What is your goal as an entrepreneur? Do you want to get rich, even if that means getting investors on board? Or do you want control, meaning you grow your business by yourself albeit slowly as long as you control the business? Or do you want a little of both?
This is a dilemma often faced by business owners. I know of entrepreneurs who welcome investors, even actively seek them, because they have grand plans for their business and know that they can only grow the business faster if they get outside help. There are also people who prefer their businesses to be small as long as they remain “masters of the ship.”
Harvard professor Noam Wasserman explores this question in his papers, the most notable of which is “Rich vs. King: The Entrepreneur’s Dilemma” . Wasserman recognizes that entrepreneurs are motivated by the profit potential in starting a business, but the profit motive often runs counter to other motives particularly the issue of control.
According to Wasserman’s research, this dilemma typically happens when the business reaches the point where external resources may be needed to help push it to the new level. Getting outside funding from investors will help the entrepreneur build a more valuable business. Alas, the infusion of capital from investors is never free: often, the entrepreneur has to give up control in the company to get the funds.
The paper is relatively easy to chew (there’s no regression or any mathematical formula). If you have nothing better to do this weekend, check out the paper. Also visit Wasserman’s blog for updates on his study http://founderresearch.blogspot.com/