Founders are terrible CEOs
work.qz.com
work.qz.com
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The macro reason: that’s the way most of the great technology companies have been built
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Professional CEOs are effective at maximizing, but not finding, product cycles. Conversely, founding CEOs are excellent at finding, but not maximizing, product cycles.
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Innovator’s requirements – what does it take to find the product cycle?
So where did Jobs get this “founders courage” and what is it? In addition to general brilliance, we see three key ingredients to being a great innovator:
1. Comprehensive knowledge
2. Moral authority
3. Total commitment to the long-term
Great founding CEOs tend to have all three and professional CEOs often lack them. Here’s why.
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Just to clarify, you mean private company investors. Typically a company goes public as part of entering a different "life stage" and its operation and needs on either side of that transaction are different.
Which, BTW is why there are so few "crossover" funds (like TCV) that invest in both private and public companies: the things you look for are quite different (in operations, risk, and return).
(I count the private equity guys like Silverlake and Carlisle in the "public" side since they invest in companies that are already public and have similar op needs to public companies).
A founder is supposed to think about stuff that often competes with that, like making employees feel motivated or delivering value to customers.
Hell, even building a healthy company is often at odds with capital return. We see daily examples where the ‘right’ thing to do (from capitals perspective) is to sell off all assets, submerge the company in debt, and abandon ship.
Honestly, I think this explains why sidelining founders early has such a bad track record. They may not be expert managers, but they have goals consistent with building for the long term. (The ones who make it to successful companies, anyway.)
A lot of the horror stories from the dot com era are of visionary-but-unskilled CEOs being replaced by experienced executives from big 90s companies. And so management improved and waste was cut, but the company promptly became adversarial with its customers and even employees. Without the capital reserves and institutional power of BigCo, weak talent and angry consumers drove them into the ground. (I vaguely suspect this is why tech companies this cycle have been so slow to rationalize around perks - it's worth overspending on worse-than-cash offerings just to ensure you don't go too far the other direction.)
I've heard it said that at a certain size, companies stop being entities in a market and grow markets inside the company. Certainly, many large companies appear to view their employees and consumers as enemies. (e.g. Walmart's view on staff, EA's view on game buyers.) So CEOs who don't operate like that after winning are framed as 'bad' executives, while startups that bring in BigCo thinking too soon destroy all of their advantages.
"We investigate these issues using the World Management Survey (WMS), an international data set providing detailed information on the management practices for a large sample of medium and large MANUFACTURING [emphasis added] firms (Bloom et al. 2014; Bloom and Van Reenen 2007) in thirty- two countries."
Sure, it seems relatively believable that large and medium sized manufacturing firms are better run by professional managers than their original founders, given the dynamics of that particular industry. Medium and large manufacturing firms require relatively common knowledge, have repeatable processes, are high volume/low margin, use commoditized inputs and outputs, as well as many other factors that make it ripe for bean counting as opposed to risk taking and vision. This is a straw man if I ever saw one.
[Edited typo]
Using the methodology I think they use, the statistics are dominated by the fact that only fairly successful companies are able to hire a professional CEO at all. A company that starts and goes nowhere (perhaps due to the idea being bad) is always in the founder-CEO column.
It's probably also true that companies with multiple offices are more successful than companies with a single office. And companies with a superbowl commercial are more successful than the average company without one. But that doesn't imply you should do either for your early-stage company.
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1. How to Be a C.E.O., From a Decade’s Worth of Them
> https://news.ycombinator.com/item?id=15581087 [nyt | 14 days ago | 74 comment]
> https://www.nytimes.com/2017/10/27/business/how-to-be-a-ceo....
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2. The Best-Performing CEOs in the World 2017
> https://news.ycombinator.com/item?id=15640548 [hbr | 6 days ago]
> https://hbr.org/2017/11/the-best-performing-ceos-in-the-worl...
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...and the research article from this post:
> http://www.people.hbs.edu/rsadun/AreFounderCEOsGoodManagers....
"Hey, from today I think I'll try to become a better manager, let me go pick up that management skills and MBA book"
Please don't. Just be yourself. While working on a startup I had somehow decided that I "need better management skills" when it was barely a small startup and I should have been focusing more on product and product only, I read too many business books and became a "great manager".
A "great manager" is totally necessary once the company reaches certain level, but for most early stage startups, it will kill you. Focus on the vision and make it top priority to get to that vision even if people think you're being irrational.
I'm not saying you should be an ass, but just saying don't invest too much time trying to become a "great CEO" after reading these articles, because that's the last thing that matters in early stage startups. CEO doesn't exist in early stage startups, only irrational founders do.
If a founder were going to devote time to management skills, I wonder what the most beneficial topic would be?
My first two guesses are a decent guide to hiring (if one exists), and an HR guide to crisis management. CEO-style leadership is impossible in a startup, so it seems like hedging against crisis is the best bet. If you can slightly lower the odds of a bad hire or internal schism, that's probably higher-value than any marginal improvement.
