Rich versus King

Harvard B-School Prof Noam Wasserman a few years ago that I recently came across. It basically says that company founders need to make a decision early on that will drive their strategy for financing their start-up and its growth. They have to decide which they want more: financial rewards ("Rich") or control ("king"). The article is here.

His research shows that founders of start-ups that focused on attracting capital and spending it to develop the management team and such ultimately made more money that founders that boot-strapped in an effort to retain control -- even though the boot-strapping founders ended up with a much larger ownership percentage.

Of course the concept isn't new news -- every VC will make this argument. The interesting thing was that he claimed to have data supporting it (although there isn't much in the paper -- but he has a book out that will, presumably, provide some data to support the assertion). Also a little surprising to me, a non-HBS guy, is that Wasserman wasn't judgmental in regards to the founders that chose "King" over "rich". In fact, he treats it as a perfectly reasonable choice. He relayed a number of stories validating the choice including the story of Rolls-Royce founder Henry Royce's refusal to merge his company with another larger business, whereby he would lose control.

For the founders out there wrestling with this, he does frame the question correctly: do you want to maximize the chances of success for your venture, or do you want to build something that meets your personal need for control. You're the founder, so there isn't a wrong choice -- but you will need to make it.