An entrepreneur who establishes a business can and frequently invests effort, capital, and accepts continuing business liability and reputation risk.

The definition of winning and losing can mean more than simply the amount of capital invested, considering of the potential value of the investment at the end of a later period. Success for the business founder also does not necessarily mean that the realizable value of the ownership of whatever percentage of the company the founder is able to retain will be greater than the amount of the capital invested. Entrepreneurs are also able to win by developing and producing something of sufficient value which generates revenues, without there being simply a capital gain for the business founder. Establishing a business requires a different set of skills than managing it and the decision-making role of the founder may be altered by circumstances or a change in the balance of control of the company because of new investors. Even if the business founder’s ownership of the company is greatly reduced because of equity dilution a successful startup will still be a win for the entrepreneur.

The legal principle of “strict liability”, as is discussed in Peter Coy’s excellent NYT column, defines the negative impact of those who are in control of businesses which cause harm to others. However, the article does not elaborate on the “direct benefits” to those entrepreneurs responsible for creating increased value for investors and others. It is reasonable to believe that an entrepreneur’s liability is less when focusing an investor’s benefit will come from a company’s generation of revenues than a prediction of profitability.

Almost all companies were originally founded by an individual with a vision that they were going to be successful and benefit because of helping others. The making of vast amounts of money is not the primary motivation of most business founders. Of course, entrepreneurs believe that they will monetarily benefit from the success of a new business. Unfortunately, more businesses are started than succeed, and entrepreneurs often suffer from their failures beyond simply losing the capital they invested. Even the partial ownership of a successful startup can be disproportionately beneficial to the business founder because they directly profit in various ways from the businesses they established.

 

 

Arthur Lipper, Chairman                           arthurlipper@gmail.com
British Far East Holdings Ltd.