The Founder's Dilemmas

“Control” and “Wealth” are the 2 main primary incentives among startup founders. The secondary incentives include altruism, autonomy, variety, and intellectual challenge.

Control-motivated founders tend to make different decisions during the lifetime of their company than those of Wealth-motivated founders which can significantly affect the company’s prospects in terms of:

• Value Creation
• Growth Rate
• Company Size
• Financing
• Hiring
• Culture
• Founders’ payoff
• Founders’ decision power …

Control-motivated founders tend to:

• Remain solo founder (or attract weak founders)
• First look to the immediate circle for “comfortable cofounders”
• Keep strong control of decision making and build hierarchy
• Maintain most or all equity ownership
• Hire within close personal network (friends, family …) as required
• Hire less expensive junior employees
• Self-fund the business (bootstrap), use loans and debt, or raise capital from money-only angels
• Resist investor-friendly terms while fundraising
• Avoid building official board; when built, control the composition and makeup
• Avoid succession issues until forced
• Resist giving up the CEO position
• If succession happened, prefer to leave
• Prefer gradual to moderate rate of startup growth
• Prefer low capital intensity
• Well equipped to launch and build startup without much help
• Maintain control and build less value

Wealth-motivated founders tend to:

• Build a founding team; attract best cofounders
• Tap strong and weak ties to find the best and complementary cofounders
• Give decision-making control to cofounders with expertise in specific areas
• Share equity to attract/motivate cofounders
• Aggressively tap broader network (unfamiliar candidates) to find the best hires.
• Delegate decision-making to appropriate expert
• Hire experienced employees and incent them with cash and equity
• Take outside capital
• Target experienced angels and venture capitals
• Be open to terms necessary to attract best investors (e.g. supermajority rights)
• Be open to losing control of board if necessary to get best investors and directors
• Be open to initiating succession when next stage of startup is outside ones’ own expertise
• Be open to give up CEO position to better CEO
• After succession want to remain executive in position that matches skills and preferences
• Prefer fast to explosive rate of startup growth
• High capital intensity
• Build more financial value; imperil control