If, Why, and How Founders Should Hire a "Professional" CEO

Reid Hoffman

Reid Hoffman

Entrepreneur. Production and Business Strategist. Investor. Podcaster.

Published Jan 23, 2013

Xx years ago, the classic startup model was to take young founders showtime a breakthrough visitor, then bring in "grey pilus" in the form of experienced executives once it was time to scale the business organization. Key examples included Cisco, Yahoo, eBay, Google, and many smaller companies. In the final decade, however, that mutual wisdom has shifted, at least for consumer internet companies. The new received wisdom is that the best entrepreneurs can stay CEO through the entire growth bicycle of the company. Think of Jeff Bezos, Larry Ellison, or the late Steve Jobs. My partners at Greylock and I have invested in a number of young founding CEOs who lucifer this design and are doing a fantastic job leading their companies through hypergrowth, such as Brian Chesky of AirBnB and Drew Houston of Dropbox. The question is, why has this shift occurred?

Last year, Ben Horowitz of Andreessen Horowitz articulated a well-thought-out philosophy on why he prefers to dorsum Founder-CEOs and keep them in accuse as the company grows. His essay, "Why We Prefer Founding CEOs" lays out three primal ingredients that slap-up founding CEOs tend to have, and that professional person CEOs often lack:

  • Comprehensive cognition
  • Moral Authorisation
  • Full commitment to the long term

Ben's signal is that without these 3 fundamental ingredients, a CEO won't be able to maintain the rapid product innovation that is a prerequisite for success in today'due south startup earth. Ben cites Google and Cisco as rare exceptions where a professional CEO helped steer a company to marketplace leadership and that the evidence is "one-sided and overwhelming" that you shouldn't bring in a professional CEO. In other words, Ben asserts that bringing in a professional CEO should be a last resort for a founder.

And nevertheless, many of the greatest success stories of the cyberspace era involve founder/professional CEO partnerships. During the dot com era, Yahoo!'s Tim Koogle helped build Jerry Yang and Dave Filo's startup into the world'due south most valuable internet company. Meanwhile, 1000000 Whitman helped Pierre Omidyar's eBay become the 2nd near powerful ecommerce company in the world (abaft only Amazon). The Web 2.0 era provides successful examples like Joe Kennedy and Tim Westergren at Pandora, and the current social era provides even more, including Dick Costolo at Twitter and Tony Zingale and Dave Hersh at Jive.

Sure, there are plenty of cautionary tales about how VCs accept ousted founders in favor of "professional CEOs" who run companies into the ground. But it's hard to phone call the evidence "one-sided and overwhelming" when there are so many strong counterexamples.

Noam Wasserman of Harvard Concern School has been studying what he calls "the founder's dilemma" for near a decade. In his academic paper, "Rich versus King", he looked at 460 American startups from the 2000s. His statistical analysis showed that, paradoxically, founders maximized the value of their equity stakes by giving up the CEO position and board control: "The results show that, decision-making for visitor size, age, and other factors, the more decision-making control kept (at both the CEO and board levels), the lower the value of the entrepreneur'south disinterestedness stake."

In some other study of 212 startups, Wasserman establish that it was rare for Founder-CEOs to run their companies in the long term; less than half were still CEO afterwards 3 years, and less than a quarter of the CEOs of the companies that reached an IPO were Founder-CEOs.

Given the bear witness that bringing in an outside CEO can often pay off financially and, more than importantly, in terms of overall scale and bear on of the company, it'southward important to explore the possibility—even if it isn't your offset choice. I speak from personal experience, since I hired and partnered with a CEO, Jeff Weiner, very successfully at LinkedIn five years afterward co-founding the company.

One time yous decide to evaluate the option of bringing in a professional CEO for your first-upward, the real questions are, "Should I replace myself?" If the reply is "yeah," then "How do we make the transition?" And once y'all make the transition successfully, "How can I play a constructive long term co-founder function at the company?"

How exercise I know when to replace myself?

I love the early stages of edifice a company. The small team, building a brand-new product, out-innovating complacent incumbents…not only is the experience fresh and exciting, it also focuses on the things nigh founders dear—especially technical ones: Solving interesting problems, developing new technologies, devising a unique strategy. But if you're successful, the job of being CEO shifts dramatically over time. All of a sudden, you need to focus on a different set of challenges and concerns like establishing standard procedures and managing a large number of employees.

To remain successful, yous have to exist passionate about that kind of piece of work likewise. Enquire yourself, "What am I focused on? What am I world-class at? What am I really committed to?" The answers will assistance you determine if you should bring in a CEO.

In my experience, CEOs need to derive satisfaction from the nuts and bolts of building a visitor, not just building product and articulating the vision. They need to be passionate almost leadership, management, and organizational processes as the visitor scales.

