
Why Founders Fail: The Product CEO Paradox (2013) - ggonweb
http://www.bhorowitz.com/why_founders_fail_the_product_ceo_paradox
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mpdehaan2
"A friend of mine led his company from nothing to over $1 billion in revenue /
This worked brilliantly up to about 500 employees."

I'm often confused by the apparent VC assumption with excessive growth and not
building right-sized companies sometimes. Is this failure?

To me, this is a great time to say "I'm making lots of money, my employees are
making lots of money, and it's ok to be at this size and there's nothing
wrong"

It might have been a great time to stop at 100, or even 25, and you could have
had a fantastic time, doing one thing supremely well, too.

There's honor in that.

I think the pressure to grow to unicorn sizes inherrent in VC things could
often result in weird business choices.

It's important to remember the VC is motivated by the final selling price, and
big companies sell more -- but that's totally not failure.

~~~
AceJohnny2
Yes, you've come across the core criticism of the VC business model. They fund
500 startups in the hopes that one of them goes big. Not big, gigantic!
Humonguous! The next Google! Facebook! Dropbox! They need such a huge return
for their business model to work (do you know how expensive it is to fund 500
pie-in-the-sky startups?)

With that in mind, if as a founder you're happy to settle for mid-size, you're
going to get into headlong conflict with VCs who've funded you (and thus own
majority shares of the company), because you're failing them according to
their model.

You may be interested in jwz's and idlewords's comments, who frequently decry
this model.

~~~
aaronbrethorst

        With that in mind, if as a founder you're happy
        to settle for mid-size, you're going to get
        fired by your board.
    

FTFY.

~~~
InclinedPlane
Yeah, so don't go public. Problem solved.

Or, game the system. Zuck owns a majority stake in FB despite it being a
"public" company, he can't get fired.

~~~
leereeves
Most startup founders don't have as much negotiating power as Zuck did with
Facebook.

~~~
Redoubts
What was unique about his case? How did he get away with keeping a majority
share?

~~~
aaronbrethorst
He had an incredible amount of early traction. For every startup/VC dyad,
there's going to be a power imbalance. Either the founder(s) and their company
are in high demand (rare), or the VC is (typical).

The side that has the leverage is going to get the best terms. Normally that's
the VC. (Liquidation preference, your first born, board seats, etc.)

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hobs
And hidden in the middle of the post is:

Be the integrator – When Larry Page took over as CEO of Google, he spent a
huge amount of his time forcing every product group to get to a common user
profile and sharing paradigm. Why? Because he had to. It would never have
happened without the CEO making it happen. It was nobody else’s top priority.

This is a good example where a strong leader can push the entire company in
(what I think even Google would now admit was) the wrong direction, and
because they are so powerful, the core products can suffer.

~~~
ohitsdom
I don't think the direction was wrong, I just think the implementation was
awful. But your point still stands, it ended up harming the product.

~~~
hobs
I think that is a fair point and worth the distinction.

G+ did not did not need to be deployed in such a heavy handed fashion, and if
it hadn't there is a very strong probability G+ would be highly utilized and
valued today.

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marktangotango
Just left an example of this, founder built a product with a core cadre of
about 5 developers, after a slow first 5 years, the market caught up, and then
sales doubled every year for next 5 years ($100M plus in sales).

CEO was highly involved with the product, even led the dev team for several
years. Unfortunately he was little more than an enthusiastic amateur when it
came to technical matters, and had strong opinions on how to implement things.
His team was not experienced, so didn't recognize the hole they'd dug
themselves. This led to a lava layered mess that failed to scale to the
largest customers.

Enter investors, a rewrite, and plummeting sales. CEO was replaced with a
sales guy. See ya, good luck with that!

~~~
shostack
Out of curiosity, how did the investors and rewrite result in plummeting
sales? Was it the distraction from improving the product that let competitors
get ahead?

As you wrote it, it seemed the core issue was the technical debt that blocked
to large customer sales/hurt retention. So if that was fixed in the rewrite (a
big assumption admittedly), I'm left wondering _what_ exactly went wrong.

~~~
marktangotango
The business was overly optimistic and misunderstood the scope the project and
announced it way to soon ie at the beginning of the year. Miscommunication and
lack of effective project management caused the rewrite to go way over the
already unrealistic deadlines. Sales dried up as everyone was waiting for the
new hot.

