‘Founder Mode’ Reality Check

Should a CEO ape the flamboyant outbursts of founders like Elon Musk by holding shareholders ransom for princely chunks of equity? Or reconfigure their organization to 55 direct reports like NVIDIA’s? Probably not. Yet, such steps would be in keeping with the latest viral wisdom being touted by worshipping wannabes to emulate successful business builders by operating in “extended founder mode.”

The origin seems to be a recent blog post by Y Combinator cofounder Paul Graham, triggered by Airbnb cofounder Brian Chesky’s caveats about the peril of outsourcing key leadership tasks. The gist is that successful entrepreneurs behind rapid-growth businesses are often pressured to hire an outsider to steer an enterprise into “manager mode” when staying in “founder mode” is the better path. (Ironically, Chesky’s Airbnb cofounder, Joe Gebbia, recently suggested on CNBC that shared leadership or “cofounder mode” is best.)

What Goes Around

The argument is hardly new, of course. Over 120 years ago, German sociologist Max Weber broke new ground celebrating the advancement of society through the charismatic invention of entrepreneurs in his book The Protestant Ethic and the Spirit of Capitalism, where complacency was replaced with spiraling achievement. Eighty years ago, Austrian political economist and Harvard professor Joseph Schumpeter also celebrated the innovative initiative of entrepreneurs. He warned, however, that entrepreneurs would sow the seeds of their own destruction, as the dynamic new business enterprises they built would inevitably be replaced by stable bureaucracies with routines that bulldozed individual initiative and entrepreneurial risk-taking.

That is not always the case. Michael Dell reinvented the company he founded 12 times, changing its strategic model, since he launched it in 1984 at age 19. But he never left the frontier of innovation. He returned after a “professional manager” succeeded him and the company faltered. Through research, acquisitions and repositioning, he moved the PC maker into enterprise software, the cloud, AI and other key domains to be the world’s premier fully integrated high-tech company and an S&P 500 Index firm. An investment of $50,000 in 2018—when Dell returned and took the company public again—would be worth more than $300,000 today. As Michael Dell told me, “A business is not a religion and has to be reinvented.”

One Size Fits No One

A founder has the legitimacy to make such moves. At the same time, plenty flounder. Think Uber founder Travis Kalanick, American Apparel’s Dov Charney, Andrew Mason of Groupon and Jack Dorsey of Twitter. When Steve Ells of Chipotle was pushed out in 2017, the company’s stock price was $6 a share. Under outside professional turnaround manager Brian Niccol, the stock soared to $70 a share, employee moral surged, new technologies were embraced and public trust was restored by a focus on food safety.

A lot depends on whether the leader’s style can develop across career stages in sync with the life stages of the business. A classic Harvard Business Review article by Larry Griner showed distinct leadership challenges through stages of creation, direction, delegation, coordination and collaboration—each matched with distinct pathologies ranging from confusion to suffocation from standardized procedure.

Writing in 1977, business historian Harold Livesay presciently advised, “Bureaucracy has not inevitably obliterated the entrepreneurial spirit necessary to the maintenance of capitalist business systems, it rather has become a necessary tool of the trade…and a constant source of regeneration.” Livesay never met contemporary transformational non-founders like Niccol but he anticipated the power that mastering bureaucracies can unleash. The bottom line? There is no universal one-size-fits-all to replace the art of leadership.