Maintaining Control vs. Maximizing Wealth (ENT 600 Week 2)

So why are you going into business?

Of course we all want to make a pile of money.  And it’s nice to have somewhere to go to work every day presented with interesting tasks at hand, a steady paycheck, and some measure of dignity and control over our lives.  A better question might be, are you founding a company more for the money or more for the control of the vision and direction of your workplace?

Harvard Business School associate professor Noam Wasserman presents in The Founder’s Dilemma a compelling introduction into this personal struggle that few entrepreneurs take into consideration when founding a company. (12) First, he throws cold water all over our dreams of a Bill Gates style “entrepreneurial ideal” of running your own very successful enterprise by pointing out that the likes of Microsoft represent the exception–not the rule–and that most founders either find themselves on the outside looking in at a well run company producing excellent profits or running a bootstrapped cash starved mom and pop concern–run according to the founder’s specific ideals of course. (12)

Taking Wasserman’s argument at face value (being so well documented and convincing and if you haven’t already, by all means read it in full), the chart below was inspired into being.
Bill Gates, Richard Branson, Richard Bloomberg, George Soros, and the like run Unicorn Companies (blogger’s term) they founded according to their own vision that bring in copious sums for themselves and their stakeholders.  As you can see from the chart (scale approximate based on Wasserman’s empirical argument on pages 13-14), Unicorn Companies are so-named due to their rarity.  According to Wasserman, founders are doomed to either hire a lot of people who know better how to create wealth with a business–as one of his case studies Evan Williams did with a start-up called Odeo (13). Or they bootstrap a cash starved company with a brother-in-law or college roommate like Williams did with his earlier Blogger start-up (13).  (Or like this blogger with every business he’s ever started).   Cash Starved Companies Run by Morons You Hired probably do exist (although Wasserman offers no analysis on this phenomenom), but they probably go out of business pretty quickly because who wants to keep going to work THERE every day?)

So the chart deftly illustrates Wasserman’s “‘King’ outcome (greater control, lesser financial gain)” (14) and his “‘Rich’ outcome (greater financial gains, lesser control)” (13) and the case studies he presents are convincing.  It’s kind of a dire picture that makes founding your own business sound kind of gloomy: Paraphrasing C. Wright Mills concerning “the ‘power elite’… the corporate power and economic wealth of top executives reinforce each other, with corporate positions serving as the source of wealth while ‘money provides power.'”(19)

Consider this again: Why are you going into business?  If you only want to make mass money, why not just employ the “power elite,” hand over the reins to someone more qualified than yourself, collect your check and move on to something else?

Henry Blodget,* former Wall St. analyst and founder and CEO of Business Insider Magazine, takes issue with such “obsession with profit maximization” (Business Insider, December 8, 2012).  “By focusing their entire effort on the bottom line, many American companies have reduced their value to the other constituencies that truly great companies serve, namely customers, employees, and society.”  And most of all, Blodget points out that while corporations have become more profitable than at any time in the history of the world, “big American companies are now paying the lowest wages as a percent of the economy in history” and “are now scrimping on capital investments.”  All of the above mentioned forces hurt the economy, “Because every dime that companies pay out in wages and capital investment becomes revenue for other companies.”

So according to Blodget, if your company employs the “power elite” and heads for the upper left corner of the chart above, it pretty much just becomes for the most part an engine for generating profits for the stakeholders in your company; most likely the “power elite” themselves and not the founder(s) (you!), the employees, and all the people who made the company possible in the first place.  So if we don’t want to bootstrap with our brother-in-law and we don’t want to create an evil greedy Wal Mart type monstrosity, is there somewhere on the chart to go?

How about that last dot in the center of the chart? Perhaps it represents a mirage, a serene island in the vast swirling slimy sea of sociopaths where some smart psychologically balanced people quietly, competently run a profitable enterprise; all of the stakeholders’ concerns are heard and when possible met; and the company exists to create value beyond profits for Mills’s “power elite.”  Perhaps this mythical company creates value like providing meaningful employment at good wages producing a product or service the adds value to the community.  Or maybe it is just the Land of Oz.

