The challenge for owners to choose between power or money

An owner of a business who gives up more equity to attract co-partners, professional management, new hires, and investors builds a more valuable company than one who parts with little equity. More often than not, however, those superior returns come from replacing the founder with a professional CEO more experienced with the needs of a growing company. This fundamental tension requires founders to make “rich” versus “king” trade-offs to maximize either their wealth or their control over the company.

Owners seeking to remain in control would do well to restrict themselves to businesses where large amounts of capital aren’t required and where they already have the skills and contacts they need. They may also want to wait until late in their careers, after they have developed broader management skills, before setting up shop. Entrepreneurs who focus on wealth can make the leap sooner because they won’t mind taking money from investors or depending on executives to manage their ventures. Such founders will often bring in new CEOs themselves and be more likely to work with their boards to develop new, post-succession roles for themselves. They understand that they can be owners of the business, not managers.

Choosing between money and power allows entrepreneurs to come to grips with what success means to them. Owners who want to manage empires will not believe they are successes if they lose control, even if they end up rich. Conversely, owners who understand that their goal is to amass wealth will not view themselves as failures when they step down from the top job.

This is a profound shift for many family businesses that become trapped believing that only full ownership is acceptable.  These family owners are convinced that having financial partners is a sign of failure. In comparison, the family businesses who do decide to maximize wealth often end up preserving more money for their next generations. Smuckers Jam, Wrigleys, Coke, Thomson all morphed and brought in external partners with great success and longevity for the company but also for family wealth.