23 Jul Which Kind of Entrepreneur are You? Explaining the ‘Founder’s Dilemma’
As an entrepreneur, would you rather be a king or be rich? This question lies at the core of Harvard Business School professor Noah Wasserman’s research into the motivations and corresponding outcomes of major choices facing entrepreneurs at all levels. Specifically, Wasserman’s research addresses one of the hardest questions most entrepreneurs ever face: how, when, and why should I give up some control of my venture to better equip it for growth?
The idea is built around an early 2000s multi-year survey of over 500 privately held businesses. As a framework there are two types of entrepreneurs: rich or king. Rich entrepreneurs have maximum financial gain as their primary goal. To achieve this, rich entrepreneurs are willing to give up control to outside investors and executives in return for financial investments and increased human capital in the form of expert advice and hired outside executives. They would rather have a small slice of a larger pie. On the other hand, king entrepreneurs prize control of the business more than anything else (including financial gain). Thus, king entrepreneurs will forgo the financial boost of bringing on investors and the human capital boost of hiring outside executives if it allows them to maintain control over the business. They prefer a large slice of a much smaller pie.
According to the survey results, those entrepreneurs exhibiting the traits of a rich entrepreneur tended to have more valuable equity stakes. Conversely, entrepreneurs exhibiting the traits of a king entrepreneur tended to have a less valuable equity stake. Thus, entrepreneurs must honestly ask themselves what their goal is in starting their venture: do they want to prioritize growing their company by inviting outside investors in, or do they want to prioritize maintaining the most amount of control by eschewing the benefits of that outside investment?
Many entrepreneurs may see this dynamic and think “why can’t I be both kinds of entrepreneur?”. Jose Ancer, a blogger and attorney specializing in venture capital law, writes that rarely is there a business where being both rich and a king is a realistic expectation. While we might jump to Mark Zuckerberg at Facebook or Larry Ellison at Oracle as examples of founders who enjoy spectacular wealth and a large degree of control over their respective companies, these are rare exceptions to the rule. It makes sense for founders to decide at the outset what type of entrepreneur they are and set their goals and vision appropriately. Before undertaking their capital search, a founding team must be in agreement on which path they are taking.
For those entrepreneurs deciding that they are looking for the financial benefits indicative of the rich entrepreneur approach, they should consider the road map written by Jeff Bussgang. Jeff points out that most businesses are looking at three stages of growth: the jungle, the dirt road, and the highway. Founders are usually perfectly suited to lead a venture through the jungle and dirt road stages where the focus is on developing product and defining visions. Moving into the highway stage it often makes sense for founders to bring more insight to the table as pressures from growth and expansion require different skill-sets and outside perspectives.
At Opus Ventures, we recognize that decisions around equity and control are some of the hardest that founders ever make. That is why we place an emphasis on our consultative approach to venture capital where we see ourselves as partners with our companies in navigating these challenging questions. We seek to work with companies as coaches towards a clear vision and reasonable set of expectations.
To read more about our unique approach to a hybrid of venture capital and strategic business performance consulting please read our previous blog post on our VCC hybrid model here.