Why we prefer founding CEOs (2010)(bhorowitz.com)
bhorowitz.com
Why we prefer founding CEOs (2010)
http://www.bhorowitz.com/why_we_prefer_founding_ceos
21 comments
>One thing this article leaves out is a deeper analysis of why the conventional wisdom is to replace a founder with a professional when there are so many famous counterexamples. It could be that at a certain stage in a company's growth investors prefer to be more risk-averse and will give up a potential grand slam in order to get a two-run double, or something. (And by extension the OP is willing to take larger risks than the average VC.) Or that there are hidden social dynamics at play.
I think one of the reasons that this conventional wisdom is becoming less common is that 'technology startup' is more likely to mean a company with a product and customers now than in the past when it frequently meant a company that had brought a new technology to the commercialisation stage.
In companies of the latter type, it can make sense to move the founding CEO to a CTO role because that has been their actual role in the development phase anyway. Their skillset may not match well with running a company with marketing and sales departments and getting the product sold.
Companies of the former type, like Facebook, are different because by the time they get real traction, they are already dealing with customers and are out there in the market. They have those skillsets by definition because they're already doing that.
I think one of the reasons that this conventional wisdom is becoming less common is that 'technology startup' is more likely to mean a company with a product and customers now than in the past when it frequently meant a company that had brought a new technology to the commercialisation stage.
In companies of the latter type, it can make sense to move the founding CEO to a CTO role because that has been their actual role in the development phase anyway. Their skillset may not match well with running a company with marketing and sales departments and getting the product sold.
Companies of the former type, like Facebook, are different because by the time they get real traction, they are already dealing with customers and are out there in the market. They have those skillsets by definition because they're already doing that.
Many fine thoughts here, but I was given pause by the statement "Etymologically, the word technology means “a better way of doing things.” I wonder where Horowitz sourced this from.
The OED doesn't have anything resembling this. Neither does etymonline. So I'm curious where this comes from.
The OED defines "technology" and offers references dating to 1615. I'll reproduce the OED's definitions here briefly:
1a: A discourse or treatise on an art or arts; the scientific study of the practical or industrial arts. 1b: Practical arts collectively. 1c: A particular practical or industrial art.
Even looking at the stem techno, you will not find anything approaching Horowitz's value judgment that he has inserted: better. Or worse for that matter. This sort of misappropriation of language is not only lazy, it's dangerous, and unfortunately it is pervasive.
The OED doesn't have anything resembling this. Neither does etymonline. So I'm curious where this comes from.
The OED defines "technology" and offers references dating to 1615. I'll reproduce the OED's definitions here briefly:
1a: A discourse or treatise on an art or arts; the scientific study of the practical or industrial arts. 1b: Practical arts collectively. 1c: A particular practical or industrial art.
Even looking at the stem techno, you will not find anything approaching Horowitz's value judgment that he has inserted: better. Or worse for that matter. This sort of misappropriation of language is not only lazy, it's dangerous, and unfortunately it is pervasive.
It's not just lazy, it's plain wrong.
"Technical" refers to industry, machines, science. Sticking "ology" on the end means the study of that. There is no value judgement about it implying better or worse.
There's a pretty awful explanation here that references the same 'better' phrase (http://becocapital.tumblr.com/post/64275006972/did-you-know-...):
The word technology comes from two Greek words, transliterated techne and logos. Techne means art, skill, craft, or the way, manner, or means by which a thing is gained. Logos means word, the utterance by which inward thought is expressed, a saying, or an expression. So, literally, technology means words or discourse about the way things are gained.
... but again, no implication at all that craft or skill implies better. I think there is a fundamental confusion somewhere along the way between 'technology' and 'innovation' which does imply better or improved. Google for Horowitz and the 'better way of doing things' and you find he's using it on a regular basis. Maybe it makes him feel better about things?
https://www.google.co.uk/search?q="a%20better%20way%20of%20d...
"Technical" refers to industry, machines, science. Sticking "ology" on the end means the study of that. There is no value judgement about it implying better or worse.
There's a pretty awful explanation here that references the same 'better' phrase (http://becocapital.tumblr.com/post/64275006972/did-you-know-...):
The word technology comes from two Greek words, transliterated techne and logos. Techne means art, skill, craft, or the way, manner, or means by which a thing is gained. Logos means word, the utterance by which inward thought is expressed, a saying, or an expression. So, literally, technology means words or discourse about the way things are gained.
... but again, no implication at all that craft or skill implies better. I think there is a fundamental confusion somewhere along the way between 'technology' and 'innovation' which does imply better or improved. Google for Horowitz and the 'better way of doing things' and you find he's using it on a regular basis. Maybe it makes him feel better about things?
https://www.google.co.uk/search?q="a%20better%20way%20of%20d...
Salmon points out that “not a single one of the 12 [candidates] is a CEO who was hired to run a company by its board of directors.”
