“Rich vs. King” in HBS’s Working Knowledge

In case you want to read more about it, the new issue of HBS Working Knowledge includes a relatively extensive interview with me regarding my Rich vs. King paper, results, and cases.

Or, as Working Knowledge titles it, “Rich or Royal?” (I’ve actually been wondering whether using “Royal” or “Regal” would be better than using the gender-specific “King.” Guess HBS W.K. voted with its choice of headlines. :->)

If it sparks any further thoughts about the tradeoff (e.g., the contexts or people for whom it doesn’t apply) or about cases I could write to cover some of the issues highlighted at the end of the article (e.g., “on a serial founder who either made King-consistent choices in one venture and then made very different Rich-consistent choices in a subsequent venture, or who achieved Rich and Regal status only after falling susceptible to Rich versus King tradeoffs in prior ventures“), please post them here!

13 Comments
  1. I live in Israel and in my work with entrepreneurs and venture capital firms (we help VCs and companies here by crafting their fundraising documents and presentations), this issue always seems to arise – I guess because there is such a well-developed venture capital industry here, a couple of thousand startups and a growing number of serial entrepreneurs. I wonder whether there is any quantitative difference in the way entrepreneurs here deal with the Rich or Royal question. My bet is that because many Israeli startups are technology oriented and founded by technologists who appreciate the limitation of their company building skills (I’m talking about the novices, not the recidivists), there is a greater willingness to forgo control over money. I also wonder about whether Israel’s well-known attribute of team playing (acquired for the most part in the army) also contributes to the de-emphasis of control early on, making money the primary goal. On the other hand, we do have our share of Larry Ellisons and there is no shortage of ego here - which must play some role in making entrepreneurs want to hang on and make a name for themselves, if not actually create stability in their lives in a notoriously unstable environment…

  2. Having thought hard about this topic and seemingly binary choice that a founder has to make, I realized that obtaining an answer to this question may not be so easy. While I am sure there are founders that just do it “for the money” - hence would fall into the “rich” category, its hard to believe that this is their sole motivation. It’s more than likely, that when given the choice between raising funds critical to the success of their business and providing their selection “rich or royal” to the funding source, they do what is necessary. The more believeable ones get the dough. And they probably become the tougher ones to ultimately replace.

  3. I agree with what LES has said. As the founder of my company, ShermansTravel (an online publishing firm), I raised money when it was necessary to fund some new initiatives. There was the trade off on giving up some equity, but the business opportunity at hand required additional financing. I suppose I could have chosen slower growth in exhange for retaining 100% control but in a business where scale can matter, that would not have been the prudent course. Also, I think one of the interesting issues for founders is knowing when to cash out. In my case, there is a tension between wanting to sell the business to lock in the financial gain and remove risk (and thereby giving up control) versus continuing the growth in the hopes of building more value over time. That timing issue is a tough one for many entrepreneurs.

  4. How about ‘Wealthy’ vs ‘Royalty’?

  5. Control surely is a key aspect, and this interview highlights it well. I think the choice is governed by the founder’s growth plans. Angel funding can get decent growth growth while maintaining control. VCs should be brought in for their funding + competency.More of my thoughts are here: http://protizen.blogspot.com/

