GreyMatter

Founder’s Dilemma

Noam Wasserman – a professor in the Entrepreneurial Management unit at Harvard Business School – wrote an engaging piece in a recent issue of HBR entitled “The Founder’s Dilemma“. 

In it, he described how two of the primary motivators that drive most entrepreneurs, are often in conflict with each other, making success elusive.  Unless, of course, you’ve realized that, and made a choice about which is one is more important to you as an individual.

Here’s an excerpt from Wasserman’s “Founder Frustrations” blog, explaining what the research is all about:

Why do people start businesses? For the money and the chance to control their own companies, certainly. But new research from Harvard Business School professor Noam Wasserman shows that those goals are often incompatible.

The author’s studies indicate that a founder who gives up more equity to attract cofounders, new hires, and investors builds a more valuable company than one who parts with less equity. More often than not, however, those superior returns come from replacing the founder with a professional CEO more experienced with the needs of a growing company. This fundamental tension requires founders to make “rich” versus “king” trade-offs to maximize either their wealth or their control over the company.

Founders seeking to remain in control would do well to restrict themselves to businesses where large amounts of capital aren’t required and where they already have the skills and contacts they need. They may also want to wait until late in their careers, after they have developed broader management skills, before setting up shop. Entrepreneurs who focus on wealth can make the leap sooner because they won’t mind taking money from investors or depending on executives to manage their ventures. Such founders will often bring in new CEOs themselves and be more likely to work with their boards to develop new, post-succession roles for themselves.

The detailed write-up in HBR is rich in real-world examples and offers good insights into the world that entrepreneurs inhabit.  As an ex-entrepreneur myself, I couldn’t help but agree with the author’s analysis, and recommend this essay to any one remotely interested in starting their own business. 

Read the entire piece here, or grab the Feb 2008 issue from your library.  Wasserman’s blog also offers some interesting comments from entrepreneurs across the globe…