than the founder is able to do on their own. In the end it is simple math and common sense. If you are giving up most of your shares but your business is growing at a faster rate because of the resources obtained in those deals, the dollar amount is still greater than if you would have kept your full stake in the company. This was enough for me to see the importance of maximizing wealth as I hope you do as well.