Bizcamp #8: The Founder's Dilemmas, Control vs. Wealth decisions
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In this talk, scheduled for May 28th, Bruno Lowagie, the CEO of the iText Software Group, will talk about the book "The Founder's Dilemmas" by Noam Wasserman, explain the different Control vs. Wealth decisions discussed in this book, and apply what is said in the book to his own business.
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Bizcamp #8: The Founder's Dilemmas, Control vs. Wealth decisions
- 1. Control vs. Wealth decisions BizCamp #8: May 28, 2013 @ Buda Kortrijk Bruno Lowagie, CEO iText Software
- 2. Bruno Lowagie, CEO iText Software IT’S UNFORTUNATE BUT TRUE: IF ENTREPRENEURSHIP IS A BATTLE, most casualties stem from friendly fire or self-inflicted wounds.
- 3. Bruno Lowagie, CEO iText Software
- 4. Bruno Lowagie, CEO iText Software p15-18: If many founders really believe this, it appears they are largely wrong. Entrepreneurs earned 35% less over a 10 year period then they could have earned in a paid job (Hamilton, 2000). Entrepreneurs as a class make only as much money as they could have if they had been employees. In fact, entrepreneurs make less, if you account for the higher risk (American Economic Review, 2002).
- 5. Bruno Lowagie, CEO iText Software Entrepreneur: Power & Influence Autonomy Managing People Employee: Security Recognition Affiliation
- 6. Bruno Lowagie, CEO iText Software When I analyzed 212 American start-ups that sprang up in the late 1990s and early 2000s, I discovered that most founders surrendered management control long before their companies went public. By the time the ventures were three years old, 50% of founders were no longer the CEO.
- 7. Bruno Lowagie, CEO iText Software In my experience, founders often make decisions that conflict with the wealth- maximization principle. I noticed that some options had the potential for generating higher financial gains but others, which founders often chose, conflicted with the desire for money. RESEARCH NEEDED: 10,000 companies between 2000 and 2009
- 8. Bruno Lowagie, CEO iText Software • Cofounders (chapters 3-7) • Solo vs. Team • Relationships • Roles • Rewards • Hires (chapter 8) • Relationships • Roles • Rewards • Investors (chapter 9) • Self-fund vs. Outside capital • Sources of capital • Terms • Board of Directors • Successors (chapter 10) • Trigger of succession • Openess to succession • Desired role after succession • Other factors • Preferred rate of startup • Capital intensity • Core founder’s capitals Decisions
- 9. Bruno Lowagie, CEO iText Software Complete control < $$$ Little control > $$$
- 10. Bruno Lowagie, CEO iText Software • Cofounders (chapters 3-7) • Solo (or weak cofounders) • From immediate circle • Be the CEO • Maintain most equity • Hires (chapter 8) • Close personal network • Keep control of key decisions • Hire less expensive juniors • Investors (chapter 9) • Self-fund; “bootstrap” • Friends, fools, family • Resist investor-friendly terms • Avoid official board • Successors (chapter 10) • Avoid until forced • Resist giving up CEO position • Prefer to leave • Other factors • Gradual to moderate growth • Low capital intensity • Can build startup without help Control decisions Most likely outcome: • Maintain control • Build less value “KING”
- 11. Bruno Lowagie, CEO iText Software Complete control < $$$ Little control > $$$ KING
- 12. Bruno Lowagie, CEO iText Software • Cofounders (chapters 3-7) • Build team • Find the best founders • Delegate decision-making • Share equity • Hires (chapter 8) • Hire experienced employees • Delegate decision-making • Incent with cash or equity • Investors (chapter 9) • Take outside capital • Target angels or VCs • Be open to terms • Be open to losing control • Successors (chapter 10) • Initiate succession “in time” • Be open to giving up CEO role • Remain executive (expertise) • Other factors • Fast to explosive growth • High capital intensity • Fill gaps by involving others Wealth decisions Most likely outcome: • Build financial value • Imperil control “RICH”
- 13. Bruno Lowagie, CEO iText Software Complete control < $$$ Little control > $$$ KING RICH
- 14. Bruno Lowagie, CEO iText Software Chances at success: Maintain control: 80% x 80% x 80% = 51% probability Build fullest value: 20% x 20% x 20% = 1% probability Maintain control: 20% x 20% x 20% = 1% probability Build fullest value: 80% x 80% x 80% = 51% probability If you go for being King: If you go for being Rich: If you go for something in-between: Maintain control: 80% x 80% x 20% = 13% probability Build fullest value: 20% x 20% x 80% = 3% probability Maintain control: 20% x 80% x 20% = 3% probability Build fullest value: 80% x 20% x 80% = 13% probability
- 15. Bruno Lowagie, CEO iText Software Complete control < $$$ Little control > $$$ KING RICH EXCEPTION
- 16. Bruno Lowagie, CEO iText Software Complete control < $$$ Little control > $$$ KING RICH EXCEPTION FAILURE
- 17. Bruno Lowagie, CEO iText Software • Cofounders (chapters 3-7) • Solo (2000) • “Couple-preneur” (2008) • We are the CEO, CTO, CFO • We have 100% ownership • Hires (chapter 8) • Own network; first hire in 2011 • No C-level hires, no real VPs • Experimented with juniors • Investors (chapter 9) • Bootstrap • No external money • No angels, no VCs • No boards • Successors (chapter 10) • Adapted to new tasks • Being CEO = I “underperform” • Should I become chairman? • Other factors • Slow (00-09) to explosive (10-...) • Zero to substantial • New challenges require new skills iText decisions 2009 2010 2011 2012 GM EBITDA 2010 72% 5% 2011 70% 35% 2012 78% 46%
- 18. Bruno Lowagie, CEO iText Software Thank you for brainstorming with me about switching from control to wealth decisions at iText