
Why we prefer founding CEOs (2010) - dsaw
http://www.bhorowitz.com/why_we_prefer_founding_ceos
======
EvanMiller
I really like the analysis of finding versus maximizing product cycles. There
are a few aspects of "Moral authority" that I think have been left out.

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.

~~~
Mvandenbergh
>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.

------
9999
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.

~~~
caractacus
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-...](http://becocapital.tumblr.com/post/64275006972/did-you-know-that-
the-word-technology-basically)):

 _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...](https://www.google.co.uk/search?q="a%20better%20way%20of%20doing%20things"%20horowitz)

------
im2w1l
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.

------
drum
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_the_sandp_500)

------
edpichler
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.

------
boxcardavin
Pincus? _searches for date_ 2010

~~~
WhitneyLand
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.

------
ToJans
Is anyone familiar with Jim Colin's hedgehog concept mentioned in "Good to
great" \-
[http://en.wikipedia.org/wiki/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...

~~~
vram22
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](http://en.wikipedia.org/wiki/Adrian_Slywotzky)

------
WhitneyLand
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.

------
rdl
There clearly have to be exceptions like Elon at Tesla -- not the founding
CEO, but clearly not a hired gun.

------
far33d
the worst thing about "the hard thing about hard things" is that Ben seems to
have slowed his blogging output.

------
michaelochurch
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.

~~~
ironchef
"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.

