Entrepreneurs Risk Slow Growth by Keeping Close Control

December 1, 2016

MinisterieVanIn order to start a successful company, entrepreneurs must be willing to take charge and lead with authority. After all, founding a business requires hard work and a clear vision, and entrepreneurs need plenty of both if they want to succeed. But what happens once a startup grows into a mature company? By that stage, the founder is far from the only focal point: managers, outside investors and other stakeholders will also want to have their say about the company’s future.

However, some entrepreneurs aren’t willing to surrender control so easily. Rather than share power among a trusted group of stakeholders, these founders choose to stay at the top so that their strategic vision won’t be challenged. While this allows them to remain in charge, it often comes at the expense of attracting talent that could help the company grow. In fact, a recent study of more than 6,000 startups found that a company’s valuation fell between 17 percent and 22 percent when a founder stayed on as CEO or chairman after the first two years. That valuation plunged a further 17 percent to 22 percent if the founder held both jobs and continued falling as long as they stayed in charge.

These over-controlling entrepreneurs would like to be the next Bill Gates or Mark Zuckerberg by sticking around to lead their companies into immense success. “Then there’s the rude awakening when they hit one of those, ‘I want to attract this great hire, but that great hire is requiring more than I’m willing to give up’ moments,” said Dr. Noam Wasserman, a University of Southern California professor who published the previously mentioned study. “There’s all sorts of things that you might have to offer people to get them to come on board.” That’s why entrepreneurs need to be willing to share control if they want to keep growing. Along with investors who play a role in the company’s decision making, qualified managers may also ask for an equity stake before they join up. Entrepreneurs need to weigh demands like these with their own goals and decide if conceding control would be best thing for the company.

Questions:

 

  1. Why do some entrepreneurs have trouble sharing control with other stakeholders once their company has grown?
  2. What sort of benefits do founders receive for giving up total control of their companies?

Source: Louise Lee, “Founders Have to Choose Between Growth—and Keeping Control,” The Wall Street Journal, November 21, 2016. Photo by Ministerie van Buitenlandse Zaken.

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