Investors exacerbated the problem by requiring a 10% head count reduction for
no other reason than "it will make everyone else work harder". With blood
already in the water, and the train wreck of the rewrite, they started losing
their top talent. I bailed because it was clear they missed core
functionality, and supporting the new release was going to be a nightmare. And
yes I did try to raise awareness of the issues I saw, to the point of shouting
in meetings and being a jackass, to no avail. Note I only did that once, then
checked out mentally, it's just not worth it. Should've left then, but stuck
around for another year.

When the release finally happened, it was situation where vp of IT had to make
a deadline or lose his job, so the new release was crippled from the start.
Sales went from doubling every year to falling well below the previous year.

Edit: added a lot of detail.

~~~
JoeAltmaier
Scrolling through comments, and here's a perfect description of my current
company! Except its not my company. Guess there's nothing new under the sun.

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ryandrake
Great article. While it's great to have a CEO who stays engaged with the
product even as the company scales up, it's awful when they continue to micro-
manage it the way they did when the company was 10 people. You hired product
managers (and perhaps product manager managers). So let them do their jobs and
create great products!

When you're running a 500+ person company, you're not going to go into the
code and start optimizing the graph traversal algorithm--you hired smart
engineers to do this. You're not going to fire up Illustrator and start
drawing buttons--you have artists for this. You're not going to write the
company blog yourself, or fix the automated test systems yourself, or design
the marketing materials yourself. So why do you feel the need to over-ride
your product managers on product direction, feature set, user acquisition
plans, retention strategy, etc? Doing so de-motivates the professionals you
have whose job is to do these awesomely.

~~~
teacup50
Unified vision _matters_. Peer commentator already noted Steve Jobs, but I
wanted to focus on this.

Steve didn't draw the buttons, design the hardware, or write the code -- but
he sure as shit told the relevant teams exactly what he wanted -- often
directly, with a very shallow management hierarchy -- and told them to try
again if they didn't pull it off.

At the same time, he _did_ have SVP-level and VP-level people _writing
serious, core OS-level code themselves_. They were better managers by virtue
of actually understanding and having a coherent vision for what it was they
were managing.

If the management chain doesn't set product and marketing direction at a
company whose purpose is to _sell products_ , then what the hell are they
doing in charge?

~~~
teej
"At the same time, he did have SVP-level and VP-level people writing serious,
core OS-level code themselves."

I find this fascinating. How can I find out more? Which VPs? Which code?

~~~
teacup50
[https://en.wikipedia.org/wiki/Bertrand_Serlet](https://en.wikipedia.org/wiki/Bertrand_Serlet)
[https://en.wikipedia.org/wiki/Avie_Tevanian](https://en.wikipedia.org/wiki/Avie_Tevanian)

Bertrand wrote malloc, top, and quite a bit of code at NeXT.

Avie wrote Mac Missles! in the 80s:
[https://www.youtube.com/watch?v=Ir8H0NuPZRU](https://www.youtube.com/watch?v=Ir8H0NuPZRU)

... and, well, Mach:

    
    
       http://www.cs.ubc.ca/~norm/508/2009W1/mach_usenix86.pdf
       ftp://ftp.cs.cmu.edu/project/mach/doc/unpublished/exception.ps
       ... etc etc.
    

Steve Jobs relied on extremely technically capable management that didn't just
hand off understanding to their staff.

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paulsutter
It's important to delegate, but the one thing you can't delegate is strategy.
The product founder needs to step back from the details but maintain direct
involvement in the product aspects related to company strategy.

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vonnik
Elephant in the room question: who is Ben talking about?

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femto
The "The Product CEO Paradox" is applicable to anyone who leads the
development of a product in a growing company, not just the CEO, but the Chief
Engineer or CTO as well. It addresses the question of how to continue to make
a useful contribution once the pace of development gets too rapid for a single
person to keep up with.

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graycat
It sounds like the _failings_ of the product CEO can be fixed with just a good
COO. E.g., the OP has:

> Then somewhere along the line, employees start complaining that the CEO is
> paying too much attention to what the employees can do better without her
> and not enough attention to the rest of the company.

Sounds like the CEO needs a good COO for "the rest of the company". Okay.

It does appear that VCs commonly miss this point. Maybe someone could guess
why, with three guesses, where the first two don't count.

For a 101 level lesson on deception, watch, say, _Star Wars III_ \-- that
lesson is in the movie because audiences are prepared to believe that it is
close enough to reality, and many in the audience have good reason to so
believe. Deception, etc., go way back, at least to Shakespeare. Don't fall for
it.

In the OP, the recommended solution for the product CEO is to write down the
_vision_ or whatever for the product. Good.

