Entrepreneur Tips and Discussions

Intentionally losing control of my company/board

I’ll start with some background bullets points:

– Bootstrapped a company, profitable (couple of millions I’ve mostly taken home)
– Ran said company (almost) into the ground
– I’m creative but bad with money and management (probably related to the fact that I’m bi-polar).

As part of a re-organization I realized I need “grownups” running the company, but most importantly I realized I need LESS control.

I’m a very charismatic type, and past management personnel found it hard to oppose me and allowed me to harm the company (extreme example: taking an irresponsible dividend).

While I’m not comparing myself to WeWork’s Adam Neumann, I can see how I can become a problem for myself and the company if/when we get really big.

On the other hand seeing how people like Elon Musk and Zuckerberg retained control of their companies is inspiring, and emotionally, this is my “baby” I’ve built from zero.

At the moment I’m in the process of adding people to balance me out

1. A new, stronger CEO who is very experienced with bigger companies and will be getting most his compensation in equity (vesting over 4 years), and eventually maybe a seat on the board)
2. A strong, experienced businessman I trust, as a partner who will get about 20% in equity (probably w/ vesting), and will be on the board with me (just the two of us for now).

I’m retaining 80% for now.

We’ll both also have titles, he’ll probably be a CFO for a year, and I’ll be CMO.

We’re also considering a strategic investor who is interested in buying 10%.

Here’s the issue:

The current contract I’m working on with said partner gives him the right to veto decisions in some areas (most importantly: financial decisions, up to $100k, over this amount both signatures are required).

I get to veto in other areas that are my expertise.

We each get one seat on the board, I.e. equal voting rights.

The thing is that while he gets 20%, in terms of the day to day operations, his control over the company is just as mine, as if he had 50%.

Now, I can probably change it so I have more voting rights or something like that’s kind of missing the point.

I’m trying to think of a mechanism where I can retain control of my company, but also be restrained so I can’t fuck it up.

At the time being I don’t mind that he has more control, I worked with him closely and on some joint ventures, he’s just much better than me at it and he takes a huge load off my shoulders.

I don’t even see it as a problem in the long term.

What I’m worried about is missing something that – is there a scenario I can’t think of where this would come back to bite me in the ass?

I feel like the decision to give up the control is a big one.

Would love to hear any thoughts and advice.


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9 replies on “Intentionally losing control of my company/board”

Really interesting situation and I commend your self awareness and approach.

Unfortunately, I can’t give you a great answer, there are upsides and downsides to making your control more absolute.

I would definitely consider having a third small stakeholder who contributes to decisions, 3 is a better split than two. If not, then you could consider having a “chairmans” vote, where your vote decides a 50/50 split. Given that you have built the company, I don’t think that’s unreasonable, but it does rob your partners power.

Personally, if you have the funds I would talk to a good commercial lawyer about this. This is exactly the type of problem they are trained to solve.

Good luck!

Two people at 50/50 voting power is a terrible idea. I’d be surprised if the investor allowed that, also.

The CEO should be on the board. What the hell is the CEO gonna do if he can’t make budgetary decisions?

I mean the decision to give up control of your company is huge, and obviously something you’ve thought about. I think because the situation is complex (some of it is not definable), the solution most likely won’t be “out of the box”. I’d outline: A. decisions that you are happy giving up majority of control over. And B decisions you want to keep majority in. Into 2 very definable columns, then draw up a contract that states each in full. Giving your dude full control of what you don’t want a say in (dividends, etc), and keeping control of the important-to-you-stuff (selling of company, pivots, etc). Get full signatures and crack on, essentially dividing up work/autonomy. Also props on your success so far. Don’t throw it away

If you can’t voluntarily reduce your influence, once you give the control away, don’t you think that you will regret it?

Wouldn’t a mindset change and building a corporate culture be more positive? You are the responsible for your company and indeed you need to challenge every decision in order to ensure that it is a good one. All colleague a are both enabled and encouraged by their supervisors to give their honest feedback and contribute with ideas as how the company should function. They should as well be in the knowledge, that others, who have no ill intentions are contributing their honest opinion and that through dialog they should strive to achieve a better outcome.

I don’t think you can have it both ways. If you want to give up control, you have to be Ok with decisions that don’t go your way. When I sold my business I had to go through something similar in terms of letting go. You will absolutely feel that some decisions are wrong but you should also come to terms with letting go and how empowering and motivating to the team.

You can retain vetto on macro company decisions such as change-of-control (sale of company) or board and equity elections but know that you’ll likely disagree on some decision.

I’d recommend thinking about a succession plan so that long-term you could be chairman of the board but not operational day-to-day. This doesn’t have to happen in the near term but externalizing yourself from the day-to-day may help you think of this transition as a step along a larger path.

Remember that many tech dudes did the same thing. Google got Eric Schmidt to put on the big boi pants while Larry Page was training to mature to the role.

Zuckerberg, Gates, Jobs and Musk have generally had “people’s persons” to handle most of the humane and business operations at tech companies.

It should be easy to see why. While it requires immense creativity and will to start the company it requires extreme conscientiousness (orderliness) to to keep it running. They’re different jobs, and honestly new entrepreneurs should be extremely aware of that from the start and plan for that reality.

I would certainly consider having a review period and the right to remove the other party with some sort of buy back option. You might make this difficult to activate, but in the end it would be your silver bullet.

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