Steve Jobs was such an amazing entrepreneur – even calling him the ultimate visionary doesn’t seem to describe accurately how amazing he was at reinventing numerous business categories. Like so many creative visionaries, early in his career he lacked the political and people skills which many people believed were necessary to run a company effectively.
When he was “pushed out” of Apple it was seen as a normal incident – CEOs were pushed out of companies all the time as past Apple CEO John Sculley has said. In fact Scully spoke just over a week ago at StartUp Camp7 collocated with ITEXPO Miami 2013 and gave the inside scoop on many important events which transpired between him and Jobs over the years.
What is interesting though is how Sculley defends Jobs and says it was a mistake to push him out. It seems John’s view on management and entrepreneurship has changed over the years and others are beginning to agree with him. In fact, changing the view of the founder-CEO is just one other massive accomplishment Steve Jobs should get credit for. As if his list of accomplishments was somehow lacking until now.
Throughout my career the common knowledge has always been entrepreneurs can’t run companies – at some point you need to bring in a real manager who can run operations.
Common knowledge seems to have changed recently and Jessi Hempel writes a compelling article for Fortune which makes the case for having the founder run the company.
The article does lead with a statistic which seems to make the opposite case though:
Harvard Business School professor Noam Wasserman has spent the past decade studying the impact a founder has on a company. In a study of 460 American startups, he found that on average those in which founding CEOs remained the top decision-makers were less valuable than those managed by outside CEOs. Simply put, the skills needed to invent a new product or service are different from those needed to manage a business, and few people possess both.
The interesting twist however is while the outside manager is better at running a company on a day-to-day basis, they are far less creative than a founder and in-fact almost every company which has become uber-successful has been run by a founder.
Reid Hoffman the co-founder of Linked In explains in-part why there has been a shift in thinking:
20 years ago, you could count on product cycles lasting years, which meant that constantly developing new products and refining the vision was relatively less important than aggressive execution. The “professional” CEO back then just had to be a superb executor for the founder’s vision. The rise of internet time has reduced product cycles to months and weeks. As such, a CEO can’t focus solely on scaling concerns—today, the CEO has to be involved in the product.
Ben Horowitz of Andreessen Horowitz details his thoughts on the matter in a piece titled Why We Prefer Founding CEOs and it describes how today [constant] innovation = [the best chance of] success. If we take it as a given that entrepreneurs are best able to innovate then it becomes a given that a “professional CEO” isn’t the right person to guide a company forward.
This part of the post sums it up best:
The reason is that innovation is the most difficult core competency to build in any business. Innovation is almost insane by definition: most people view any truly innovative idea as stupid, because if it was a good idea, somebody would have already done it. So, the innovator is guaranteed to have more natural initial detractors than followers.
Moreover he says these are the three ingredients to being a great innovator:
- Comprehensive knowledge
- Moral authority
- Total commitment to the long-term
Here is another great point he makes:
Founding CEOs naturally take a long view of their companies. The company is their life’s work. Their emotional commitment exceeds their equity stake. Their goal from the start is to build something significant. They instinctively know that big product cycles come from investment and that even the biggest product cycles will eventually fade. Professional CEOs, on the other hand, tend to be driven by relatively shorter-term goals. They are paid in terms of stock options that vest over 4 years and cash bonuses for quarterly and yearly performance.
One other idea he brings up worth discussing is that Eric Schmidt is an important exception to the rule as a “professional CEO” he came to Google and launched Apps and Android. He did so by, “teaming with the founders and gaining the benefits of their knowledge, moral authority, and long-term vision.” He continues to say this is an obvious strategy, but shared leadership and control are incredibly difficult to achieve.” he further describes what is needed to make it work: “Intense communication, deep humility, and some hard compromises.” Of course he conludes by reminding us that almost nobody ever pulls it off, making Eric Schmidt a very important exception.
What we learn from the above is professional CEOs need to be humble and able to communicate well to be successful in business today. My personal experience has shown me many entrepreneur CEOs while very creative are pretty bad at the “business side” of the job. This is in-part why most of them fail – something we should keep in mind. Yes, the great companies are run by their founders but remember, most new companies do fail.
This tells us that CEOs who aren’t very effective at doing the non-creative part of the CEO job – running meetings, managing, etc should bring in someone to assist. That is if they want to maximize the value of their company. When interviewing such a person they should be sure to look for someone who is able to admit past mistakes and who learned from them. I would go so far as asking them to list their top three mistakes and ask what was learned from each.
Another thought which comes to mind is this change in “founder philosophy” sums up why in-part Amazon’s shares trade at an exponentially-higher multiple than those of Apple. Something I have discussed before.
We know that finding another Jobs, Zuckerberg or Bezos is rare and we also know if we can team more professional CEOs who don’t think they know it all with some creative founders, we can unlock tons of value in a slew of companies. Of course the founders would need to realize their shortcomings in order to allow such a “partnership.” Hopefully this will happen as word gets out about how Jobs and Sculley worked side-by-side and moreover how much of Apple’s success today (especially in product design and marketing) came from that initial collaboration between a founder and solid “professional CEO.”
To me it is fascinating to see how “common knowledge” about the ongoing ability of a founder to run the company has changed because we are in an age of acceleration. In other words, the shortcomings of the CEO from a management perspective have become less important because a well-managed company without innovation will get eaten alive by its competitors. The situation with John Sculley of course is an extreme example and shows how their relationship and poor decisions made by the board at the time have helped lead to a change in thinking about the importance in keeping a founder at the helm. Moreover as we can see from Amazon’s P/E multiple, the investment community definitely agrees.