Facing the Founder's Dilemma
At one point or another, most entrepreneurs growing their businesses must ask themselves: "Is it more important to be 'rich' or be 'king'?"
Among entrepreneurial circles, American academic Noam Wasserman is known for his book, The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. His book studies decisions entrepreneurs make in the early stages of building their businesses and collects data from 10,000 founders and 3,500 start-ups.
Wasserman lays out the difficult but inevitable decision that most founders ultimately must face as they grow their companies—whether to be “rich” or “king”.
'Rich' or 'King'? An Entrepreneur's Difficult Choice
In Wasserman’s framing, if founders opt to be “rich”, they choose to take outside money to raise the financing needed to capitalize the company. If they choose the right investors, they will see the payoff via financial gains. In the process, they make a sacrifice by giving up control to outside investors. Founders who make the choice to be "rich" cede their influence over major decisions, or may possibly even have to leave the CEO position.
If instead founders choose to be “king”, they retain their power and control over the company and board. But by retaining their "king" status, they forgo major financing opportunities, may limit the company’s growth potential, and risk under-resourcing the company.
What’s the right choice for a founder to make? Wasserman’s research concludes that founders who give up a greater share of their equity build a more valuable company by attracting co-founders, non-founding hires, and investors compared to founders who aren't willing to give up as great of a share of the equity. He believes that founders end up with a more valuable slice of the pie by building a more valuable company. In his conclusion, relinquishing control is a necessary sacrifice.
Wasserman frames the entrepreneur as having to make a binary choice, concluding that founders must choose one or the other—either to stay in control, or to accept outside financing—with no middle ground. But a critical look at the “rich or king” dilemma reveals that a more nuanced approach may be possible for companies looking to grow.
Reframing the Founder’s Dilemma of 'Rich' vs. 'King'
A 2019 opinion piece by founder Jonathan Thon seeks to reframe the founder’s dilemma. Thon argues that most founders don’t start companies with the goal of achieving wealth or power. Instead, company founders are driven by a mission—such as achieving a paradigm change in their field, or filling a gap in the market.
In the beginning, it is often only the founder who sees the merit and vision behind the company. But as the venture matures, the founder can successfully demonstrate that the original vision has commercial merit. It’s at this point that the company faces a new challenge of needing to retain its original vision, while bridging a gap in experience or gaining an infusion of growth financing.
Thon says the real question founders should ask themselves at this point is how the company can best realize the change it was created to enact.
Most founders don’t start companies with the goal of achieving wealth or power. Instead, company founders are driven by a mission—such as achieving a paradigm change in their field, or filling a gap in the market.
'Rich' or 'King' Dilemma: The Volaris Way
At Volaris, we believe there is a nuanced way to solve the founder’s dilemma. We are able to structure deals in a way that is financially beneficial to the sellers. But we also love to keep founders in place and allow them to retain control over their companies and brands.
The real question founders should ask themselves is how the company can best realize the change it was created to enact.
We believe that founders can play an instrumental role in the strategic direction of their business even once they have sold it to us. We look as founders as filling more than just a management position—we also support them as leaders who have the ability to take the business to new heights that weren't possible when they were acting as independent operators. Founders who join us have the opportunity to see their legacy continue as they remain at the helm of their business, if they choose to do so.
The experience that a founder brings to a business is supported by Volaris Group's decades of experience in the vertical market software industry. Our deep knowledge of software allows us to provide the mentorship and guidance that some of our acquired companies are seeking. A founder that joins us can unlock potential through access to capital, best practices, mentorship, and new additions to their operational toolkit.
Ultimately, as a founder seeking to take your company to the next level, you have a decision to make about what is most important to you. If you are looking to gain resources and financial support to secure your company’s growth, but want to protect the reputation that your business has carefully established, you may wish to learn more about Volaris.
- Harvard Business Review: The Founder’s Dilemma by Noam Wasserman. This 2008 article, also by Wasserman, preceded his 2013 book
- Princeton University Press: The Founder's Dilemmas (2013), by Noam Wasserman
- University Affairs: The Founder’s Dilemma – to be rich, or king? by Jonathan Thon