Your Thoughts on Achieving Rich&King?

Thank you to everyone who contributed thoughts about “The Founder’s Dilemma.” It was quite interesting to see your reflections on the specific Rich vs. King tradeoffs you have faced, and also your thoughts on what might separate the exceptional Rich&King founders from those who face those tradeoffs.

Much of the current case-writing for my new course (more on the course in an upcoming post) is focusing on the second of these issues: How do Rich&King founders achieve that exceptional status? Whenever I present my research, I find that most people have their own pet theories about how such founders achieve that, and I invite you to share your theories here.

On the one hand, many people seem to think that prominent Rich&King founders (the Bill Gateses of the world) seem to have achieved that status by being in the right place at the right time.

On the other hand, are there things that other founders can replicate more easily than waiting for lightning to strike? Below is a brief outline of three of the relatively replicable patterns I have seen. None are too surprising, but most are a little tough to accomplish. Please post any others you’ve seen!

  • When to Found? — They wait until they have gained multi-function experience, in an industry directly relevant to the one in which they’ll start their new venture, and after they have been able to build a cash cushion (so they have the option of bootstrapping longer than usual).
  • What to Found? — The founders tend to choose industries that don’t have a competitive need to move fast or do not require major capital investments. These two factors, plus the relevant experience mentioned above, mean that they don’t have to attract as many resources in order to get off the ground.
  • How to Found? — The founders try to find ways that they can reverse early choices, such as setting up (in advance) the terms of a co-founder buyout in case one becomes necessary, or setting up vesting within the founding team, in order to avoid the dire consequences of bad choices. They often learn about those dire consequences (and thus the need for advance measures) either from getting burned in prior ventures or by hearing cautionary tales from their advisors.

Multi-venture founders (or “serial entrepreneurs,” though sometimes I have seen them be more “parallel entrepreneurs” than “serial” ones) seem to have a better chance of achieving Rich&King status with each successive venture. Two of the patterns I’ve seen with them:

  • Rich then King, or King then Rich? — I have seen many more founders who became Rich&King after becoming Rich-not-King first than after becoming King-not-Rich first. Any thoughts on the comparative advantages of each path?
  • Making the Most of Multiple Times At-bat — Founders who take a multi-venture approach increase the chances that they will achieve Rich&King. They can iron out problems with their co-founders, learn about what it takes to be CEO, gain bargaining leverage with investors, and extend their skills in ways that will enable them to remain CEO for longer each time. Are there other benefits you’ve seen them gain?

  1. It is definitely true that someone who has had a hit in the past is more likely to make it really big the next time around, and perhaps get to maintain their position as leader of the company the second time around. It’s really hard to say no to the offer of putting $5M in your pocket that first time around, but after they have what they need, an entrepreneur’s wilingness to really shot for the stars increase.Here’s an extreme example: As you probably know, Larry Ellison has funded a couple of start-ups (NetSuite is the most prominent one) and has put tens of millions and sometimes hundreds of millions into these startups. I met a member an Ellison backed company recently who told me that he had turned down a $1 Billion offer for the company. His answer to the offer: What would I do with another $500M? Again, it’s extreme but shows why he is willing to hold out for real home runs. On a smaller scale, an entrepreneur who has hit it once is more likely to hold out for a big win the second time around.

  2. One more thought on Rich vs. King: I am not sure that the paradigm holds up in many situations. I’ve personally run into many entrepreneurs who bootstrapped, never took any capital and were able to sell their companies for $5 – $20M, keep almost all the proceeds, and retire happily to the bank. I think there are more of those around than the guys who get venture backed, get diluted down to 5-15% of the company and need to hit a $100-$200M number to get the same dollar result. So, the bootstrapped guys might not be Kings of centi-million companies, but they sure do OK and don’t need to listen to venture capitalists if they don’t feel like it…

  3. Thanks — as always — for the thoughts, Amir!Follow-up thoughts:- NetSuite is an interesting example of another way in which founders can use their early success to do things “their way” in subsequent ventures. I described founders who changed their approaches in their second ventures; NetSuite seems to be an interesting complement, in that the next venture entailed “doubling down” on the bet, rather than changing approaches in a fundamental way.- I absolutely agree that Rich vs. King tradeoffs do not apply in some situations; that’s exactly why I wanted to delve into Rich&King founders in this post. However, the founders you’re describing sound like prototypical Kings (deciding to bootstrap, instead of taking outside money and not remaining King) who have to give up something (i.e., not getting the resources to build centi-million companies) in order to remain in control. (However, kudos to them for then gaining the resources to buy themselves their own literal island over which they can be king. :->) This raises two types of questions for me:1. The need to examine the “risk” dimension in addition to the “return” dimension — Do the “$5M exit as King” founders achieve that exit at the same rate (alternatively, with the same amount of risk) as “centi-million exit as non-King” founders achieve their exits, or is one a longer-shot than the other?2. Serial motivations — How frequently do founders “retire” after their first exit vs. push on to a second venture? Might those different decisions help us understand the ways in which their motivations differ from those of the other founders?

