The Founder’s Dilemma: Be Rich or Be King?
The Founder’s Dilemma is a situation in which the founder of a company faces a dilemma when it comes to choosing between two options with different risks and rewards. The first option is to keep the company small and manageable, allowing the founder to maintain control and have a greater share of the profits. However, this option also risks the company’s inability to grow and compete with larger companies. The second option is to grow the company and try to achieve a dominant market position, giving the founder a larger share of the market and more profits. However, this option also risks the company becoming too large and unwieldy, and the founder losing control. The Founder’s Dilemma is a classic example of a game theory problem.
Founders can either be rich or be king.
Game theory is the study of strategic decision-making. In game theory, two types of strategies are dominant and dominated. A dominant strategy is the best option for a player, regardless of what the other player does. From class, we learned that a dominated strategy is a worse option for a player, regardless of what the other player does.
In the Founder’s Dilemma, the option to keep the company small and manageable is a dominated strategy. This is because, regardless of what the other player (the market) does, the founder will always be worse off by choosing this option. The only way to win in the Founder’s Dilemma is to choose the option of growing the company and trying to achieve a dominant market position.
The Founder’s Dilemma is a popular example of game theory because it shows how even the best response for a player (in this case, the option to grow the company) can be risky. The key to success in the Founder’s Dilemma is to carefully weigh the risks and rewards of each option before making a decision.
Sources
https://hbr.org/2008/02/the-founders-dilemma
The founder’s dilemma: More money, not enough leadership talent