Founders and investors alike should review “The Founder’s Dilemma” by Noam Wasserman (Harvard Business Review, 2018). It’s required reading, mostly because it concisely lays bare some hard truths all founders face at a critical stage in our company; whether to be ‘rich’ or ‘king’: i.e. to raise the financing needed to capitalize our company appropriately, and so cede control to investors and lose the CEO position and say over major decisions; or to retain control over the company and board at the cost of under-resourcing the company, thus limiting its growth potential. For founders, ‘rich’ isn’t necessarily better than ‘king’; what matters is how this decision aligns with their reason for starting the company. The difficult truth is that ultimately, we all have to make this choice.
There are nuances to the “Founder’s Dilemma” that need to be addressed. For starters, the monikers ‘rich’ and ‘king’ are inaccurate simplifications. Most founders I’ve met (at least those in STEM) don’t start companies because they want wealth or power. They are typically mission-driven to achieve a paradigm change in their field. Their invention/approach, and by extension the company, becomes the vehicle to establish proof-of-concept. Personal enrichment is a byproduct of success – not the motivation. ‘King’ also requires re-definition. Most often the solution being advanced by a founder via their company didn’t exist before them, and was generally thought to be impossible by most thought leaders in their field; if this weren’t so, the company would already exist. To drive a paradigm shift in an industry requires overcoming a tremendous amount of resistance to advance an idea which, at least the beginning, only the founder sees. As the venture matures, it succeeds by demonstrating that what was considered impossible is not only possible but feasible, and that the vision originally set by the founder has commercial merit. The “Founder’s Dilemma” occurs when the balance of probability tips in favour of the founder’s vision, and a well-financed few who could not originally conceive of the idea or its potential finally realize that in this company is an opportunity to beat the market to a disruptive new development.
There are important subtleties because, while they don’t change the choice between ‘rich’ or ‘king’, they do help re-frame the argument. ‘Rich’ means appropriately resourcing one’s company to deliver on its broadest and long-term ambitions at the cost of personal control, equity dilution and pay. ‘King’ means retaining control of one’s vision at the expense of failing to actualize it by limiting the pace of company growth.
Dr. Wasserman’s conclusion is that founders who give up more equity to attract co-founders, non-founding hires, and investors, end up building a more valuable company than those who part with less equity. While there is truth to this, a more nuanced approach of providing mentorship to the founding executive team can bridge the gap in experience while retaining founder ownership and vision. No company will last forever; the question founders should ask themselves is how the company best realizes the change it was created to enact.