RICH versus KING

Old studies
Opportunit
y to earn
profits

Push -->

People to
produce
goods and
services

Helps

Growth
in
econom
y

Thus, that the entrepreneur aims at maximizing his profits is one of the
most fundamental assumptions of economic theory (Scitovszky).
However Recent Studies
Claim that entrepreneurs have usually lower initial earnings and lower
earnings growth than could be earned in paid employment.
Therefore, why people pursue entrepreneurial ventures?
Two factors the CONTROL MOTIVE and the PROFIT MOTIVE.
This study argues that there is a tension between these motivations.

Entrepreneurs who
choose to

Entrepreneurs who
choose to

Retain more
control

Tend to have
lower financial
gains

Give up control

Tend to have
more valuable
equity stakes

WHY? Because when entrepreneurs have to do strategic choices, it affects

these two factors.
If an entrepreneur wants to build a valuable equity stakes, he will need to
attract resources to the organization. However, the resource providers will
demand a degree of control as a condition of providing those resources.
Therefore he will lose a part of control.
Many entrepreneurs face a choice between financial gains and
decision-making control.

Entrepreneurs

Control
motive

KING

Entrepreneurs who make choices consistent with a control motive should

be more likely to become King.

Entrepreneurs

Profit
motive

RICH

While entrepreneurs who make choices consistent with a profit motive

should be more likely to become Rich.
Entrepreneurs will face a trade off between these two outcomes,
Rich versus King.

What will you do if it was you?

Main Results
After conducting a test on a unique dataset of 460 private ventures in the
technology industry, here are the main results.
Entrepreneurs with strong profit motives should be willing to give up
both equity and board control to attract the best investors.
Rich motivation entrepreneurs will give up control of the company
to attract the best resources.
Why? Because they rather maximize the chances that they will achieve
their major goal of financial gains.
Entrepreneurs with strong control motives would make different
choices.
They would rather keep control and choose less prestigious and lowervalue investors who will take smaller equity stakes and will be less
demanding about board control.
Such decisions will help entrepreneurs maximize their chances of
becoming King even if it means to fail to grow a more valuable
company, and therefore ending up with less valuable equity stake.
What about entrepreneurs driven by both major motives? Control
+ Profit
These are the entrepreneurs that face a dilemma in their strategic choices.
They want to achieve the entrepreneurial ideal of being both:
Rich + King = Rich and Regal

The results suggest that most entrepreneurs have to sacrifice one of their
motives at the end. However, those who succeed at being Rich and
Regal have been more likely to have gained human, social and economic
capital prior to founding.
By gaining such capital before starting their ventures they may not
have to give up as much equity and control to attract co-founders, hires
and investors.