To exist a successful growth-phase CEO, yous need to exist ready to manage a i,000 person organization and devote substantial time to time consuming things like running meetings and other concern process. You can't only do the heady stuff like making the concluding call on production and speaking at conferences, while shuffling off everything else to the mythical COO who loves doing all the dirty work and doesn't desire any of the credit.

I went through this cocky-examination while I was still CEO of LinkedIn. I have always been passionate and committed, both to the company, and to its mission. I want to enable individual professionals to have more successful careers and to increase the productivity of mankind across entire industries and countries. I desire a company that lives up to the original standard that Hewlett-Packard set for Silicon Valley—a groovy identify for high-quality people to piece of work that provides an experience that would go on to benefit them even afterward they motion on to other things.

Simply every bit we scaled from a scattering of people in my living room to dozens of people at an office, I saw the job of the CEO shifting. At 50 people and beyond, a CEO increasingly has to focus on procedure and arrangement, and that wasn't what I was passionate almost. For example, I didn't like running a weekly staff coming together. I could do information technology, but I did so reluctantly, non enthusiastically. I'd rather be solving intellectual challenges and figuring out cardinal strategies, not debating which employees should get a promotion, or configuring project timelines.

I co-founded LinkedIn in 2003, and by 2005, after request myself the key questions about my passion, focus, and delivery, I knew I wanted to bring in a CEO. When I brought this upwards with my primary VC, David Sze at Greylock, he had the same reaction I suspect I would take had: "Are you sure? Couldn't we merely rent a COO and accept yous stay equally CEO?"

I had thought about the COO option, but I knew that the company needed someone who felt like they "endemic the ball." And I was confident I could partner well with a CEO, given my experience partnering with the various CEOs of companies being on the board. What's more, the kind of person who has the chapters to exist a smashing leader usually wants to be CEO, not COO. Sheryl Sandberg is one of the few great leaders who has been willing to be COO, and even and so, she's a unique COO.

At the time nosotros began the search, I wouldn't have believed how long the procedure would take.

Subsequently more than a year of searching, we brought Dan Nye in every bit LinkedIn'south new CEO at the beginning of 2007. Dan Nye came to u.s. as CEO with a strong organizational background, having been a full general manager at both Intuit and Advent, where he had responsibleness for organizations many times the size of the early LinkedIn. In addition to strong capabilities, Dan is too perfect on integrity and civilization. My idea when hiring Dan was that I could handle the production, and he could handle everything else. Dan helped us evolve LinkedIn from a product-focused startup into a consummate company. During his time as CEO, he built a existent sales department, rebuilt the executive squad, and doubled the size of the company. But after a couple of years, I realized that as we continued to make major changes to the production, nosotros needed a CEO who would "own" product every bit well.

My error was thinking you could divorce product strategy from the CEO role. Information technology was a mistake related to the broken "grey-haired supervision" approach to professional CEOs. 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 ambitious 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.

And then I decided to stride dorsum in temporarily equally CEO and tried to find a new CEO with consumer internet product experience and organizational experience at scale. (Dan went on to continue being a very successful company architect, becoming the CEO of Rocket Lawyer and, among other successes, quadrupling its revenues.)

James Slavet, a partner at Greylock, introduced me to Jeff Weiner. James and Jeff had worked together at Yahoo!, and Jeff at the fourth dimension was also an executive-in-residence at Greylock. Equally I got to know Jeff, I became convinced that he was the right choice to LinkedIn. I believed that Jeff'south experience at Yahoo! could help u.s.a. past spreading a deep focus on consumer product insight and strategy throughout the entire company.

We named Jeff CEO of LinkedIn in the middle of 2009, about iv years after I starting time approached David Sze nigh replacing myself.

How practise we brand the transition?

If it's ideal for a CEO to have the noesis, moral dominance, and commitment of a founder, the answer is elementary: Your transition process should bring the new CEO in every bit a co-founder of the company, not as an "adult supervisor." Jack Dorsey has said as much: "Companies have multiple founding moments. I consider Dick Costolo to be a founding fellow member of Twitter." Dick wasn't named CEO until 2010, four years afterwards the company's official start.

Think back to the list of all the successful Founder/CEO pairings. With well-nigh no exceptions, four things were true:

1. The decision to step back from being CEO is a part of cocky-realization. It doesn't work if the plan is being externally imposed by investors, for all the reasons Ben H. outlined. If you're passionate about the nuts and bolts of building your company, and your VC merely thinks they know amend, it's probably a mistake to acquiesce.

two. The outside CEO was brought in early, so that he or she could play a existent role in shaping the production, business, system, and culture of the company. In that location is i exception to this pattern, which is when a company has lost its style, and the new CEO is essentially re-launching the company. The classic instance hither is Lou Gerstner, who transformed IBM from a failing hardware company to a services powerhouse.