I'd definitely be interested to hear other thoughts, though: whats the best rapid improvement available?
People followed Bill Gates and Steve Jobs even though they were assholes not because they were "great leaders", but these smart people chose to believe that these founders had a great understanding of the landscape and can execute.
Therefore in my experience the most helpful books were those that gave me insights on how the world around us works since that helps with your world view. It's always great to have a higher level perspective.
For example, you could have looked at the chatbot fad last year and think that chatbots are the future, and went all in. Or you could have thought deeper into why the fad was taking place and work on a deeper problem. This type of ability is what attracts smart people to work with you.
This is only possible if you have a deeper understanding of the world. So read more philosophy and science books and more books that give you a better understanding of the world, than shallow business books.
You can probably google and find as many books about leadership as you want, but my personal recommendation would be to just grab Extreme Ownership[1], assuming you can deal with the fact that his lessons were learned in the Iraq war (although they apply just as well to business).
[1]: https://www.amazon.com/Extreme-Ownership-U-S-Navy-SEALs-eboo...
"Some" Founders are terrible CEOs of "Some types of companies"
> Founder CEOs were by far the worst type of CEO
That's a hyperbole.
But...
Perhaps it's confirmation bias, it seems more and more comments on HN have acknowledged the inescapable role of luck in the success of these leaders' ascent.
It's difficult to reconcile, though, because we all want to be in control of our own destinies. Articles that lionize the Ellison/Gates/etc. of the world just feed that "I can do it too" mentality.
How many people here actually do have the capacity to be one of these high-caliber leaders but never have the opportunity because the planets don't align just right?
From this I conclude that business school professors are terrible at picking success metrics.
From the article:
"But founders’ poor success rate as CEOs also has to do with the kind of personality that’s compelled to start a company in the first place. People often start companies precisely because they want the freedom to run things as they wish—which sometimes includes poor managerial decisions."
This may be true for some founders but I'm struggling to see whether this represents a substantial sample size. My impression is that people often start companies because they want to go through the experience of starting a business and seeing it grow and succeed. Freedom may be a part of it, but this article seems to suggest it's a dominating variable that ultimately leads to the demise of the founder(s) which I'm struggling to see.
What if a product CEO first spent time learning to grow and scale businesses via consulting or working in a professional capacity, and then walking away from it to start something?
It seems likely greater number of future CEO's will come from the path of CTO'S who have learned to touch, support and grow all areas of the business.
The best strategy for founders from these data points seems to be to retain control via stock ownership, but recognize your limitations and bring in good managers.
Reaching for large jar of salt
..something about owning your own risk-reward. The irrelevance of whether or not a failure/success was yours, bad luck or whatnot. The whys of success aren’t as important to a CEO, at least not outside of his own head. Founders and professionals face totally different incentives, different selection criteria.
Professional managers, are constantly assessed. Their success depends others’ perception of them. Career incentives are intertwined with a system of “winning” regardless of whether a company company wins, in a lot of cases. If a company doesn’t succeed, a professional CEO will probably get another CEOing gig… if the failure doesn’t reflect too badly on him. CEO actions need to be justifiable. Failing despite doing the right thing is always better than the other kind of failure, much better. The Travis Kalkanik failure is a career killer for a professional exec, regardless of successes. The John Scully kind of failure… that’s not even failure.
A founder-CEO typically doesn’t care about that stuff, what the ultimate narrative will be.
Imagine a founder neglects some basic aspect of business. Say HR stuff. No periodic assessments. No employee development… A mess where some people do nothing… Lets say it’s bad, visible consequences.
From a founder’s perspective, this might be meaningless. If we manage to make thingX, we’ll be successful. If not, we’ll fail. That “problem” doesn’t help or hurt my chances much, so I don’t care about it. It’s just mess. Right or wrong, if the CEO doesn’t see The Problem as something standing between here and ThingX, then who cares.
To a professional CEO the same problem represents a massive target on his back. If we fail, I fail. The Problem will be a newspaper headline. The board will hear. The narrative of failure will include “bad CEOing” in a nice, narrative package. Even if we succeed, the stink will still stick to me.
I think this results in more consistent performance, across any metric where performance is consistently measurable.
Consider how this article treats“CEO Performance:”
”a team of professors at the business schools of Duke, Vanderbilt, and Harvard universities finds that founder-run companies to be less productive and more poorly managed”
“..were 9.4% less productive, on average.. consistently lower management scores.. less transparent management practices—nepotistic hiring, et cetera..”
These are the generic assessment criteria of a generic professional CEO, not a founder. They apply to Coca Cola exactly as they apply to Groupon, Stripe or SpaceX. Nowhere in any of that will you find “but he knows how to get to mars” as a criteria.