Having control over multiple aspects of a company is crucial for any founder. However, Wasserman explains that as founders, we want to have control of our companies, but we also desire for our companies to be both successful and valuable. Sometimes, these things cannot exist together.
If a founder does have control, they will likely be able to maintain the company according to the vision they first had. However, control also comes with drawbacks. Wasserman illustrates that one of the potential drawbacks of maintaining control is slower growth. Oftentimes, founders do not have the funds or resources to grow their company and therefore need to rely on outside sources for this growth. According to the U.S. Small Business Administration, venture capitalists may provide funding to a company, but in return, they typically expect some ownership and involvement within the company.
Wasserman’s work also reveals how significant this tradeoff can be. In his study of over 6,000 American startups, he found that greater founder control was associated with lower company valuations. This shows that too much control can potentially get in the way of a company’s overall growth and success.
This dilemma is especially relevant to me regarding The College Closet because the company started from my own experiences. I have a specific vision for how I imagine this company succeeding. If I were to launch the company, I would want to find a balance between maintaining control over the image and standards of the company while also understanding my customers and staying true to what the company was built to achieve. At the same time, I would not want to miss out on a great opportunity simply because of my lack of flexibility.
One example would be an investor who could help The College Closet expand from one college town into many more college towns much faster than I could accomplish on my own. In that situation, I might have less ownership of the company and less overall control over certain decisions, but the value of my shares could increase substantially if the business grew significantly.
I definitely think success is measured by how the founder defines it. I think maintaining control would be most important to me during the first few phases of the company. However, I also think it is important to be willing to give up some control for the right opportunity if it could help the business grow while still allowing the company to stay true to its original purpose.
Sources
Wasserman, N. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton University Press, 2012.
Wasserman, N. “The Throne vs. the Kingdom: Founder Control and Value Creation in Startups.” Strategic Management Journal, 2017.
U.S. Small Business Administration. “Fund Your Business.”