I was preparing for a speech on Monday and looking for examples of great leaders who founded great companies. To do this I looked for the largest technology companies I could find figuring that would be the path to finding great leaders. The thing that jumped out at me was that for the most part, the largest technology companies overall and in their sectors had been led for a long time by their founders, not by so-called experienced managers. (Jobs, Gates, Dell, Bezos, Ellison, Zuckerberg, Page, Moore, Hewlett etc)
When I looked some more I found that in a few cases (Jobs and Dell) the founder had to come back in as CEO to rescue the company. It made me ask the question:
Do companies do better with their founder than with professional managers?
Funny thing is the answer is yes. The private equity industry has a habit of investing in companies doing poorly with bad management. In those cases, replacing the CEO is usually a good idea and the reason the firm invested.
Unfortunately, the venture capital industry has followed this practice. In the name of adult supervision, the CEO is usually gone within 3 rounds of VC investment.
According to this blog: “When I analyzed 212 American start-ups that sprang up in the late 1990s and early 2000s, I discovered that most founders surrendered management control long before their companies went public. By the time the ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings.”
However, other research shows that on average “Shares of companies that retain their founders as CEOs, even after they become large corporations, have enjoyed gains that top the market by four times on average, according to a USA TODAY database study.”
You Can’t Buy Passion
The moral of the story is that the founder brings a passion for people or a passion for product that is priceless. The company often loses this passion when the founder is replaced by a professional manager. (Think Sculley) Unfortunately these often MBA trained technocrats have a passion for process and this isn’t what makes great companies. (Although perhaps it makes great banks, insurance companies and conglomerates.)
Companies need these professional managers to complement a founder’s skill set but they should be in roles such as COO or CFO. You can’t buy passion and you can’t create great companies without it.