Myth buster- Not all founders are entrepreneurs
Skin-in-the-game
Entrepreneurs vs. Founders
Investors like claiming they back entrepreneurs… no, you back founders, and that's a whole different story. Let’s get straight to the meat of it and ask Oxford Dictionary for the definition of an entrepreneur, the founder or founders being the first to start a company.
Entrepreneur: a person who sets up a business or businesses, taking on financial risks in the hope of profit.If you are not convinced that skin-in-the-game makes a massive difference in most matters of life, then I politely orient you towards Nassim Taleb’s book "Skin-in-the-game," or ask yourself if industrial food would be less carcinogenic had the executives been forced to feed themselves and their kids with that very same food for the rest of their lives.
If you are still not convinced, then you gain by not being convinced and are either a bureaucrat or someone taking rewards from other people's risks or risks with other people's skins.
In practice, in the start-up and small business context, why does that difference matter? Entrepreneurs have literally skin-in-the-game, as there is no difference between their personal equity and their company equity: They sink with the ship or cross the sea and plant the flag on the new lands themselves.
Some founders have zero skin-in-the-game. It means their decisions, especially those related to expenses, bonuses, and gratifications, can take horribly diverging directions whether they affect or not their personal bank account.
Entrepreneurs work; ceremonial founders shine.
The modern venture capital industry is made such that there is almost a boolean exclusivity between the two breeds. Investors look for shiny ex-sth1 profiles and invest at the idea stage, removing de facto any modicum of skin in the game. Over the long term, they propel costly behaviors and eventual blow-ups: you can’t teach someone always bloated to be hungry.
The last generation of non-profitable start-ups is not only losing money because the CEOs are bad with money2, they are losing money because it is in their best interest of doing so on a short-term basis3.
Entrepreneurs want to build a lasting brand, with their own money, and have the financial as well as moral obligation to put their money where their mouth is. Ceremonial founders (founders with no skin-in-the-game, and no ethics) usually take the best out of their own company and make sure they will have made some money and end up positive in case of irreversible blow-up4.
Entrepreneurs can’t pay themselves a salary before the company is profitable; nominal founders pay themselves while the company is bleeding cash.
Entrepreneurs pay themselves dividends based on profits; ceremonial founders sell equities to a greater fool.
Entrepreneurs invest their own money and don’t expense; ceremonial founders expense as much as possible to hedge against bankruptcy, taking the cash while there is some left.
Entrepreneurs sell products; ceremonial founders sell projections.
Entrepreneurs shrink their costs; ceremonial founders raise their expenses.
Entrepreneurs put their mouth where their money is; ceremonial founders put their mouth where somebody else's money is.
Entrepreneurs sink with the ship; ceremonial founders are not in the ship.
Entrepreneurs hire humans; ceremonial founders hire headcounts.
Entrepreneurs look for innovation; ceremonial founders talk about disruption.
Entrepreneurs find out when they mess around; ceremonial founders' investors bleed cash when the kids mess around.
Entrepreneurs are frugal; ceremonial founders are lavish.
Entrepreneurs work for profit margins; ceremonial founders work for revenues.
Entrepreneurs work in their favorite fields, meeting their unfair abilities; ceremonial founders work in everyone's hype fields.
On social media, entrepreneurs are invisible; ceremonial founders are shining.
Some have the time to shine; others don’t.
Be an entrepreneur, be a founder, be both, but don’t be a ceremonial founder.
Love,
Voss
Replace the sth with McKinsey or BCG.
Well, some are, and 0% rates did not help teaching
It is also in the best interest of their investors as long as there is growth … well, it was, things seem to have changed a bit,
Blow up made more likely by their very behavior