Why Your 51% Ownership Guarantees You Nothing
There
are so many things you think are important when you start your company
that are usually meaningless. At the top of the list is equity splits
and control.
The
thought process goes like this. “If I have 51% ownership, then I
control the votes in the company. I can’t ever be fired, and I don’t
have to worry about my cofounder taking over.”
Hmmm.
[Do you want to grow your business? Maybe I can help. Click here.]You certainly aren’t alone in thinking that having 51% ownership gives you control.
It
makes sense. You have the most votes if you’ve got 51% ownership. You
can break any ties if there are any because you always have more votes.
But
let’s say that it’s just you and your cofounder. You want to proceed in
one direction and your cofounder wants to proceed in another direction.
Your
cofounder is adamant that her direction is the right direction for the
company to go. You disagree strongly, so you keep going the direction
you want to go.
Your belief that you have control is an illusion. Here’s why.
Now what happens? Your cofounder believes so strongly that you are wrong that she quits.
Sure, you still have control of the company, but you just lost your cofounder. Did that 1% ownership really help?
Hmmm.
A few years pass. Your cofounder has been replaced, and your business has grown, but you need funding.
You
manage to find investors who want 30% of the company for their
investment. You’re still above your magic 50% number, so you feel
there’s nothing they can do to replace you. You feel secure that you’re
in control.
Then
the business starts faltering. You’re running out of cash, so you need
to raise more money. You review the fundraising strategy at the next
board meeting.
That’s when your board drops the hammer on you.
Your best bet for keeping control of your company is executing your plan.
The
board tells you that they are willing to invest more money in the
company, but one of the terms is that you step down as CEO. “You can’t
do that,” you argue. “I own more of the company than you do.”
One
of the board members says to you, “You’re right. You do own more of the
company, but we have the money, and those are our terms.
“We will let the company fold if you don’t agree. You have 24 hours to tell us what you want to do.”
You’re
not thinking straight if you think this can’t happen to you. Ask Travis
Kalanick, former CEO of Uber, if you’re safe just because you control
the votes because that didn’t save him.
Having
control of the votes will not save you either. The way you stay CEO is
really simple. You execute to your plan and don’t be a jerk.
That’s
it. So stop worrying about silly things like having to keep at least
51% ownership of your company. Instead focus on building a great team,
building a great collaborative culture for your team to work in, and
executing your plan.
That’s a much safer way, and a much more enjoyable way to stay CEO for a long time.
For more, read: What's The Most Important Thing You Can Do Running Your Startup?
Do You Want To Grow Your Business? Maybe I Can Help. Click Here.
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