  6. You work is very interesting and possibly may evolve into a seminal piece in this field. I have been consulting and raising capital for nearly 900 Latino-owned firms for 28 years. I like the Rich (rico) and King (rey) dichotomy. It is a simple and effective way of addressing your research topic that I’m sure resonates with many. On a related note, which may be of interest to you, is that we have observed, without the benefit of formal and quantitative research, that the male Latino entrepreneur is more driven by being el rey…hence “maintaining” a life style business; I’m sure this choice has to do at some level with cultural nuances of our Latino society and the level of education and knowledge (which manifests in fear of growing the business without a high level of control) possessed by the founder of the firm. As I see it, the complex dynamic here is that since the business is family-based led by dad, this environment enhances and reinforces the motivation to continue to be the jefe, rey, chief or king for the family company since it is aligned with the patriarchal orientation of my culture of origin. Hence, the decision to be the king or rey is an easy and clear sustainable choice. Also, what is emerging is that the sons/daughters of the Latino baby boomer prefer to be a prince in line neither seeking to be rich only or regal only. What adds to the complexity of their choice is their new found role of being a philanthropist with a semblance of being a prince or principe. That is, investing in community is part of being perceived as not simply wealthy but “doing well while doing good.” Incidentally, this dynamic does not seem to be a function of the type of business but rather the longevity of the enterprise. In other words, the more established firm regardless of the industry in which the business operates, where the founders have off springs who will take over the business, the more apparent is that they (the second and third generations) will behave like princes/princesses instead of displaying behavior akin to being rico/a or rey/reina—call it REGAL LIGHT ONLY. Another factor that my complicate the rich or regal choice is the element of trust. Trust and control are highly valued, In fact, I would say that the Latino founder values higher the former than the profit motive and even market dominance. The latter are simply perceived as by products of being in business rather than a strategy or a formal goal. I guess Messrs. Smith and Keynes and more recently Mr. Friedman’s relentless and life time work in the belief of the rational choices may not be quite on target. I have suspected for many years that consumption and production models have lacked linkage to the entrepreneurial models that attempt of explain the true nature of the those that take risks with the expectation of some reward which may not be only in financial terms or control. As you well know, there are many factors that research leads us to believe that maximizing yields of our investment and/or having total control of an enterprise is where is at for the entrepreneur. My gut and experience tells me that entrepreneurs are “influenced” but not driven by profits and control and that these are NOT the major drivers of their behavior. I think that as we continue to uncover the “stealth” attributes of these group of risk managers the drivers are ensure the family with a better quality of life, having a significant peer and community status, building and transferring a lasting family legacy of success and investing in double bottom activities that generate and retain jobs, attract investments and create new business opportunities. In my mind these are the real DRIVERS of entrepreneurial actions. All these obviously will make your work more challenging and holistic in nature. Briefly then my sense is that the rich vs. regal or the rich and regal options is a bit more complex research question than your article suggests. The nature (family/closely held vs. classical corporate firm) of a business, ethnicity and culture, the role of trust and other less quantifiable attributes may need to examined so you can enhance our theories or at least add to the a body of knowledge to explain and perhaps improve the chances of engaging in successful entrepreneurship.

  7. Thanks for all of your thoughts, <>Sir Chuy<>! Sounds like you’re drawing on quite a wealth of interesting experiences.Two other things in your comment caught my eye:1. Your highlighting the <>cultural influences<> that might affect Rich vs. King tradeoffs, something that David Kahn’s comment above does from the Israeli perspective, and yours does very nicely from the Latino perspective.2. Your broadening of Rich vs. King to the <>family business<> context. This is actually a current interest of mine, with some recent discussions that I’ve had in the family business realm regarding divergences within the second generation (e.g., one branch of the family that’s motivated by King considerations, the other by Rich) where outsiders (e.g., private-equity firms) were brought in to help resolve those conflicts (e.g., by buying out the Rich branch). Family businesses also include several other motivations you mention, some of which are related to Rich vs. King, but others would seem to be distinctly separate motivations on their own.Love to hear anyone else’s thoughts on either the cultural-influences points or the family-business dynamics!

  8. Having watched entrepreneurs and been one myself, I have a different but related viewpoint. I believe there is an additional critically important motive which is causally related to becoming both “Rich” and King”. Some entrepreneurs can achieve both “rich” and “king” by not focusing on either and instead focusing all their energy and that of the startup on the objective of succeeding in building the best company possible in the chosen market space . When everyone works together towards the goal of becoming “the leading company in their competitive space”, the most likely result will be an entrepreneur who becomes both “rich” and “king” even if the decisions made as a business leader were focused on neither “rich” or “king” but instead on building the best enterprise in the market space. Becoming rich and/or king are simply the result of getting the right people to focus on building the “leading firm”. Whenever I observed an entrepreneur clearly making decisions aimed at either “rich” or “king”, it appeared to me that it was quite unlikely that achieving both would be a result. If the entrepreneur focused on the “rich” objective, it was very unlikely that the “king ” objective would also be a result. Likewise, if the entrepreneur focused on achieving the “king” objective, it would be very unlikely that the “rich” objective would also be a result.

