Aspiring entrepreneurs are often faced with a tough question – would you rather own 100% of your own company or own a percentage of someone else's?

While there are a lot of variables to consider, entrepreneurs often overlook the variables that really matter. They tend to think in terms of, “how can I get the biggest check on payday?” When the real question is, “what’s the chance that I'll ever see a payday at all?”

In order to understand what a stake in a company is really worth, you need to know how to evaluate the potential success of the company itself.

The Lame Google Argument

First, let's put a fatal bullet in the “Lame Google Argument.” The Lame Google Argument suggests that it would be better to own 1% of Google than 100% of your new company. People use this argument to suggest that a small percentage of something big can be worth far more when the bigger piece is worth over $150 billion.

This argument is lame because only Google is Google. The likelihood of your stake being part of the fastest growing company in history is about as likely as hitting the Powerball Lottery. The argument focuses on the cash value of a small stake, not the probability that there will be any cash value at all.

I'll take less cash with a higher probability of actually getting paid any day of the week.

The Probability of Value

Now let's get back to the value of your 100% stake. The fastest way to own the biggest piece of the pie is to start your own company, so let's assume you did that. With one simple incorporation you get to horde all of the equity yourself.

Yet the real question remains – what is that even worth?

What we're talking about is the probability of your 100% stake having value. How much you own is irrelevant. It's the value of your stake that makes all the difference.

Valuing your stake in a company based on your percentage ownership alone is a mistake. The true value is the probability that your stake will be worth anything at all. Startups tend to succeed or fail, and there is rarely any room in between.

The Consolation Prize of Failure

The sad truth is that most companies fail, and statistically speaking, you're likely to be one of those failures, although I hope you're not!

There is rarely ever a consolation prize for failure. In fact, it's more likely that you'll wind up with a massive amount of debt than with a pile of cash in your back seat.

Therefore you need to not only balance the lack of return, but the cost of failure both in terms of time and capital. Getting even a dollar out of the sale of a company is worth more than losing your house over the failure of the company you own 100% of.

Success is not a Sliding Scale

People quickly ignore the fact that success tends to be pretty binary – it either happens or it doesn't. They begin to think that every company will likely be successful, and therefore they simply want the biggest chunk of a company to realize the greatest amount of value.

But success is not a sliding scale. You can't assume that every company you get involved with or start will be just as successful, and all you need to do is get the greatest percentage.

All startups are not created equal, which is to say that since most of them fail, a bigger stake in any one of them doesn't really buy you anything.

The Diminishing Return Factor

The one caveat here is what I would call the “Diminishing Return Factor”. At some point your stock is worth so little money that it doesn't really even make up for the true value of your time, much less your stock.

For example, if you were to take $10,000 worth of stock options and cash them out at $15,000 in three years, even though you were successful, you really didn't make up for the opportunity value of 3 years of your life. In that case, the probability of success doesn't really matter, since the value of success is pretty much a bust.

Bet on Success, not Payouts

Every new opportunity to join a startup and pile on options is an opportunity to strike it rich, but you need to evaluate your options fairly using more than just “how big of a slice am I taking?”

Instead of worrying about how big of a stake you have in a company, worry about whether that stake will be worth anything at all. Bet on the probability of success, not the payout of your percentage.