04:45 AM

Why Founders Are Important To Startups - Demolishing Myths About Founding CEOs

Over the years there has been much written about startup teams and how different stages of a startup require a different mix of skills and thus different teams.

I've spoken with Greg Gianforte, CEO of RightNow Technologies and a serial entrepreneur about this topic many times. He says that in the beginning you need a startup team where individuals have a broader set of skills, and as the company matures, you need to bring in people with more specialist skills.

That same thinking has been applied to the founding CEO. There is a widespread belief in Silicon Valley that founding CEOs need to be replaced with professional CEOs to take companies to the next level. And there have been many high profile examples of founding CEOs being ousted by the board or investors.

But is this the right strategy?

Ben Horowitz, cofounder and General Partner (along with Marc Andreessen) of the venture capital firm Andreessen Horowitz, has written an excellent article extolling the virtues of founding CEOs. [Why We Prefer Founding CEOs // ben's blog]

He makes an excellent case for keeping the founding CEO by listing companies that have succeeded by keeping -- not replacing-- their founding CEO.

Take a look:

  • Acer--Stan Shih
  • Adobe--John Warnock
  • Amazon - Jeff Bezos
  • AMD--Jerry Sanders III
  • Apple - Steve Jobs
  • DEC--Ken Olsen
  • Dell--Michael Dell
  • EA--Trip Hawkins
  • EDS --Ross Perot
  • Hewlett-Packard--Dave Packard
  • IBM--Thomas Watson, Sr. (*)
  • Intel--Andy Grove (*)
  • Intuit--Scott Cook
  • Microsoft --Bill Gates
  • Motorola--Paul Galvin
  • nVidia--Jen-Hsun Huang
  • Oracle--Larry Ellison
  • Peoplesoft--Dave Duffield
  • Salesforce.com--Marc Benioff
  • Seagate--Al Shugart
  • Siebel--Tom Siebel
  • Sony--Akio Morita
  • Sun--Scott McNeely
  • VMware--Diane Greene
He points to a study from the Wharton School of Business that shows founding CEOs outperforming "professional" CEOs.

Mr Horowitz believes that founding CEOs perform better because:

Professional CEOs are effective at maximizing, but not finding, product cycles. Conversely, founding CEOs are excellent at finding, but not maximizing, product cycles.

He says it is easier to teach a founding CEO how to maximize product cycles than it is to teach a professional CEO how to find new product cycles.

Also, a founding CEO can push through changes that a professional CEO would struggle with because they have:

    • Comprehensive knowledge
    • Moral authority
    • Total commitment to the long-term
Steve Jobs, Apple's founding CEO is a great example of those three qualities.

Professional CEOS have different motives:

...tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance.
Investments in innovation do not pay out in the current quarter.

Typically, they don't even pay out in the current year. If you care about your bonus this year, you are directly incented not to make investments in new inventions as you will incur the expense, but reap no profits.

Founding CEOs are motivated by long term goals, "their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant."

Mr Horowitz cites two exemptions, Eric Schmidt at Google and John Morgridge at Cisco.

However, I disagree with the choice of Eric Schmidt as an exception because the leadership role is split three-ways with the founders Larry Page and Sergey Brin -- both founders are extremely active in setting company strategy and policy. Mr Schmidt was brought in to provide "adult supervision" and prep the company for an IPO.

[Please see: Nine years later does Google still need 'adult supervision?' | Tom Foremski: IMHO | ZDNet.com]

I think that Lou Gerstner, IBM's former CEO did a fantastic job as a "professional" CEO in transforming IBM from the world's largest computer company into the world's largest computer services company -- an important distinction. It was a ten year process that is now being replicated by others such as Hewlett-Packard and Dell. [Please see: Who Says Elephants Can't Dance]

Mr Horowitz makes the point that founding CEOs don't arrive with the skills that will make their companies successful, they acquire them. He cites two required characteristics of a founding CEO:

    • Leadership as described in my early post Notes on Leadership.

    • Desire--not necessarily the desire to be CEO, but the burning, irrepressible desire to build something great and the willingness to do whatever it takes to get there.
It's an excellent post that demolishes one of the more persistent myths about the value of founding CEOs. You can read it here: Why We Prefer Founding CEOs // ben's blog

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