Bizcamp #8: The Founder's Dilemmas, Control vs. Wealth decisions

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In this talk, scheduled for May 28th, Bruno Lowagie, the CEO of the iText Software Group, will talk about the book "The Founder's Dilemmas" by Noam Wasserman, explain the different Control vs. Wealth decisions discussed in this book, and apply what is said in the book to his own business.

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Bizcamp #8: The Founder's Dilemmas, Control vs. Wealth decisions

  1. 1. Controlvs.WealthdecisionsBizCamp #8: May 28, 2013 @ Buda KortrijkBruno Lowagie, CEO iText Software
  2. 2. Bruno Lowagie, CEO iText SoftwareIT’S UNFORTUNATE BUT TRUE:IF ENTREPRENEURSHIP IS ABATTLE, most casualtiesstem from friendly fire orself-inflicted wounds.
  3. 3. Bruno Lowagie, CEO iText Software
  4. 4. Bruno Lowagie, CEO iText Softwarep15-18: If many founders really believe this, it appears they are largely wrong.Entrepreneurs earned 35% less over a 10 year period then they could haveearned in a paid job (Hamilton, 2000).Entrepreneurs as a class make only as much money as they could have if theyhad been employees. In fact, entrepreneurs make less, if you account for thehigher risk (American Economic Review, 2002).
  5. 5. Bruno Lowagie, CEO iText SoftwareEntrepreneur:Power & InfluenceAutonomyManaging PeopleEmployee:SecurityRecognitionAffiliation
  6. 6. Bruno Lowagie, CEO iText SoftwareWhen I analyzed 212 American start-ups that sprang up in the late 1990s andearly 2000s, I discovered that most founders surrendered managementcontrol long before their companies went public. By the time the ventureswere three years old, 50% of founders were no longer the CEO.
  7. 7. Bruno Lowagie, CEO iText SoftwareIn my experience, founders often make decisions that conflict with the wealth-maximization principle. I noticed that some options had the potential forgenerating higher financial gains but others, which founders often chose,conflicted with the desire for money.RESEARCH NEEDED:10,000 companiesbetween 2000 and 2009
  8. 8. Bruno Lowagie, CEO iText Software• Cofounders (chapters 3-7)• Solo vs. Team• Relationships• Roles• Rewards• Hires (chapter 8)• Relationships• Roles• Rewards• Investors (chapter 9)• Self-fund vs. Outside capital• Sources of capital• Terms• Board of Directors• Successors (chapter 10)• Trigger of succession• Openess to succession• Desired role after succession• Other factors• Preferred rate of startup• Capital intensity• Core founder’s capitalsDecisions
  9. 9. Bruno Lowagie, CEO iText SoftwareComplete control< $$$Little control> $$$
  10. 10. Bruno Lowagie, CEO iText Software• Cofounders (chapters 3-7)• Solo (or weak cofounders)• From immediate circle• Be the CEO• Maintain most equity• Hires (chapter 8)• Close personal network• Keep control of key decisions• Hire less expensive juniors• Investors (chapter 9)• Self-fund; “bootstrap”• Friends, fools, family• Resist investor-friendly terms• Avoid official board• Successors (chapter 10)• Avoid until forced• Resist giving up CEO position• Prefer to leave• Other factors• Gradual to moderate growth• Low capital intensity• Can build startup without helpControl decisionsMost likely outcome:• Maintain control• Build less value“KING”
  11. 11. Bruno Lowagie, CEO iText SoftwareComplete control< $$$Little control> $$$KING
  12. 12. Bruno Lowagie, CEO iText Software• Cofounders (chapters 3-7)• Build team• Find the best founders• Delegate decision-making• Share equity• Hires (chapter 8)• Hire experienced employees• Delegate decision-making• Incent with cash or equity• Investors (chapter 9)• Take outside capital• Target angels or VCs• Be open to terms• Be open to losing control• Successors (chapter 10)• Initiate succession “in time”• Be open to giving up CEO role• Remain executive (expertise)• Other factors• Fast to explosive growth• High capital intensity• Fill gaps by involving othersWealth decisionsMost likely outcome:• Build financial value• Imperil control“RICH”
  13. 13. Bruno Lowagie, CEO iText SoftwareComplete control< $$$Little control> $$$KINGRICH
  14. 14. Bruno Lowagie, CEO iText SoftwareChances at success:Maintain control: 80% x 80% x 80% = 51% probabilityBuild fullest value: 20% x 20% x 20% = 1% probabilityMaintain control: 20% x 20% x 20% = 1% probabilityBuild fullest value: 80% x 80% x 80% = 51% probabilityIf you go for being King:If you go for being Rich:If you go for something in-between:Maintain control: 80% x 80% x 20% = 13% probabilityBuild fullest value: 20% x 20% x 80% = 3% probabilityMaintain control: 20% x 80% x 20% = 3% probabilityBuild fullest value: 80% x 20% x 80% = 13% probability
  15. 15. Bruno Lowagie, CEO iText SoftwareComplete control< $$$Little control> $$$KINGRICHEXCEPTION
  16. 16. Bruno Lowagie, CEO iText SoftwareComplete control< $$$Little control> $$$KINGRICHEXCEPTIONFAILURE
  17. 17. Bruno Lowagie, CEO iText Software• Cofounders (chapters 3-7)• Solo (2000)• “Couple-preneur” (2008)• We are the CEO, CTO, CFO• We have 100% ownership• Hires (chapter 8)• Own network; first hire in 2011• No C-level hires, no real VPs• Experimented with juniors• Investors (chapter 9)• Bootstrap• No external money• No angels, no VCs• No boards• Successors (chapter 10)• Adapted to new tasks• Being CEO = I “underperform”• Should I become chairman?• Other factors• Slow (00-09) to explosive (10-...)• Zero to substantial• New challenges require new skillsiText decisions2009 2010 2011 2012GM EBITDA2010 72% 5%2011 70% 35%2012 78% 46%
  18. 18. Bruno Lowagie, CEO iText SoftwareThank you for brainstorming with meabout switching fromcontrol to wealth decisions at iText

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