Founder CEO vs. Professional CEO

Jerry Yang, co-founder and ex-CEO of Yahoo

This week the tech industry is abuzz about Yahoo being sold to Verizon for $4.8 billion dollars. People are in mourning and rightfully so as it was the beginning and end of an era. Many of us grew up on Yahoo being the gateway to the World Wide Web as it was affectionately referred to back then.

I have wondered since the recent discussion around selling the core of Yahoo: What if Jerry Yang stayed as CEO? It’s hard to re-write history; however, the core belief is that founders are in the best position to lead their company, especially a technology company, from its depths to new heights. There are countless examples of this: Steve Jobs, Jeff Bezos, Michael Dell, Marc Beinoff, and Mark Zuckerberg.

Of course we all say running a company is very different than building a company, and founders above all else know how to build. But can they run the company successfully long term or towards an exit?

For this article, founding CEOs are CEOs that are the founders of the company. Any CEO who is not a founder is considered a Professional CEO.

But let’s look at the data, shall we?

Financial Data of Founders & Exits

Captured by Pitchbook, you can see the following here:

The ROI for the total investment is better for a founding CEO, and you can argue that the lower amount of capital raised means that a founding CEO is much more capital efficient. While professional CEOs raise more money, getting a return on that investment is almost 2x lower than a founding CEO.

Data analyzed for Andressen also suggests that founder CEOs perform better across median exit valuation,exit valuation/total investment, and return on investment.

Why is this?

Continuity Experience

Founding CEOs rarely come in with professional experience, but they build a specialized set of experiences that lead to intuition about their own business. Most CEOs of high tech companies are young and daring. To have a modicum of success, they will have to master market timing and product excellence to get traction. And, if they are around long enough, they have taken the company through changes either through new product or strategy.

Up until then, every point twist and turn the founding CEO has the continuity of not only making each decision but living through the implementation and consequence of each decision. Having the continuity can and should back stop for preventing an organization from having to re-learn painful lessons with poor decisions of the past. The founding CEO will be able to recognize the situation, remember the consequences of the last time and hopefully make a better choice. Of course while each situation is different and unique at a larger level, every company goes through the same issues or threats such as: lack of product innovation, market changes, or competitive forces.

Being able to respond and having the right resources, talent and ability to blend them all together will make the difference between failing CEOs and successful CEOs.

For Kabam we have gone through 3 major pivots, each one led by the founding CEO. Each change built upon the next. At each change we were able to take what we learned about product or market and apply it to the next stage. The first change we learned that we needed to go where the users are and the users needed to be passionate. We then grew our products to have over 60 million registered users and when ABC wanted to distribute video on Facebook, they called us up. The next change came with the recession in 2008 and we changed our business model as well as products. We learned that directly monetizing the user enabled aligned incentives and allowed us to focus on a long term relationship with our customers. Our last change we moved to mobile. We learned about platforms. As our current platform (Facebook) was maturing and changing looking at growth platforms (mobile) was where we needed to go. Each change built upon the last. Without a founding CEO being constant at the helm it would not be able to enable change in such a congruent in nature. In fact, it enabled us to make changes to our organization to change with the market changes.

Heart Strength

It is only a founder who has been there when the company was nothing. Therefore to go to a place where the company is at its nadir is something that is not new only the founders. This is where the founding CEO gains her heart strength to drive the company to its vision from whatever stand point. They are able to see past circumstances and into its ultimate vision of the company far greater and unimaginable in the current state. It’s the reason why Jerry Yang held out on selling for Microsoft. And, it makes me wonder if Jerry Yang stayed on as founding CEO, we would we see a better outcome than this one? Afterall he did make the prescient investment into Alibaba.

After re-buffing Microsoft, would and outside CEO have enough heart strength to bring Yahoo back AND go against a somewhat hostile board? Would they have the belief or the energy? For it would be only someone like a founding CEO who would or could have the heart strength , fortitude, and belief in the company to have it rise form nothing back to something. If anyone, it would be the founding CEO. And, heart strength can be such a stronger predictor than any metric or forecast given.