Rich vs. King in the Lean Startup

by Albert Chung

In the HBS MBA elective Founders’ Dilemmas we often talk about the rich vs. king tradeoff where founders often start out wanting to be “Rich and Regal” but quickly find themselves having to make choices that require a tradeoff between getting rich and maintaining control (see Prof. Noam Wasserman’s blog post about the Rich vs. King tradeoff).

Personally, I have a difficult time with the tradeoff as giving up control does not necessarily ensure getting rich, whereas retaining control does guarantee that you will be King and the only variable is how large (or small) your kingdom will be. Perhaps this is why Mark Pincus advises entrepreneurs: “All that matters is that you have control of the company. Don’t give up control.  If you’re going to give up control, go home.” In fact, when I look at the startups that have truly made a large impact on our generation, almost all are situations where the founding CEO remained “King” well beyond finding product market fit. Below are some notable examples:

  • Jeff Bezos at Amazon.com
  • Larry Ellison at Oracle
  • Mark Zuckerberg at Facebook
  • Mark Pincus at Zynga
  • Michael Dell at Dell
  • Marc Benioff at Salesforce.com
  • Andrew Mason at Groupon
  • Jeremy Stoppelman at Yelp
  • Dennis Crowley at Foursquare
  • Jack Dorsey and Evan Williams at Twitter (although co-founder issues ultimately led to Jack Dorsey’s departure)
  • Bill Gates at Microsoft (eventually hired Steve Ballmer)
  • Larry Page and Sergey Brin at Google (eventually hired Eric Schmidt)
  • Jerry Yang and David Filo at Yahoo! (yes, they were successful at one point)

Now, I also understand that it’s dangerous to look at exceptions rather than the rule for decision making frameworks since most of us are likely the rule. Despite this fact, however, if we want to have a shot at really impacting the world, we need to study the companies that have done so and how they did it. Other than eBay (hiring Meg Whitman) and to some extent Google and Microsoft (which actually both achieved PMF well before bringing in their respective CEOs), there aren’t many cases of wildly successful startups bringing on professional CEOs.

So, for those of us who do want to be king, we should begin by examining lean startup principles as they provide the perfect framework to ultimately retain control. Reducing waste, getting feedback from users, iterating quickly and searching for product market fit early on all lead entrepreneurs down the path of limiting fund raising (and thus dilution) until they achieve PMF and need to step on the accelerator.

I would also argue that in a lean startup, a founding CEO who has been able to achieve PMF is the right person to lead the company post PMF. We can all agree that pre PMF, the founding CEO is obviously the correct person for the job given the level of innovation, product familiarity and employee loyalty necessary to iterate quickly and pivot if necessary. However, I would also argue that innovation is of paramount importance post PMF and is a skill that I believe most professional CEOs do not have. Startups nowadays (particularly technology-based ones) are facing extremely low barriers to entry and increased competition and there are very few businesses where a CEO’s only job is to create organizational structure and processes.

Once you give up control, you can never get it back, so you’re aiming to be Rich and King, it is important to retain control and you can do so by following lean startup principles.

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