Control or Wealth: A first major decision for new entrepreneurs
Starting a new business can be an exciting journey! Starting a new business can be a challenging journey! Starting a new business may cause fear! Starting a business can be a mixed-up journey with many fits and starts through the learning process.
Yet, new entrepreneurs may need to make important business decisions without fully knowing what the end outcome of those decisions will be. New business owners must be proactive and do their homework as decisions made early-on will lay the groundwork for future business outcomes (Wasserman, 2012). Even very, very early-on decisions have been proven to have a huge effect.
One thing new business owners ultimately must ask themselves, “Which way should I go?” “Do I want control or do I want wealth?” The answer may be that new business owners want both. The question is, can new business owners have both control and wealth?
What the Experts Say
Expert experience has shown that early business decisions in the areas of cofounders, hires, investors, successors, and other factors generally have predictable outcomes and rewards (Wasserman, 2012). For example, while it is understandable that new business owners want a certain amount of control over their new venture, they must decide if they are willing to give away some control for more wealth. There can be an attachment to control and the need to have a hand in every decision. After all, this may be the entrepreneur’s “new baby.” We can all understand and we all know that parents of new babies often have a hard time placing the care of their babies into the hands of others. Parents feel a need to have control. However, at some point, they must relinquish some control.
If you already know that you have issues with control, investigate why and how you might take steps to get YOUR control issues under control. https://www.forbes.com/sites/melodywilding/2018/04/03/3-simple-steps-to-stop-being-a-control-freak/#75da93e06991
One Consideration: Sole Equity vs. Shared Equity
New business owners may want to control all of the equity in the business rather than share equity. Shared equity gives a percentage, or a level of control away because a percentage of the business will then be owned by the holder (businessdictionary.com). Shared equity is a prediction of wealth, while sole equity is a prediction of control. Generally, wealth and control are thought to co-exist, however research has shown that control and wealth are “decoupled” for entrepreneurs (Wasserman, 2012, p. 18-19).
This may seem counter intuitive because by giving up equity the owner loses shares of their company. However, taking outside investment from experienced angels or venture capitalists brings their knowledge and desire to succeed to the table possibly increasing the profitability of the business and offsetting the equity loss of the owner (Wasserman, 2012).
Either business owners can maintain complete control and gain less wealth or business owners can relinquish some control and gain more wealth (Wasserman, 2012). Remember that other factors such as decisions in the areas of cofounders, hires, investors, and successors also generally have predictable outcomes and rewards leading to control or wealth (Wasserman, 2012). These decisions will influence your outcomes. Early decisions are not easy decisions, but ones that need to be made. If you are a new entrepreneur, YOU are the only one who can make the decisions for YOU.
Knowing what YOU ultimately want out of your new company will lead you to make the right decisions. Wasserman (2012) says it this way, “A founder who knows whether wealth or control is his or her primary motivation will have an easier time making decisions and can make consistent decisions that increase the chances of reaching the desired outcome- Rich or King (Wasserman, 2012, p. 14).”
Whatever your decision, it is important to be strategic in your decisions. Consider that,“Strategic entrepreneurship is entrepreneurial action with a strategic perspective” (Hitt, Ireland, Camp, & Sexton, 2001, p. 481). Strategy is very important. Looking at the end outcome of early decisions is one strategy new entrepreneurs should employ, but to do this you must know your end goal. Start with deciding if you want to maximize either control or wealth.
Further Helpful Resources: Watch, Read, Learn & Enjoy
While you are deciding exactly what you want, I am listing here some resources that may be helpful in the startup of your new business. Educate yourself to make the best choice for you. Watch, read, learn, and enjoy!
Remember, YOU, the entrepreneur, hold the keys to YOUR success. Get involved, obtain knowledge, and get to it!
YouTube Video Presentation:
MC: Founders: Noam Wasserman – The Founder’s Dilemma: Rich or King?
YouTube Video Presentation:
Noam Wasserman: The Founder’s Dilemmas [Entire Talk]
Wealth Factory, wealthfactory.com This website contains several downloadable free guides along with helpful articles for entrepreneurs.
Take an Entrepreneur’s quiz to help you focus:
Overcome your fears of starting a new business and enjoy your new venture! Read this article about fears you must overcome to be a new business owner. Remember, You can do it! You can!
CFEE Resources | Entrepreneur’s Quiz. (n.d.). Retrieved August 26, 2018, from http://www.cfee.org/resources/entrepreneurs-quiz.html
E. (2012, November 28). Noam Wasserman: The Founder’s Dilemmas [Entire Talk]. Retrieved August 26, 2018, from https://www.youtube.com/watch?v=qhmvwOevsSo
Hitt, M. A., Ireland, R. D., Camp, S. M. and Sexton, D. L. (2001), Strategic entrepreneurship: entrepreneurial strategies for wealth creation. Strat. Mgmt. J., 22: 479-491. doi:10.1002/smj.196
MC: Founders: Noam Wasserman – The Founder’s Dilemma: Rich or King? (2015, October 06). Retrieved August 26, 2018, from https://www.youtube.com/watch?v=hw-K1FPmFXA
Patterson, T. (2014, December 09). 10 Fears You Must Overcome When Starting a New Business. Retrieved August 26, 2018, from https://www.entrepreneur.com/article/240592
Wasserman, N. (2012). The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, NJ: Princeton University Press.
Wealth Factory. (n.d.). Services. Retrieved August 26, 2018, from https://wealthfactory.com/services/
What is equity stake? definition and meaning. (n.d.). Retrieved August 26, 2018, from http://www.businessdictionary.com/definition/equity-stake.html
Wilding, M. (2018, April 03). 3 Simple Steps To Stop Being A Control Freak. Retrieved August 26, 2018, from https://www.forbes.com/sites/melodywilding/2018/04/03/3-simple-steps-to-stop-being-a-control-freak/#75da93e06991