Startups as a tool to generate wealth
Success isn't found in valuations
At Eigenspace, we believe that founders need to be prepared to build successful companies that ultimately generate wealth for more than the founders.
What is a wealth generation?
In Paul Graham’s post from 2004 he explains wealth creation in the context of startups:
If you wanted to get rich, how would you do it? I think your best bet would be to start or join a startup. That's been a reliable way to get rich for hundreds of years. The word "startup" dates from the 1960s, but what happens in one is very similar to the venture-backed trading voyages of the Middle Ages.
He goes on to explain the different ways of earning money, the concept of wealth, and how startups are very risky but are the best tool to amplify the return on effort and create wealth.
The advantage of creating wealth, as a way to get rich, is not just that it's more legitimate (many of the other methods are now illegal) but that it's more straightforward. You just have to do something people want.
Beyond building something people want, at a high level it means building a business (a venture) that will return significant returns to the founders, employees, the early people that believe in you, and the investors (in that order). This seems straightforward but the prioritization is important because it helps founders make confident decisions and evaluate the implications of big decisions in a certain way that will increase their chances of success.
Prioritization and Motivation
Founders are first on the list because in the early days, the people founding this with you are everything. Take care of them. This includes the early employees. Founders that can have a cohesive and productive early ‘team’ stand out way more than whatever they are building. This is hard to quantify but people know it when they see it. This not only includes communicating but also things like having vested shareholders agreements, clear expectations, and a collaborative environment where the team is greater than any individual.
Employees come next. They are the people that help the founding team go from something that some people want to something a lot of people want. Taking care of the employees starts with the pattern started with the founding team and includes options plans, engagement, and contribution from employees that add rocket fuel to the efforts of the founding team.
Then you have your friends, family, and fools investors and/or early customers and/or those people that believed in the founding team early. This is the community that supports success. They aren’t looking for returns but they get a lot of personal reward from you being successful. Founders should make sure their investment means something and is properly documented.
Employees and those that believe in you early (friends, family, and fools investors NOT angels) come before investors because if they don’t, their wealth creation opportunity is often sacrificed for that of the investors.
Investors are last. That doesn’t mean they are not important. Investors provide the founding team the capital that enables them to hire employees and get a chance to build a wealth engine. Treat your investors well but not at the expense of your founding team, employees, and early believers. Don’t sacrifice your ‘business’ for the short term thinking that some investors might have but instead work with investors that understand the outsized return that comes from a business that prioritizes the people that build the business and growth.
There are no guarantees but those that approach their business this way from the start do better than those that don’t over the long term. There is an awful lot of nuance in all of this but we believe that with coaching and ongoing effort founders can build a foundation around this concept and that will increase their chances of finding success on their path.