Founder CEOs

The old saw in Silicon Valley used to be – “It’s never too soon to fire the founder.” Founders wouldn’t know how to scale; they would focus on product or technology, not business; they would have idiosyncratic and unrealistic strategic opinions that they wouldn’t let go off; they would fail to delegate; they would be inflexible; they wouldn’t know how to work with a board; they wouldn’t have credibility with investors, or customers, or media, or senior executive recruits; they would have an exaggerated opinion of their own indispensability; they would allow chaos to reign over process. And so on.

Google’s board certainly had some of these factors in mind when they appointed Eric Schmidt CEO ahead of Google’s IPO. Yet, the trend recently has been more in favor of keeping the founder as leader. Why?

Partly, it’s data.

Apple has provided almost a laboratory test-case of the benefits of a founder’s opinionated micro-management vs. the benefits of “professional” “seasoned” executives.

Mark Zuckerberg is the next data point. Here he is giving one of the sweatiest most embarrassing media-interviews ever at D8. Kara Swisher (All Things Digital / WSJ) called him the “Toddler CEO”. He was – and is – very young. Yet Facebook has only gained in strength, Swisher had the good grace to call Zuckerberg a “prodigy“, and no-one now imagines that Zuckerberg would stand aside prior to a FaceBook IPO.

Going back to ancient history, Bill Gates was always the exemplar of the founder-CEO – though he had the advantage of Microsoft growing more slowly in its first decade than Google or Facebook, making it easier to gain credibility over time.

What is it about founder CEOs that sometimes allows their companies to outperform?

It’s two things: The singularity of vision and drive; and the singular source of authority.

Vision and drive first. In the (bad) old model, venture investors would “take” the founder’s idea and build a company out of it. But it turns out that it is not so easy to take an idea away from its originator without diluting it. Imagine if “professional management” had been running Facebook – they would have had monetization at the top of their agenda. Instead, Zuckerberg has been getting up every day and wondering “How can we improve and deepen Facebook for our users?” It’s all about the users, unrelentingly. And with Facebook showing another huge surge in usage in 2010, that turns out to be the thing that drives success.

Then authority. One of the hard things in companies with lots of smart people is actually making decisions and having them stay made. A judicious “professional” CEO will listen to the evidence and then decide. But the problem is that they are highly dependent on what evidence staff bring them, and can and do change their minds if the information in front of them changes. A founder CEO will – hopefully – also look at evidence, but in a great many cases they know what the right decision is, what direction they want to go. They may sometimes be wrong, but the definiteness of their decision making is, in fact, a huge asset.

Can Google regain these positives by reappointing Larry Page as CEO? I must admit I’m a little more skeptical than most commentators out there seem to be.

Firstly, there’s the question of the extent to which Eric Schmidt was always window-dressing. There was a TV interview (sorry, I can’t find a link) where Eric was describing the Erc+Larry+Sergei triumvirate at the top of Google, and the interviewer tried to put him on the spot by saying, “But what happens when you can’t agree with Larry and Sergei?” An unembarrassed Eric shot back with “We do what they want.” Which does rather beg the question of who was really directing the company.

Secondly, in another context, Eric provided an example of how he applied his experience within Google:

[Google’s Intuit accounting system] was too slow to use, so I suggested that they implement an Oracle system. It was a huge crisis. We ended up spending $100,000 for this. Larry and Sergey nearly had a cow over it (because they thought it was so expensive). A hundred thousand dollars is the cheapest Oracle system ever implemented in history I think.

But I find this example unconvincing. Of course, Larry and Sergei did not have experience of the accounting systems that would be needed as Google grew. Yet, it is often possible to put excellent operational executives around founders who can drive things of this kind; look at Tim Cook at Apple, to cite just an obvious example. Eric didn’t need to be CEO to solve this kind of issue.

So why the skepticism about Larry regaining the CEO seat? Essentially, the executive management challenge that Google has is that they have not been able to sharpen and focus their efforts to grow beyond their wonderful core business, leaving them now at risk of being outflanked by FaceBook, Groupon or others. With Larry deeply invested in their existing bottoms-up try-it-and-see-what-sticks algorithms-are-best approach to new initiatives, it seems tough to imagine that he will provide the visionary leadership to extend Google successfully – even if he proves superior to the triumvirate as a steward of their existing franchise.

Sometimes – perhaps even most commonly  – founders really can’t fill the CEO role as a company grows. But today at least boards may remember how much they give up when the move a founder aside.

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