Unknown author
What is the fundamental difference between the work of a hired manager in a corporation and the work of a self-employed entrepreneur? Here and there one can earn commensurate remuneration, manage similar assets, and have the same power. Whatever parameter you take for a top manager, there is an equivalent for a founder. And yet there is a difference, and it is so colossal that it is even embarrassing to put these two activities side by side.
To use the legendary investor Benjamin Graham’s metaphor, they both make deals with Mr. Market, taking risk and creating value in the process. But while the entrepreneur receives an objective reward directly from Mr. Market, the top manager never does. The latter has a layer between him and Mr. Market in the form of a CEO, board and/or shareholders who subjectively decide whether the top manager deserves the reward or not. Even if he has tamed the Cretan bull and cleaned out the Augean stables, not the gods, but the people will give the verdict: “He’s a hero” or “Lucky. Anyone could have done it.” Thus, in addition to pure market risk, the hired manager has the additional risk of human bliss. Such uncertainty changes everything.
It is enough for a manager to get burned a couple of times without getting what he thinks is a well-deserved bonus from the owners, and he will no longer want to look for the crane in the sky in this company. The best managers will go to a competitor or set up their own business. Many of them will stay, but will try to get a bigger bird in the hand. Some managers will start to cynically fight for power, to become the de facto beneficiary of the business, but to leave the risks to shareholders.
The conclusion? If you are a top manager, work for those shareholders whose main goal is to grow the market capitalization of the company, not to have fun in the spirit of Game of Thrones. If you’re a founder, create the most transparent connection possible for your managers between their efforts and the reward for the value they create.
Yours sincerely,
-Alexander
You can help Ukraine defend itself and the World from Russian aggression here.
”Who are you and what do you do?"
As a business therapist, I help tech founders quickly solve dilemmas at the intersection of business and personality, and boost company value as a result.
"I have an extremely important business decision to make. Can you help me?
Reserve a time on my calendar that is convenient for you to meet with me. We'll clarify your request and discuss options for how you can help.