The Founder's Pay Paradox: A Theory of MSME Stagnation

Gratitude & Inspiration

Before we begin this journey into "The Founder's Pay Paradox," I want to take a moment to express my deep gratitude. This article and the very theory it explores were inspired by the profound work of Dr. Yogesh Pawar, PhD, the visionary founder of the School of Inspirational Leadership in Pune. For over decade plus years, Dr. Pawar has been a guiding light for MSMEs across India, helping them transform from simple family-run businesses into professional, world-class organizations.

His dedication to changing mindsets and fostering true leadership is nothing short of inspirational. I've had the privilege of witnessing his passion firsthand, and it was through his teachings that I realized a core truth: many MSME owners call themselves CEOs or Managing Directors, yet their actions - especially when it comes to compensation and talent - don't align with that title.

This dissonance, where a founder's past struggles prevent them from investing in their company's future, is a real-world "syndrome." It's a mental block that holds back not just individual companies, but our entire entrepreneurial ecosystem. This article is my attempt to delve into this crucial topic, sparked by Dr. Pawar's unwavering commitment to helping MSMEs overcome their biggest barriers - which, more often than not, are in their own minds. Thank you, Dr. Pawar, for your inspiration and for teaching us that true leadership is about action, not just a title.

The Founder's Pay Paradox

The Founder's Pay Paradox is a theory that explains why many Micro, Small, and Medium Enterprises (MSMEs), despite showing early promise, fail to scale and attract top talent. This paradox stems from a core conflict between the founder’s initial entrepreneurial mindset and the evolving needs of a growing company.

The Inception: The Scarcity Mindset

Every MSME starts with a dream and very little capital. The founder, often a solo visionary, pours their personal savings into the business. During this "inception" phase, every rupee is a soldier in the war for survival. The first hires are typically friends and family who share the founder's passion and are willing to work for minimal pay. This is a crucial, defining period where a scarcity mindset is forged - a deep-seated belief that every cost must be kept as low as possible. This isn't just a business strategy; it's a personal conviction born from sacrifice. The founder's identity becomes intrinsically linked to this frugal approach.

The Contradiction: The Growth Illusion

As the business begins to scale, something shifts. The MSME is no longer just surviving; it's thriving. Revenue grows, and the need for new talent becomes undeniable. Yet, the founder's mindset remains stuck in the past. They continue to view every salary offer through the lens of their initial struggles, unable to grasp that the financial landscape has changed. They see a salary of ₹50,000 as an unimaginable luxury when they remember paying their first employee ₹5,000.

This is the core of the paradox: the very mindset that enabled the company's survival now actively hinders its growth. The founder tries to hire top-tier professionals - engineers, marketers, and managers - but offers them salaries far below the market rate. The job descriptions promise "startup culture" and "ownership," but the compensation tells a different story. The best candidates, who have options, quickly look elsewhere. The MSME is left with a talent gap, filling crucial roles with under-qualified or inexperienced individuals. This leads to a cycle of mediocrity and missed opportunities. The company grows, but not in a healthy, sustainable way. It becomes a treadmill, with the founder constantly running to fix problems created by a lack of skilled people.

The Antidote: The Mindset Shift

1. The Self-Reflection Phase: The first step is acknowledging the problem. The founder must honestly assess their business's trajectory. Are they constantly facing quality issues? Are deadlines being missed? Are competitors with better teams leaving them behind? These are symptoms of the paradox at play. Acknowledge that the old ways, while successful in the beginning, are now holding the company back.
2. The Valuation Phase: The founder needs to re-evaluate the true value of talent. Instead of viewing a salary as an expense to be minimized, they should see it as an investment with a tangible ROI (Return on Investment). A skilled project manager who streamlines processes and saves countless hours is worth far more than their salary. A top-notch marketer who brings in a new stream of clients isn't an expense; they're a profit center. This phase is about understanding that a higher salary doesn't just buy a person's time; it buys their expertise, efficiency, and innovative thinking.
3. The Strategic Investment Phase: This is where the abundance mindset is put into action. The founder should create a talent budget that is separate from the operational budget. This isn't just about matching corporate salaries; it's about being strategic. They might not be able to compete on every front, but they can identify key roles that will have the biggest impact on growth. Instead of hiring three mediocre employees, they can invest in one exceptional professional who can elevate the entire team. This approach also involves non-monetary perks like flexible work, true autonomy, and a clear path for growth - things a large corporation often can't offer.

The Path Forward: Pros & Cons

Conclusion: Embracing Abundance

The Founder's Pay Paradox is a human problem, not just a business one. It's the story of a hero who must let go of the past to embrace a bigger, more successful future. The ultimate challenge for any MSME founder isn't to outsmart the competition, but to outgrow their own limitations. By shifting from a scarcity mindset to an abundance mindset, they don't just solve their talent problem; they unlock their company's true potential and build a legacy far greater than their initial dream.