Granting stock options is only half the battle. To make equity a powerful motivator, leaders must constantly communicate a clear and believable narrative for a future liquidity event, such as an acquisition. This vision is what transforms paper ownership into a tangible and valuable incentive in the minds of employees.

The idea that a billionaire can "spend" their net worth is flawed. Their wealth is primarily in company stock; liquidating it would crash the price and signal a lack of confidence. This misunderstanding of wealth versus income fuels unrealistic proposals for solving global problems.

Bubbles are created when assets like startup equity are valued astronomically, creating immense perceived wealth. However, this "wealth" is not money until it's sold. A crash occurs when events force mass liquidation, revealing a scarcity of actual money to buy the assets.

Founders can become fixated on achieving a good burn multiple, which is a theoretical measure of fundability. However, they sometimes forget the practical reality: a great burn multiple is useless if the company runs out of cash. Cash in the bank is a material construct, not a theoretical one.

Startup valuation calculators are systematically biased towards optimism. Their datasets are built on companies that successfully secured funding, excluding the vast majority that did not. This means the resulting valuations reflect only the "winners," creating an inflated perception of worth.

Chasing high, unrealized valuations is dangerous. It makes common stock prohibitively expensive, undermining the potential for life-changing wealth for employees—a key recruiting tool. It also narrows a company's strategic options, locking it into a high-stakes path where anything less than exceeding the last valuation is seen as failure.

Valley culture pressures founders to concentrate their entire net worth in their own company, discouraging diversification. This high-risk strategy, framed as commitment, often leads to catastrophic personal financial losses when the startup inevitably fails.

Exiting a cash-flowing business swaps a continuous income stream for a finite pot of money. This psychological shift can create deep financial insecurity as founders must now protect capital rather than generate it, even if they are objectively wealthy.

Founders often assume employees share their risk appetite for equity, but this is a mistake. When offered a choice between a higher cash salary and a mix of cash and equity, the vast majority of employees will choose the guaranteed cash, revealing a fundamental aversion to risk.