Let me give an alternative explanation for this. Founder CEO's take more risk. And we would expect risk takers to be overrepresented in outlier categories such as "best ceo candidate".
The same could potentially explain "analysis of recent exits for high technology companies". They found that founding ceos make better exits. Well that has a survivorship bias, because companies that didn't make an exit (because of a gamble gone wrong?) are not included.
EDIT: Drum's post suffer from the same problem. If you evaluate performance during [t0, t1], to not get survivorship bias, you need to have an inclusion criteria based on only information known at t0.
Let me give an alternative explanation for this. Founder CEO's take more risk. And we would expect risk takers to be overrepresented in outlier categories such as "best ceo candidate".
The same could potentially explain "analysis of recent exits for high technology companies". They found that founding ceos make better exits. Well that has a survivorship bias, because companies that didn't make an exit (because of a gamble gone wrong?) are not included.
EDIT: Drum's post suffer from the same problem. If you evaluate performance during [t0, t1], to not get survivorship bias, you need to have an inclusion criteria based on only information known at t0.
This reminds me of a graph I saw in Forbes that showed tech companies with founder CEO's outperforming the S&P 500. A mutual fund built around the premise would be interesting to watch and possibly invest in.
http://ycharts.com/analysis/story/founderceorun_companies_vs...
http://ycharts.com/analysis/story/founderceorun_companies_vs...
[deleted]
Excellent reading.
This part about Eric Smith makes me think: "Doing so involves intense communication, deep humility, and some hard compromises."
I believe communication is very important, but not practiced at the companies.
Now, as I'm starting on the management of a very small company, it's the chance to do what I believe it's the right thing to do and I did not seem being doing well in all the companies I passed: communication, humility and great respect with employees.
This part about Eric Smith makes me think: "Doing so involves intense communication, deep humility, and some hard compromises."
I believe communication is very important, but not practiced at the companies.
Now, as I'm starting on the management of a very small company, it's the chance to do what I believe it's the right thing to do and I did not seem being doing well in all the companies I passed: communication, humility and great respect with employees.
Pincus?
searches for date
2010
Zynga is one of the greatest counter-examples to this article in recent years. It was just a train wreck of events under Pincus for reasons directly traceable to his lack of foresight and personality conflicts.
It certainly doesn't invalidate the original argument with which I find compelling, but it is sobering.
It certainly doesn't invalidate the original argument with which I find compelling, but it is sobering.
[deleted]
Is anyone familiar with Jim Colin's hedgehog concept mentioned in "Good to great" - http://en.wikipedia.org/wiki/Good_to_Great
I'd even assume it's 'inspired' by it, as they did similar studies and came to the same conclusion...
I'd even assume it's 'inspired' by it, as they did similar studies and came to the same conclusion...
It's Jim Collins, IIRC, not Colin.
Interesting, I had read the book a while ago, but don't remember the hedgehog concept from it. Forgot, maybe. But I do remember the same concept from another book I read, maybe by Adrian Slywotzky, I think it was The Art of Profitability. Found it good.
http://en.wikipedia.org/wiki/Adrian_Slywotzky
Interesting, I had read the book a while ago, but don't remember the hedgehog concept from it. Forgot, maybe. But I do remember the same concept from another book I read, maybe by Adrian Slywotzky, I think it was The Art of Profitability. Found it good.
http://en.wikipedia.org/wiki/Adrian_Slywotzky
Another way to read this is that a best practice is for a professional CEO to take pains to share power with the founders in critical areas.
If you have a strong CEO with the humility and discipline to do that, it can be just as powerful a combination that lets a founder still add maximum value.
If you have a strong CEO with the humility and discipline to do that, it can be just as powerful a combination that lets a founder still add maximum value.
There clearly have to be exceptions like Elon at Tesla -- not the founding CEO, but clearly not a hired gun.
the worst thing about "the hard thing about hard things" is that Ben seems to have slowed his blogging output.
There's more good than bad in this post, but Ben had to ruin it, and his credibility in general, with this:
Bottom feeding publications such as Valley Wag
Valleywag is cynical and harsh, but it has done more good for technology and humanity than all of Sand Hill Road combined. Ridicule is extremely powerful (see: Stetson Kennedy's exposé of the KKK in the 1960s) at taking down a reputable evil.
In the ongoing war between Frat Boys and People of Substance (aka Real Technologists) the Frat Boys have local advantage, because they've got better playa skillz with the VCs. It takes a continuous rash of ridicule to draw attention to the global concerns of technological advancement (also known as Real Technology) and keep us out of the shitty local maxima that Frat Boys tend to bring us to. If we want People of Substance to have a chance in the VC-funded world, we need a strong "yellow journalism" to ridicule bad actors and, thereby, clear the field a bit for the good.
If Ben Horowitz really can't see this, then he doesn't deserve to be a leading investor. Of course, this post is five years old and his views may have involved.
