Dilemma: Rich vs King

One topic which has come up time and again during the Global Scholars program has been the issue of Rich vs King. Noam Wasserman from Harvard HBS wrote an article on “The Founder’s Dilemma“. It describes how most entrepreneurs want to make a fortune and run the business singlehanded. But as Wasserman reveals, it’s tough to do both. If you don’t figure out which matters most to you as the entrepreneur/founder, you could end up being neither rich nor in control. Consider that:
– in order to make substantial money from a new venture, you need financial resources to capitalise on the potential opportunity. That means attracting investors— which requires relinquishing control as you give away equity and as investors alter your board’s membership.
– to remain in charge of your business, you have to keep more equity. But that means fewer financial resources to fuel your venture. So, you must choose between money and power. Wasserman suggests that one begins a new venture by articulating their primary motivation for starting the business. Then to understand the trade-offs associated with that goal. As your venture unfolds you must be monogamous with that goal, and make choices that support, rather than jeopardise it.

Cisco FoundersAs an example, Cisco was founded by Stanford graduates Sandy Lerner and LenBosack in 1984. John Morgridge, the first CEO managed to push out the 2 founders in 1990, following difficulty between him and Lerner. Lerner has been described as a “powder keg of passion and emotion who couldn’t conform to the discipline and methods of business management”. Morgridge couldn’t make her fit in, so she was asked to leave and Bosack soon quit thereafter. This is a good example of a Founder struggling to deal with removal from the “King” role and ultimately being forced out of the venture.

The CEO of startup XYZ who I have met in Silicon Valley, and who is at Series C VC funding, approaches his position as Founder CEO pragmatically, or at least this is what he communicates. I found his attitude very interesting – that he goes to work everyday knowing that it could be his last as CEO of the company he founded. When we met him he acknowledged that any day the VCs involved with his company could decide to replace him as CEO, and that he was willing to accept this decision. I was unsure whether I believed him but was willing to give me the benefit of the doubt. Noam Wasserman suggested that CEOs will often tell VCs that they’re willing to stand aside at any time, but whether they mean this is a completely different matter!


My View: Through my training as a Global Scholar I have learned that the Founder does not encapsulate the company. One should always separate themselves from the business entity from the start. It’s important to consider what’s best for the business as a sole entity, separate from the interests of the founder(s). This is the approach adopted by the Stanford Enterprise Center regarding University spinouts – they actually make founders apply to the Enterprise Center in order to obtain the license for technology they themselves created – thus competing with any other company for rights to develop the technology/concept/business! This is basically the Rich approach, as apposed to King, as it necessitates relinquishing equity to foster rapid development.

This is a hard lesson to take on board in my opinion. To generate new business concepts or technologies with the altruistic view that they are separate encapsulated business entities, and to always act agnostically in the best interest of that technology or business (i.e. solving the real world pain most efficiently) is a difficult position to take. But again the decision to take this position comes back to why you’re creating the business in the first place. If you’re creating the business to resolve some real-world pain/problem then this should be the focus regardless of whether you’re CEO or not. Letting one’s ego/emotions get in the way (the King approach) of the rapid progress and development of a business (e.g. seeking VC) which solves this “pain” should perhaps be considered selfish/self-centered/egotistical? I’m not sure there’s a right or wrong answer to this issue, but if you surrounding yourself with an ‘A’ team (including management, investors & advisory board) then I think you should certainly be able to find appropriate resolutions. Some more thoughts…

It seems ridiculous that a founder should have right of passage to the CEO position when a company is functioning and operating 100%, and is significantly funded by external entities. If one doesn’t have experience in such a role, why would it make sense? Founders’ passion is an essential ingredient to the persistence required at the startup phase. It can assist a founding CEO in evolving and learning rapidly on the fly. OR this emotional attachment could hinder their ability to function effectively as a MNC’s CEO, and make logical decisions about the company’s future.

However this is my view on the theory behind the rich vs king (Founders as CEOs) dilemma. In practice I would deal this issue dynamically, by having a candid/open/honest conversation with potential investors to discuss my intentions/desires to (not) maintain the CEO position. I would establish clear grounds under which I would maintain or relinquish the position, and the consequences of each:
– Maintain it: if milestones and targets are met. Subsequently increased job (CEO) security (and other incentives) could be provided to allow the CEO to function more effectively and under less unnecessary pressure.
– Relinquish it: a worse case scenario could be established to allow the founder to take another position in the company, perhaps as CTO or as right-hand-man to the CEO? This could take the form of the Founder “Co-CEO” using their extensive knowledge of the business and intimate understanding of it to compliment the new CEO’s superior management and economic knowledge.

There may be various possible solutions to the ‘Rich vs King’ dilemma but I still think that having the right type of management, investment, advice team is key. This has been reiterated by alot of the thought-leaders I have encountered in the Global Scholars program. But most recently this was advice given to me by the Cisco kingpin himself – John Chambers!

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