In reality, especially here in one of the Weird epicenters of the planet (Asheville), the dot represents the Holy Grail of a new wave of conscious, ethical businesses you will read about in this blog in future posts.  It is the spot on the chart where Abundance plans to reside.  And we’ll be inviting all our weird friends to join us.

So stay tuned!

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Resources:

Wasserman, Noam.  The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.  Princeton University Press, 2012.

Blodget, Henry.  “We Need to Stop Maximizing Profit and Start Maximizing Value.”  Business Insider, 12/8/2012.

*I know that Blodget was also busted by NY AG Eliot Spitzer in the 1990s for stuff that’s pretty much legal and common practice today.  Just FYI.

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This is not only my Professional Blog where I post my assignments for my Master of Entrepreneurship program at Western Carolina University, it’s also my Professional Blog on my actual business web site for my actual functioning business!  Since they overlap so neatly in my personal Venn Diagram, I think clients, potential clients, or just idle passersby will find some value in my analysis as much as my classmates and instructors.  Enjoy!

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6 Comments

  1. Hi Arjay! Great job envisioning the chart about the founder’s dilemma! Asheville is an unusual epicenter of socially conscious business owners. I like to think your Land of Oz could exist here. Perhaps it comes back to the gray area of how rich does one have to be to feel rich, and how much power must one wield to feel powerful? I fully believe the gray areas, such as your Land of OZ, are where we find the most satisfying form of contentment.

  2. Great post Arjay! Your writing style is fun and creative, yet professional allowing for an easy read. I agree it takes a little of both, “Rich” and “King,” outcomes to have an ideal business that is successful. Clearly your question of, “so why are you going into business,” drives an individual’s choice to side with one of the outcomes more than the other in most cases. In the early stages of a venture, I think protecting the vision and its’ integrity is a top priority. The “King” outcome makes the most sense, in my opinion, in the beginning. Once the creation is protected, I prefer to transition to a “Rich” outcome. I believe one would be more willing to lose control, if their creation or vision was protected. What if you could only choose one outcome? What would be your choice and why?

    The reading briefly acknowledges, through two different studies, that there are other potential reasons or outcomes, but doesn’t go into much detail about what those reasons or outcomes are. The notion of adding value to the community is a growing idea that definitely aligns with the characteristics of the millennial generation. I anticipate businesses that have a sense of community will flourish more in the future as the culture and dynamics of our world change with the generations who lead it.

    • Thanks for the comment! You’ll definitely see me advocating starting with the King outcome and moving on to a more Rich outcome in future posts. Start with formative documents–by-laws and operating agreements–that protect certain aspects of the operation like paying a living wage (forbid CEO pay more than x times the lowest paid worker seems like a good idea) and the integrity of the value of the company’s stock by forbidding mass stock buy-backs. Forming as a B Corp should also help. I’ll have more resources on B Corp and enlightened business practices soon as well.

      Since I’ve tried the King outcome to death, I’m going to try the Rich one for a while.

  3. Taisir El-Souessi

    I really enjoyed this post, Arjay. I had to laugh over the image of throwing cold water all over our dreams… some of this information we read completely feels like that. i’m glad Wasserman brings it back around to “follow your heart but also with your head” in later chapters. Hooray for weird Asheville. Sometime it feels to me like there are TOO many things going on in Asheville right now. It feels overwhelming to me as a consumer – especially all the breweries popping up on every corner.

    My one feedback on your blog is that I find this font really difficult to read. I think the size is ok but gray on white seems hard on the eyes. Keep up the good work. You’re off to a great start!

    • I’ll see what I can do about the readability problem. No use writing like Hemingway if no one can read it!

      Asheville is overwhelmed with tourist attractions and entertainment. I’m endeavoring to support and expand Asheville’s own weird version of industry and thereby help top create more good paying jobs that have nothing to do with tourism. Because after everyone’s been here, done that, tried every beer, climbed every mountain, we’ll need something else to pay the bills until we come up with something else.

      Thanks for the comment!

  4. sabrarch32

    Hi Arjay,
    I like how you can overlay your educational experience with your passion. The land of Oz sounds like bliss for startup businesses. I also liked the chart that you added and how you explained where companies could potentially end up on it depending on whether they choose to control or wealth.

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