“Maintaining Control Versus Maximizing Wealth”
To aspire to be an entrepreneur are many people’s dreams. As mentioned in The Founder’s Dilemmas, there are two main motivations that entrepreneurs have. Those motivations are to maintain control and gain wealth. This is a true dilemma that I face daily and is very difficult to navigate.
For myself, I am in the process of creating an app. The process of creating an app requires specific expertise; such as, technical skills, management skills, and business skills. Maintaining all these skills is no easy task, especially when you’re as young as I am. It will take time, experiences, failures and more to obtain all the skills required to running a successful technical start-up. This leads to outsourcing functions of your business for advancement.
Outsourcing may be unattractive to many entrepreneurs because it is not free. Whether it’s money or equity, the entrepreneur will have to decide how they want to bring their business to life. Unfortunately, the individual’s financial circumstance will enable the entrepreneur’s decision making. For the individual who has money or can easily acquire it, the process of building and maintaining control is high. This entrepreneur’s main focus now is their breakeven point as it relates to money invested and how long it’ll take to make what they invested back.
However, for the entrepreneur who does not have the financial means to fund their own business it is a lot more complex. This entrepreneur has to balance what to outsource verses what they have to do themselves. It is known that if you’re lucky enough to successed as an entrepreneur the battle for equity is a battle with no room for error. An entrepreneur’s worse nightmare is building something great to only work for other people and not experience success themselves. Not to mention that this entrepreneur is the one who is running day to day operations and who’s come up with the idea.
So, with the complexity of this dilemma it is necessary to plan from the beginning what you want to outsource and for how much equity. For myself, I protect equity as much as I can. Equity stakes in my company will go to key functions that I cannot afford to pay for or do myself. Functions like technical support, key employees, and fundraising. For example, I am looking for a co-founder that has successful started a technical start-up to use has a source of guidance and expertise. The quality and experience that that co-founder obtains is something I do not; additionally, it is something I find necessary. Therefore, offering 35%+ in equity is beneficial to the business.
This process of using equity to advance your business has advantages and disadvantages. The advantages are that you get your company off the ground and functioning. However, it will take time to build the needed relationship and trust to build a successful business with another person. This dynamic may enable the company to move slow initially. But once systems and process are in place, there is opportunity for great success. Lastly, the biggest disadvantage, some would say fear, is that after you give someone an equity stake in your company, it ends up not working out. Going through the legal struggle of potentially having to buy your equity back is nothing an starting entrepreneur wants to hear.
There’s much more to be said on this dilemma of control and wealth; what do you guys think?