  4. I would like to respond to Noam’s query regarding serial founders. I recently sold a business which I founded 20 years ago and ran successfully without outside capital and minimal debt. I have immediately founded a new company trying to build on the successes and avoid the mistakes that I made while running my previous firm.Independent of Noam’s research, I early on came to realize that I lean more towards being King than being RICH. I personally enjoy the control (which to me REDUCES risk)to direct my enterprise as I see fit.To me the entrepreneurial venture provides a framework in which entrepreneurs can continually modify their business by entering into or receding from different markets, learning and applying new technologies and responding and adapting to new marketplace trends.I think that the decision not to retire after a significant exit is driven to a large degree by non-business factors: How old am I? When do I want to retire? How do I want to spend my next years? Do I still have something to prove to my peers? Where is my partner in his/her career? Where are my children in their lifecycles? Are there social action initiatives I would like to invest time in?-Ken LeeserPresidentFourthLink, Inc.

  5. Of course there are many more $5m to $20m companies sales around as they come from passive equity companies (equity owned one or two founding families)which account for at least 99% of all companies. But of the ones that make it big, are they all active equity companies; do they have teams of founders, investors and option schemes so everyone shares in the winnings?It is important to quote a time scale. How many of these $5m to $25m have taken twenty years to grow? How many have share options so all stakeholders benefit? How many are in property (before the crash)?

  6. For what it’s worth, here’s my (abridged) take:Rich IS King. A king who can’t afford a crown is worthless. There are kings living on the streets in every city. Ever talk to a homeless person? I have. I used to play guitar on the streets and take homeless people out to dinner with the money I made. Their stories were nearly all the same. They were destined for greatness, but someone screwed them. They ALL managed to get the short end of the stick. But what many of them are unwilling to admit is that they tried to pull out too many chips from the bag (and what happens when you try to take too many potato chips out of the bag? You get nothing!). (I realize there are other factors involved in why someone finds himself living on the streets, I’m simply using the above example to make the point that these people still remain “King” of their own little spot on the street but yet have no Riches.)I would certainly sacrifice title (King) for keeping more money (Rich) any day. Because if you’re rich, you will have credibility (sorry to say) and that will ultimately make you a very rich king! People who opt for maintaining the title of King may face any number of obstacles along the way (ex. finding professional executives who are willing to work beneath him, etc). By bringing in other people and making them King, the Rich man (who needs to be self assured, not self-absorbed) will be the ultimate genius. He’ll be able to say “I had an idea that was bigger than me, so I brought in X and Y to help ensure OUR success.” The King-type view this as a sign of weakness. I believe that admitting (and KNOWING) your weaknesses is a tremendous strength.So yeah, I’d rather be a piper cub in the jet stream of a 747 than trying to fly such a jet by myself (assuming you’ve succeeded in building a jumbo-jet). When starting your own company one should do everything he or she can to ensure its success (ie giving up the crown when the time is right). That’s the surest way to become a rich king.I always say “you can have all the credit, just give me the cash”! Because I know that if you continually make cash, you’ll ultimately get the credit!As Amir said, “it is definitely true that someone who has had a hit in the past is more likely to make it really big the next time around…” If you really believe this (and I do), and you don’t just consider yourself a one hit wonder, then be a part of a winning team. You will always have the title of Founder (co-founder at worst). That’s something that no one can take away from you. And so if your company sells for $150 mil and you only walk away with $5 mil (such problems), you will be able to leverage your past success and have a much easier time getting money from VCs for your next venture. Furthermore, investors will have more confidence in you because you’ve shown them that you are someone who puts the COMPANY (RICH) ahead of yourself (KING). The goal is to make money off other people’s money! You minimize your risk and each time out you’ll be able to maintain a larger chunk of the pie (because of your track record).People love to be around Rich people. No one likes a King (that demands to be viewed as such). Be the beloved king.Cash IS King.

  7. I am the CEO of a company that I founded 10 years ago and have been through the full cycle of bringing in cofounders and an outsider CEO and then back again. We have had one round of angel funding but have otherwise bootstrapped the company to a significant size now.

    At various times I have been the poor king, the rich non-king, the poor non-king and the rich king.

    My thought is that value of your equity in a venture is, in theory, your share of the future profits of the business. I mean the share of the real profits of the business; not the eventual exit.

    Growing your equity value is therefore about deploying your resources, including new equity, as wisely as possible to grow your per share value. These decisions should not be rooted in theory but in the realities of your business. What is the opportunity? What are the competitors doing? etc. etc.

    If you do deploy your resources wisely you will be, with a little luck, end up rich. And rich is always king. I am sure any CEO would tell you that shareholders with significant equity stakes have the opportunity to exert significant influence. Money is power after-all…

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