But now we are on the way back to the most rigid version of _waterfall
development_ \-- documents mostly in advance for each _level_ of the work. I
tend to believe that those documents, etc. are a good, maybe nearly essential,
approach for the scenario in the OP, but that approach is the polar opposite
of _lean_ and _agile_ development. For small projects, sure, lean and agile
are okay -- knock out some code, see if like it, else change it, rinse and
repeat. But for significant projects, I never liked lean or agile anyway!

But, let's see: The product CEO is to communicate only via a carefully
prepared, written document and does prepare one or more such documents.

So, now the VCs can think what that they couldn't before? Three guesses, and
the first two don't count.

There is:

> The CEO skill set is incredibly difficult to master,

Hmm ... So, how did Gates, Ellison, Page, Zuck do it? Did they have years of
experience managing people, from a lemonade stand to the decorations for the
homecoming dance to the college PBK awards dinner to a division in the US
Army, to salesman, local sales manager, district sales manager, chief
marketing officer? Nope -- none of those. What about guys in the _flyover
states_ who build businesses big enough to let them have, say, a 60 foot
yacht? But, still we're talking something "incredibly difficult"?

IMHO the whole OP is to make excuses for what VCs still very much like to do
-- have the CEO their puppet on their strings and, then, pull the strings to
get what they believe they want where firing the founding CEO is to be
expected. Such firing by VCs used to be expected, and now we see that with
A16Z it is again.

Besides, this stuff about how much A16Z likes product CEOs looks like just
_misdirection_ to keep from talking about what A16Z really cares about: A
company with traction significantly large and growing rapidly in a huge market
but where the founders need/want cash and are still willing to sign a standard
term sheet that has the founders suddenly go from owning 100% of the company
to owning 0% and a four year vesting plan to get back some of the ownership
while the BoD can fire them before their stock is vested and, really, makes
the VCs' investments more valuable -- it's the VC's _fiduciary_ responsibility
to their limited partners.

What is a founder to believe about a VC? What's in a blog post or what's in a
term sheet and the other documents, maybe two inches thick, worked out very
carefully by bright, well paid lawyers?

Instead, (A) plan the project so that get to positive free cash flow early on,
(B) grow just _organically_ , that is, from retained earnings, and (C) plan
the project so that have some good barriers to entry to keep out competition
long enough for the growth.

Guys, it looks like A16Z just wants your work, ownership, and company and
wants to get those by having you sign an onerous term sheet while they give
you some excuses about why you should give up your power as CEO and, thus,
really, all or a lot of the financial benefit of your work. They are after the
founder's money, guys.

~~~
shostack
In this day and age of high-quality, freely available information and
education online about taking investment, do you have data to suggest this
level of relationship/terms is common?

My assumption would be that CEOs are getting savvier and things like open
source term sheets/agreements are helping level the playing field.

Some companies might be forced to take investment, some founders might be
greedy, some might be uneducated. Some ultimately feel that the combined
funding, connections, and experience they can tap is the only thing that will
let them beat out the competition to being the 800lb gorilla in a hot new
market.

~~~
graycat
> do you have data to suggest this level of relationship/terms is common?

Read the on-line stuff about _standard_ term sheets. E.g., pay attention to
some of the details that a founder, say, one that was just fired, can
encounter in handling the options where they are already vested -- net, they
may come away with zip, zilch, and zero or nearly so.

IIRC there was a lot at Fred Wilson's AVC.com, especially part of his _MBA
Mondays_ posts.

Long, broad advice has been, don't take VC money unless you really need it. As
soon as you sign that term sheet, take that check, etc., you are now reporting
to a BoD that can fire you and, with the usual terms, leave you with little or
nothing while the investors just walk off with your company and all its
software, customers, value, etc.

The OP is giving various reasons why "Really, Ms. Product Founder, you didn't
really want to be CEO, did you? Of _course_ you didn't. So, just let us find a
really good _professional manager_ to handle that terrible, 'incredibly
difficult' work of CEO while you move on to a better quality of life" and the
VCs get total control, e.g., with their puppet CEO, and essentially all the
financial value.

It's _Star Wars III_ with young, naive, angry, afraid, gullible Anakin
Skywalker listening to the Sith Lord about how Anakin really doesn't want to
be a Jedi Knight.

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salimmadjd
OT: There is a bug in this blog that when I tried to share it on Facebook, it
shows: "<a data-width="300" data-height="200" data-bop-link..."

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scintill76
I saw a shared post on Facebook the other day with the title "302 Found". I'm
guessing it was taken from the standard generated HTML Apache etc. will send
when redirecting. Not sure if it's more Facebook's or that site's fault.

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daniel-cussen
Typo:

"I thought founders were supposed to better?"

You accidentally a word.

