Sell it or run it, there is no middle ground

For example: I recently took a class in college where a team of engineers and business students would pick up and run with a venture from the previous semester. My team was producing mechanical agricultural products for rural women in Ghana. I was technically the "Project Manager" but in reality, I had no idea what was going on for the first two months: who were our contacts in Ghana, why should they trust me, how had the design of our products changed over time, who was supplying our raw materials, what was the state of our financials & grant proposals, how about marketing and sales channels, what even is a Cassava?! It was really disorienting and frustrating. Yes, there was documentation [1], but reading something vs. doing something are completely different.

The most valuable members of these teams are always the ones who have stayed on the project for multiple semesters, with the overseeing professor (6 semesters of experience) being simply indispensable. If he had been replaced, the project would've fallen apart immediately.

Of course, this becomes less and less essential as the company gets larger. Replacing the CEO at a Microsoft or an Apple may change high-level decision making, but most of the human capital is stored within the large, diversified, hierarchical employee base.

As for putting your entire net worth into one investment, that's a simple risk/reward profile. If you're going to put all of your monetary assets into one investment vehicle, you're probably going to put all of your other assets (skills, contacts, time) into this investment as well. Capital attracts capital, be it fiscal capital or human capital.

[1] The documentation was actually excellent as each exiting team had sworn to do a great job so that the next team wouldn't have to go through the same frustration that the exiting team had experienced. Wishful thinking.

Investors and business brokers deal with them by 1) low prices / earnings multiples, not putting your entire net worth into a small business 2) as OP suggests, you either manage it yourself or somehow have loyal staff with skin in the game 3) earn-outs for original owner who gets paid out over time from earnings after successful transfer.

Because of the risks, small businesses sell cheap relative to earnings, often fail not long after they are sold.

Even in the really small case of taking only 75% of the salary to work only 75% of the hours due to not needing the money and valuing your time more. It can cause problems in the team because they see the result of you working only 75% of the time but they rarely encounter the effects of being paid only 75% of the amount.

So when you are getting paid far more and working far less because of all the initial investment and taking on the initial risks (something employees are likely not able to see and fully appreciate), then there is going to be resentment.

>taken to its logical conclusion, this means investors shouldn't exist!

And there are groups of people (political and not) who have a negative view of investors compared to employees.

How many investors do you know that put all of their savings into a single company run by someone else without wanting to take control of that company?

I'm asking not in the present-day legal sense (where the answer is, whatever's fair is whatever you've clawed out for yourself), but in the moral sense of how much should ownership of anything actually be worth if you're not continuing to put any effort into a venture, but are totally passive--a name on paper.

Where does "setting up and creating a thing and then profiting as an absent owner" cross over into rent-seeking?

And why do any of the current employees care about that? All they see right now is you sitting on your ass while they're the ones doing the actual work.

"you worked the endless hours at the beginning"

And now you're not, and they're the ones working the endless hours. Or perhaps a number of them were also there at the beginning, working the endless hours.

"you created the whole thing in the first place."

This is not always true.

"Why on earth should they resent you continuing to take your fair share of the fruits of your previous labor?"

Because they don't see it as being a fair share.

"If they have a problem with that, the problem isn't with you, it's with capitalism in general."

Not necessarily. Capitalism doesn't say that one should be able to rest on one's laurels forever.

And quite frankly, if you want your employees to work hard for you, then you need to lead by example. If you're going to sit on your ass, then why shouldn't they?

Indeed during the recent dotcom mania a bunch of quack business writers suggested that the company of the future would be totally virtual -- just a trendy couple sipping Chardonnay in their living room outsourcing everything. What these hyperventilating "visionaries" overlooked is that the market pays for value added. Two yuppies in a living room buying an e-commerce engine from company A and selling merchandise made by company B and warehoused and shipped by company C, with customer service from company D, isn't honestly adding much value. In fact, if you've ever had to outsource a critical business function, you realize that outsourcing is hell

http://www.joelonsoftware.com/articles/fog0000000007.html

To make peace I would suggest that, this approach is perhaps doable at a smallish scale by eccentric individuals, but not on a wider scale. The proverbial $25k p/m T shirt business.

There is always a middle ground, but sometimes that middle ground isn't quite wide enough to stand on and it's better to go for clarity, have your hands on or have your hands completely free.

This makes sense if you think about it from a capitalist perspective, though.

Adam owns a condo and rents it out. He makes $500/mo after his expenses. Unless competition for property management is very high (quite the opposite), the "perfect" amount to charge for that service is going to be as close to $500/mo as possible while still getting Adam to pay it.

The most common complaint I've heard about property management firms is that somehow their prices always seem to be somewhere in the 95-105% of net profit for a single well-appointed property.

There are plenty of people who have owned their homes for 10-20 years who can make a decent profit in renting them out.

To be fair, these markets are pretty bubbly, and everyone is just hanging on for capital gain (it's no biggie if you have to "top it up" a little bit). Plus, losses are more or less tax deductible (e.g: http://www.ird.govt.nz/property/property-rental/deductions-y...). This includes agents fees.

This totally depends on the purchase prices, interest rates, rental rates and other variables in a given scenario. The generalization that you can't profitably rent out a property while also paying a property manager is obviously not true.

Bill Gates did it with Microsoft and at that level I'm sure that there is enough momentum in the business to keep it moving along or even to improve. But most smaller businesses (say < 30 employees or so) are both culturally and dynamically much more personal and being both gone and still present in the background creates a strange power dynamic (who's the real boss?) and frustration.

[edit: confirmed whilst I had the comment window open]

The OP is actually saying that's one of the viable options -- to keep the business and stay at the helm.

What he's arguing is that you're not likely to ever successfully be able to keep the business (not sell), hire someone else to run it for you, and never have to work again -- the obvious exception being e.g. Bill Gates (and the difference being that Microsoft was so huge and firmly rooted that he could hand it off).

I know someone who ran a small town diner for decades and eventually sold it to a niece, who had worked there for the last twenty years anyway.

The article is not aimed at those that are about to go public or that have already done so but rather at the founders of companies with up to ~30 employees or so and < a few million dollars of turnover per year.

The opportunity cost for the founder in that particular case is something I really don't want to think about even if for me as an investor his return to the CEO position is good news.

The first the sole founder was seen as fiddling while Rome burned, long lunches on with rich friends and always on the phone, never doing anything (and getting paid well for it). Now I recognize he was probably trying to line up another round - but this was dot.com 1.0, we were young and didn’t know how the game was played. Also he just wasn’t good at communicating this downward - or at least as far down as we were.

At the second place the founders were all regarded as incompetent, and thus getting paid well for doing useless work. I think they where just nerds, and bad at interacting people.

I think management is hard and resenting your boss is common.