Challenges on the Road to Growth

One of the central dilemmas for entrepreneurs is that of wealth versus control. Very few entrepreneurs are able to achieve being both rich AND king.

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  • Founders School || Founder's Dilemmas || Challenges on the Road to Growth || Impact Guide (PDF).

  • Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, New Jersey: Princeton University Press, 2012. Chapter 11.

  • Hoffman, R. If, Why, and How Founders Should Hire a “Professional” CEO. Reid Hoffman Essays on Entrepreneurship, Civics, & Intellectual Life. 2013.

  • Wasserman, Noam "The Case Study: When Founders Step Aside". Financial Times. October 22, 2012.

  • Wasserman, Noam and Furqan Nazeeri. (2012). "Fear vs. Greed at Facebook". Inc. Magazine, March 27, 2012.


    This is my data on founders being replaced as CEO.  It's similar to the chart that we saw before on team stability.  The aging of the venture along the bottom and then as we go higher up on here that the founder is still CEO but as the venture ages that fewer founders are still CEO of their baby.  

    Middle of this chart, about four years in, almost 50 percent of founders have been replaced as parent of their baby.  Three‑quarters of these were founders who were fired.  Was the board going and firing them against their will?  Very different in terms of how the founder is going to be taking it.  But in either case, a very tough transition that this founder is going to be going through in terms of no longer being the fearless leader at the top of the venture.  

    So a quote from Jack Dorsey, first Founder/CEO of Twitter, about what it felt like to be replaced, being punched in the stomach.  Founders refer to it as a load of bricks being dropped on them.  So key things to be thinking about those early decisions around those investors that you're going to be taking on, what it's going to do for the board, and what it's going to do in terms of you and your relationship to the venture.  

    So we're going to take a look at these key people that we've injected into the venture.  We have the co‑founders, we have the hires, we have the investors.  We focus first on the left column here.  The founders who go out and get the best of co‑founders.  Give up a bunch of equity to attract them.  Likewise for the hires, go out and get the best "been there done that" types of people.  Go and take the smart money, go and get the top tier investors.  

    Founders who make this left column set of decisions, what are they betting on?  Why are they investing all of these people?  That I'm going to get all of the resources that I am missing.  That I'm going to attract all of the key pieces so that we can pursue this opportunity fully.  That's where they are hoping to grow value.  What about on the right‑hand side?  You go, you be Superman, you stretch with the inexpensive hires.  You bootstrap.  You're going to be having some pieces that are not filled.  We're not going to be pursuing the opportunity as fully.  And so this is where that set of decisions are that I'm going to be able to keep remaining the decision maker.  I'm the visionary.  I'm bringing the idea to market.  I'm going to be the one who's not going to have anyone interceding in that vision as I go and have my impact on the world.  You recurringly face this tug and pull, this tradeoff between go left, I grow value, but imperil my control.  Go right, I'm going to keep control but I'm not going to be attracting all of those resources that I need in order to be able maximize the potential within the venture.  

    So that's what leads to founders being in a very different part of this map, the financial gains and the value they've created, the control that they've kept.  This is the data that we're bringing to it in terms of the average equity stake.  Over on the right‑hand here, the founders who kept full control at both the CEO level and the board level, owning stakes that were only 52 percent as valuable as the founders all the way on the left side.  The founders who had brought in that other CEO at a stage when they were going to be having all sorts of challenges they weren't prepared for, where they had brought in the investors that had imperilled their board control.  And about that tradeoff between the two that we see there within the data as there being a real rich versus king tradeoff for them.  

    A lot of times we go and we focus on the founders that got to rich and king.  I tell my students to take out a piece of paper and to write down all of the first‑time founders who have gotten to rich and king.  If you put down on your list Bill Gates, put your hand down.  More than half the hands usually go down.  If you put on your list Steve Jobs, put your hand down.  By two or three names in I usually have almost no one with their hands still up in air.  For Bill Gates, Microsoft was actually the third crack that he and Paul Allen had taken at co‑founding.  It wasn't his first venture.  Steve Jobs for the first 20 years of Apple was not CEO of it, was prevented from having control of Apple.  That's where we have to understand what are the predominant patterns that we have to be prepared for and where there are outliers that are going to be misleading us.  

    So over here, this is where we take more of a look at the team level.  What happens if within the team you have different people motivated by different things, having very different definitions of what they are shooting for?  Which of these teams would you want to have?  In A, it might not be a good scenario because there's no one in charge there.  What would happen in Team B if the king is a "been there done that," has all of the skills to be able to continue leading the charge?  Is the rich co‑founder going to be happy with that person as a co‑founder?  Yeah, that would seem to be a pretty good scenario of the king wants control and deserves control is going to be a productive leader of the venture.  What happens though if that person isn't going to be able to scale?  What is that going to do to the co‑founder?  Team C could be the worst of these teams.  Both kings grabbing at the wheel driving the car into a ditch because of the control issues between the two of them.  

    The things that we've seen here.  Let's take that line about giving up control and see where the different paths can lead.  First there's the decision about co‑founders.  Are you going to do it all yourself or are you going to go and attract the best of co‑founders.  Or still having the full pie, you're still having control, you're up at the top of our control chart.  And that's where those early decisions you make, if you can be informing yourself about them, if there is a clear set of motivation that is preponderant for you and you can plot that path on this road ahead to be able to reinforce that promise land that you are shooting for.