  9. I read this article with great interest. I have thought about this many times. What do I want as an entrepreneur? I am more than happy to give up control and if I remain with the company, then I need to play a strategic role as the CEO. The important issue for me is that if it is my company, then I need to lead it but I don’t necessarily need to have full stock control. The assumption being made here that giving up stock control to the VC will make the entrepreneur “Rich”. In most cases, that does not happen. The premise that giving up control for being wealthy is not really a choice. There is no guarantee that if VC’s were in control to hire their people to manage the business that the entrepreneur would get rich. The VC’s don’t have a good record here. In fact, 8 out of 10 companies they fund fail and I suspect that the ratio is not that much different where VC’s are in control over the entrepreneur. The main issue that I care about is not stock control of the company as much as the strategic direction the company takes. I believe that I am a better CEO than what a VC would put in, since the majority of VC’s have never run a company, so I don’t think they know how to run a business any better than I do. How many times have we heard that if you don’t have the passion for the business, you are not going to be successful. At least entrepreneurs do have that passion where the VC’s don’t. The people they hire may have run a business but I am not sure if they can make that determination any better than the entrepreneur.

  10. I am an entrepreneur who started a health information company one year ago. We have developed our product and are starting to get the interest of large health care companies. Reading through the blog series has led me to some introspection regarding my motivations; am I looking to be “Rich or Regal.” My personality has always pushed me towards being regal. I prefer to lead, that is my nature. However I am passionate about my product and I believe that it can change how consumers use health care services. My desire to deliver a product and see it widely used in the marketplace supersedes my need to control the company forevermore. In short, my motivations for wealth or control are generally guided by a fundamental question, what will it take to make my product successful?

  11. I believe I can speak to the context for people for whom the tradeoff of “rich vs. regal” do not necessarily apply. I am an entrepreneur who began what I knew from the outset would be a very long term venture, which, if successful, could have implications which could affect the direction an entire industry takes. If successful, the profit and wealth creation potential is so huge, that it would not take but a small ownership stake for me as the founder to become “rich” by any definition of the word. Having come from the background of being an equity analyst on Wall Street, I had worked with many top tier venture capital firms in the past, as I helped raised private and later, IPO funds for their portfolio companies. Therefore, my approach was a very dispassionate one, in which I understood the alignment of motives which lead to “rich”. Ironically, my motivations in beginning this current venture had less to do with becoming rich, per se, but were tied to my passion and enthusiasm for an industry. It was almost accidental, that the project evolved as it has. Because of the ambitious nature of the venture, seeking to no less than eventually “control” a $30 billion industry, I created a strategy which has aspects of a captive retail franchise (to control distribution and mitigate loss of equity control), but would require the strategic partnership (a formal consortium) of several multi-national fortune 500 companies, which could serve as an exit strategy (incorporation or buy-out) in the event that an IPO were not possible. All the while, I understood that in between, I would need the help of top tier venture capitalists to bring in the proper management to execute the strategy. As an analyst, what I had always seen and come to understand, is that ultimately, it is the quality of the management which most affects the probability of success in any venture, and understanding the limitations of my skill set, I never had any delusions that I should be the one to remain “regal”, and control the execution of the venture. Does that mean that my motivation was solely to become “rich”? I don’t think so. I think it was more the challenge of creating and building something which I believed would have great value to some others, and could ultimately be a testament to me as the founder. I think there is a big difference between that and the concept of “regal”, because I have seen firsthand (too many times) how ego and hubris have led to the downfall of many a company. Furthermore, as I have no aspirations to be a “serial entrepreneur”, I hope to take the lessons I learn from this long term endeavor back to Wall Street with me, so that I can use them to better guide other companies in the future.

  12. This is a very complex issue. It's hard to form a definitive opinion on this, but I think I think I agree with David.

    English Skype

  13. professor wasserman,

    i really enjoyed my trip to allston in the fall of 2008. thank you for taking the time out of your busy schedule to meet with me to discuss your publication.

    kindest regards,
    wolé m. fayemi

Leave a Reply

*