About Control Again
Over the last several weeks I have been posting about dilemmas that new entrepreneurs face when starting a venture. We have been delving into Noam Wasserman’s book, The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. 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). Much of the outcomes and rewards are dependent on how much control a founder is willing to give up. Wasserman (2012) states, “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). Founders that keep control generally have less financial success than those that relinquish control. Team building can also be dependent upon how much control a founder is willing to give to others. In order to be able to build the team needed, entrepreneurs must trust their team with a certain amount of control, which means that giving up some control will be necessary (Herrenkohl, 2010). Have you noticed how important considering control is? Control does play a major role in multiple decisions and outcomes. Deciding whether to self-fund or seek outside investors is also related to control.
Self-Fund or Outside Investors?
Self-funding one’s business is an option that entrepreneurs can choose from. By self-funding, the founder is able to keep more control over their company. To obtain outside investors, entrepreneurs must give some percentage of the company in return. The less percentage of the company that the founder owns, gives the founder less control. One issue with self-funding is that money can run out quickly. Outside funding presents a better chance of receiving an appropriate amount of funding which could launch the business into success at a much faster pace (Wasserman 2012).
All of us have probably seen an episode of Shark Tank. New entrepreneurs arrive and pitch their companies to the investors asking for a certain amount of money for a certain amount of ownership in the business venture in return. There can be quite a bit of negotiation around the percentage the founder is willing to give the investor for the money invested. From my personal observations, founders often have a difficult time giving the investors higher percentages of their companies than they had originally planned. I have more than once observed that the founders would walk out without making any deal at all because they did not want to give more control away. This scenario is an illustration of the dilemma that entrepreneurs face. Control or wealth? It seems that control or wealth follows the entrepreneur all along the path of a start-up.
No matter how much one plans, there will be challenges to face. Doing your best, from the beginning, to design your new venture, while keeping the end results in mind, is all that you can do. There may be unexpected consequences to every decision.
I am reminded of hurricane Florence that just passed through North and South Carolina. I listened with great interest many days prior. I made sure to heed the warnings and to stock up on food, water, and gas. I tied down what might fly away. Right before the hurricane was to hit, we had a thunderstorm and a lightning strike came in and damaged our home. I mean leave it up to me to have a disaster before the disaster! We lost all of our TVs, Cable Equipment, phone, router, and Internet. Come to find out, the Cable was not grounded so the lightning traveled throughout home. It required an emergency electrician. Several family members, in different rooms, were actually shocked. While I had made preparations for the hurricane, I had not prepared for a lightning strike to flow through my home. There isn’t anything that I could have done or any way for me to know that an error had been made during installation. My point, we can plan for things we know are coming in the best way we can, but there will always be surprises and unknowns to face. It’s been a week and I still have no phone or Internet so my online classes have been a real challenge. There is no way to prepare for everything. It is the same with a new business venture. Outside circumstances may surprise you!
Nevertheless, the journey is exciting! Do your best and begin!
Here’s a short video I found interesting:
Mark Cuban: Only Morons Start a Business on a Loan
https://www.youtube.com/watch?v=KYneLGRTgy8&t=281s
References
Herrenkohl, Eric. How to Hire A-Players: Finding the Top People for Your Team- Even If You Don’t Have a Recruiting Department. John Wiley & Sons, 2010.
Mark Cuban: Only Morons Start a Business on a Loan
Wasserman, N. (2012). The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, NJ: Princeton University Press.
WOW…. You and I have a lot more in common that perhaps we had realized. We are both in the “caregiver” business. We both enjoy Shark Tank, and if I could strike a deal with Mark Cuban, I’d do it in a heartbeat since it does make sense to give up some equity for the better good of the company. And in 2009 my house was sold and while waiting on the closing, lightning hit the house !! Of course I had to repair all the damage before the close. While I have self-funded my business (using pension funds) I feel that I could be doing much better if I had an equity partner. Give up some control for the growth and success of the company.
Thank you for your comment to my post. Life is unpredictable! One cannot prepare for everything that may come. I agree with you that giving up control to the right person may be the right thing to do to become successful. One just has to choose the right connection! One of the Shark’s would be great!
Kay,
You are right, an entrepreneur should be ready for those outside circumstances. It is great to have a plan but nothing ever seems to go by “the book.” The best way in the past to deal with such issues was to have an idea considered and get the team on the same general page. This way there is some sort script from which to improvise if other circumstances occur. Also, good training on a set schedule helps in these cases as well. Thank you for the good read!
Thank you for your response to my blog post. Training is an excellent way to be prepared and to have everyone on the same page. Making sure to have the correct team that has been proven to be able to stand through the hard times would also be helpful.
Kay,
This is my first time visiting your blog and I love it! So sorry about the damage done to your home but glad that everyone was safe. My boyfriend has been trying to get me to watch Shark Tank for the longest now and the way that you described it makes it more interesting…May give it a try. Great read.
Essence
Thank you for your response to my blog post. I am still trying to get things in order! Shark Tank is very interesting to watch. Many struggle with wanting to give up too much control, but I would say if you can get a shark, then go for it!
Kay, I like the embedded video. The perspective on real-time engagement is quite accurate. Have you had much exposure to Angel Investor and/or VCs? I have only engaged business owners that utilized them, not direct contact with the AI or VCs directly. I think I would be quite hesitant to use family or friends, but I do have a few that have offered to invest in ventures I was evaluating. I have been told that a person should never risk their own money (came from a real estate investor), but typically it is tough to get funding without a solid business and plan. Curious if you have ventured down this path yet? Thanks for the read.
Thank you for your response to my blog post. I as well, would not want to look to family and friends for investment monies. I have not had exposure to Angel Investors and/or VCs. Interesting about not investing one’s own money. Thanks for the share.
Kay,
You are absolutely right, it seems like the issue of control keeps coming back again and again. I think it just goes to show its importance how it pretty much is intertwined with everything entrepreneurial. This week’s reading really made me reflect on my preconceived notion when it comes to investors.
With regards to your home situation, I’m so sorry to hear about such an unfortunate incident. I am so impressed with your ability to keep up with all the school work thus far. Thank you for all your feedback and I hope to hear from you in upcoming classes.
Best regards,
Jose
Thank you for your response to my blog post. Yes, control vs. wealth is the issue that keeps arising. New lines for my phone and Internet are scheduled to be put in within a couple of days now and I hope to have the connection issues behind me!
Sorry to hear about what happened at your home before the storm. That’s pretty scary! Glad nobody was seriously injured. As for the storm, I was one of the few people that did not prepare. I consider myself lucky nothing major happened in my area. On to the the rest of the post… Prepping to start a new business is a lot of work, and as you put it, “Much of the outcomes and rewards are dependent on how much control a founder is willing to give up.” I wish I had been equipped with that knowledge in the past. And while it’s true there are consequences for every action we take, I am not sorry I embarked on my journey. Your post has given me a lot to think about. Thanks!
Thank you for your response to my blog post. Many never take a chance on a new start-up because they are afraid of failure. Even if there are mistakes made, I would argue that at least we actually embarked!