What’s first for founders: Fame or funding?

What’s first for founders: Fame or funding?

Ever heard of Yik Yak? Or Zenefits? Your fund manager probably has: Unbeknownst to the wider business community, these startups have recently broken records by collecting $70 million and $600 million, respectively, from investors.

Funding is first and fame will follow for them – or so its founders hope. However, the ride-grabbing app Uber tells a different story: It first became a media catchphrase and then raised $2 billion from investors last year. All three have resolved a founder’s dilemma:

Is it better to seek funding first in order to build fame, or to seek fame as a means of attracting funding?

Research conducted at the Oxford University Centre of Corporate Reputation, among other organizations, shows that a company’s reputation and its performance have a significant and positive correlation: When a company’s reputation grows, it reduces its stakeholders’ uncertainty about its future and increases the access to resources (such as funding), thereby creating the conditions for high performance.  But this does not apply for startups. They do not have track records of financial performance, and their business models cannot yet count on validation by the market. They also lack the resources to invest in advertising and branding.

Founders have three ways out of this dilemma:

  • borrowing the reputation of a famous endorser, venture capitalist, business partner, or from key client organizations;
  • personalizing the business and focusing predominantly on the founders’ individual reputational capital;
  • investing in reputation-building and symbolic actions.

So can founders pick a road to fame and fortune? Yes, but they need to closely look at the landscape.

When borrowing a reputation, founders need to be acutely aware of how status is conveyed in their target market: In some cultures, such as Germany, well-run organizations and diligent processes earn high status; in others, such as the United States, the personal charisma of investors or business partners is pivotal.

Many Asian societies appreciate both process and personality but put a premium on age. Borrowing the reputation from a star supporter can work, but only if (s)he has more than a few gray hairs.

If founders want to make things personal and become the public face of their business, they need to understand the media landscape. When there is no budget for advertising, journalists become the strongest link between a founder and the business community. Whereas reporters may not be successful in telling people what to think, they are very influential in telling audiences what to think about. Journalists put a premium on personality, particularly in the more individualistic cultures of the “West”: The founder is the hero in business reporting, not their product. By magnifying the role of the founder, journalists increase the salience of their personality in a success story. This strategy bears a risk, though, because bad news is often good news for reporters, and failures are particularly interesting. Investigating business reporting during economic upheaval, we found that underperforming companies’ leaders were overrepresented in the media. Once a founder has invited reporters into his garage or home, they should not expect them to leave when the lights go out.

This risk is smaller in high-growth economies, such as Hong Kong and Indonesia, not just because founders have a higher chance of riding the economic wave, but because the media do not pay attention until they are successful in their own right. During the 10 years between 2003 and 2012, “startups” were mentioned just over 100 times in all the editions of the English-language business media combined in Singapore, Bangkok, Hong Kong, and Jakarta. When founders make it to the media in high-growth economies, they are already grown-up entrepreneurs far beyond their startup years.*

The third strategy, reputation-building, depends more on the market than the media: Investing in reputation means building an asset that can generate future rewards for the startup. However, this only makes business sense if the cost for building reputation is lower than its reward, as in markets with frequent repeat sales, for example Amazon and Uber. Nevertheless, when the reward is not immediate and a founder needs to sustain reputation strategies for a long time, this strategy becomes hard to justify to impatient investors.

So one founder’s chicken may be another one’s egg when it comes to fame and funding. But telling them apart is a skill that any founder needs.


*Research conducted together with Mark Chong, Singapore Management University

Entrepreneurship and Innovation, Strategy

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