Bottom feeding publications such as Valley Wag
Valleywag is cynical and harsh, but it has done more good for technology and humanity than all of Sand Hill Road combined. Ridicule is extremely powerful (see: Stetson Kennedy's exposé of the KKK in the 1960s) at taking down a reputable evil.
In the ongoing war between Frat Boys and People of Substance (aka Real Technologists) the Frat Boys have local advantage, because they've got better playa skillz with the VCs. It takes a continuous rash of ridicule to draw attention to the global concerns of technological advancement (also known as Real Technology) and keep us out of the shitty local maxima that Frat Boys tend to bring us to. If we want People of Substance to have a chance in the VC-funded world, we need a strong "yellow journalism" to ridicule bad actors and, thereby, clear the field a bit for the good.
If Ben Horowitz really can't see this, then he doesn't deserve to be a leading investor. Of course, this post is five years old and his views may have involved.
"Valleywag is cynical and harsh, but it has done more good for technology and humanity than all of Sand Hill Road combined."
Your hyperbole is misplaced. Has Valleywag done some good? Sure. Does it produce a bunch of unsubstantiated gossip that hurts people? Yes. Sand Hill Road on the other hand has provided funding for entities such as google, amazon, genentech, netscape, sun, lotus, AOL, etc. Are you seriously saying valleywag (not satire / ridicule) has provided more good for tech and humanity than sand hill? If so I would suggest you're delusional.
Your hyperbole is misplaced. Has Valleywag done some good? Sure. Does it produce a bunch of unsubstantiated gossip that hurts people? Yes. Sand Hill Road on the other hand has provided funding for entities such as google, amazon, genentech, netscape, sun, lotus, AOL, etc. Are you seriously saying valleywag (not satire / ridicule) has provided more good for tech and humanity than sand hill? If so I would suggest you're delusional.
Since when do "People of Substance" resort to ridicule? An actual person of substance is off building the thing they want to see in the world and ignoring the games of status-obsessed people.
Centuries later, we still read Voltaire in school. Our kids won't be studying Valleywag. It is clear you are upset with people on Sand Hill Road, but your extreme claim cannot be taken seriously. Valleywag may occasionally draw attention to problems, but you ruined the credibility of your statement by trying to say they contribute more than everyone on Sand Hill Road.
> Valleywag is cynical and harsh, but it has done more good for technology and humanity than all of Sand Hill Road combined
Ummm. What? Is there some secret Valleywag of which I'm not aware other than the one that is just a gossip site aimed at silicon valley types?
Ummm. What? Is there some secret Valleywag of which I'm not aware other than the one that is just a gossip site aimed at silicon valley types?
1. The rank and file know (or at least think) that a professional CEO is less likely than a founding CEO to be around in 5 years. So when a new professional CEO says "Jump" it's much harder to get people to change their way of doing things, particularly if they suspect the next CEO will undo all the changes. When a founding CEO says "Jump," you might as well get with the program because the change is likely to be permanent. (For the economists in the audience, this is a version of the Lucas critique applied to organizations.)
2. The "knowledge pyramid" isn't just about the CEO's epistemological state and decision-making apparatus; it's also about communicating the values and identity of the company back to the company. Founding CEOs are in a superior rhetorical position because they can say "I hired you all because each of you ________", and give everyone the warm fuzzies. The professional CEO on the other hand has to speculate or impute motivations to the previous CEOs, which is less motivational. As a recent example, I think Satya Nadella has done a relatively poor job of communicating what makes Microsoft employees different from other employees; instead of saying, "You guys understand the full stack better than anyone" (or something), he can't help but to talk about market opportunities and cloud-first productivity blah blah blah. (Which is to say -- not only was he in an inevitably weakened rhetorical position with respect to BillG, he squandered it when it came to articulating the company's identity.)
3. Founding CEOs are in a better rhetorical position when it comes to navigating value conflicts between quarterly earnings and something else ("changing the world"). When communicating with immediate subordinates they can do a kind of good-cop bad-cop routine with the board of directors ("The board really wanted X, but I thought that'd be bad for customers, so we're doing Y."), whereas a board-picked CEO will be assumed to act only in the interest of the stock price. For many companies (e.g. organizations that profess to be on some kind of higher mission) this sort of CEO will be rather uninspiring, and therefore the professional CEO will be less capable of effecting change throughout the organization.
4. Professional CEOs have to navigate a more precarious political situation because there's a good chance that one or more subordinates want the CEO's job. (I would hazard to guess that insiders usually replace outsiders and outsiders usually replace insiders.)
One thing this article leaves out is a deeper analysis of why the conventional wisdom is to replace a founder with a professional when there are so many famous counterexamples. It could be that at a certain stage in a company's growth investors prefer to be more risk-averse and will give up a potential grand slam in order to get a two-run double, or something. (And by extension the OP is willing to take larger risks than the average VC.) Or that there are hidden social dynamics at play.