3. The original team of founders was a small grouping of two to three people, making it easier to grade strong co-founder bonds. Beingness able to build a trusting relationship is critical. In the cases of both Yahoo! and Google, Jerry/Dave/Tim and Larry/Sergey/Eric congenital warm and trusting relationships that lasted for years.

4. The new CEO had prior experience running a large arrangement. The whole point of hiring someone from the outside is to bring in skills and experience you don't accept, which will help scale the visitor. Here, Sheryl Sandberg represents the classic instance—her direction and people skills were brought in to complement Marker Zuckerberg's great product vision and strategy. Notice how even as COO rather than CEO, Sheryl is accorded co-founder status, and is the lynchpin of the company's management team and strategic decision-making.

Yahoo! presents a particularly fascinating example of these principles at work. When Tim Koogle came in as CEO in 1995, all four principles practical: The founders knew they wanted a CEO, Tim came in early on, he formed a tight management triumvirate with the founders, and he had feel running large organizations from his time at Motorola. Afterward Yahoo CEOs failed to follow these principles, largely sidelining the founders until Jerry Yang's return.

More recently, Marissa Mayer joined Yahoo at the Lou Gerstner phase—everyone acknowledges that Yahoo! needs to be remade. While her success is far from certain, if she does succeed, she will be viewed as a re-founder, not just a management caretaker.

My ain experience bringing Jeff Weiner into LinkedIn stuck pretty shut to these four principles.

i. As I've already detailed, the decision to bring in a professional CEO was one I initiated back in 2007, later a lot of cocky-test.

2. While LinkedIn was already half-dozen years former when we brought Jeff in, it was still a relatively small company. Jeff was our 338th employee, and helped usa launch our Talent Solutions business organization, which is at present a key revenue driver for us.

three. Thanks to our strong mutual connections via Greylock, Jeff and I were able to bond and build a human relationship both before and during the process of bringing him on to the team.

4. When Jeff was an EVP at Yahoo! he ran a iii,000-employee division. Not only was that far larger than LinkedIn at the time, it's about as many employees as we have today!

What long term part can I play in our company?

I wanted to brand certain that people made the shift from looking to me for answers to taking their cues from Jeff. Bringing in a CEO is like performing a brain transplant—you need to wire in a whole new set up of connections. If the founder is still in the building, it's all too easy for people to keeping checking with him on every decision, rather than with the CEO.

When Jeff came in as CEO, I booked a hefty corporeality of travel for his start vi months. When employees tried calling me to double-check a determination, I replied, "Distressing, I'one thousand in Rome, talk to Jeff." Jeff needed build up his own connectivity within the organization. By the time I returned from Europe, those connections were difficult-wired.

For Jeff'due south office, he went above and beyond to immerse himself in the company. For example, just a few months after Jeff joined LinkedIn, several engineers were sitting around at midnight in between bug fixes for what ultimately turned into a very late night production launch that extended into the wee early forenoon. One of the engineers decided to pull a graph of their new CEO'due south login action on LinkedIn.com. People were shocked: the merely time period during the launch when Jeff was not consistently logged into the site was between 3:xxx – four:00 AM. It turned out he was obsessed with the product quality — but similar a truthful founder. To this day, Jeff is renowned for being one of LinkedIn'due south most active users and is known for his ability to catch bugs before our developers.

Today, as Executive Chairman, my office at LinkedIn is adjacent to Jeff's, and when I'chiliad not on the route or at Greylock, I'm on the LinkedIn campus most of the calendar week. I savor helping the team on strategy, corporate and business concern development, and product vision. The most important thing I practise, though, is sync up with Jeff every week about what's on his mind. In our catch-up meetings, I'thousand able and willing to claiming his ideas. It's hard for a CEO to go honest feedback and aboveboard communication; so, provided y'all do not undercut him or her in the organization, as a founder y'all can play a uniquely helpful role in this respect. (And any CEO y'all rent should be eager to accept your honest counsel.) When it works, it makes the loneliest place in an organization—the CEO's corner function—somewhat less lonely and potentially a lot more effective.

Of course, it might be that y'all'd rather transition out of a regular function after hiring a CEO. This tin can work, besides. After bringing in Meg Whitman to run eBay, Pierre founded the Omidyar Network to brand philanthropic investments, and returned to his native Hawaii where he's done wonderful work for the community where he grew up. He'south still actively involved in eBay as chairman of the board, but he's not at the office every week.

Conclusion

xx years ago, venture capitalists were in a bustle to bring in professional CEOs. Today, many of the same VC firms are busy touting their support for long-term Founder-CEOs. Both approaches can work, which means that equally an entrepreneur, you lot should focus less on what's stylish, and more than on what'south correct for you. This is a highly personal decision, and the right reply depends on you and your squad—including your co-founders and your VCs. Yous might be a Steve Jobs, or you might exist a Pierre Omidyar. As an investor, I'm willing to back you, fifty-fifty if you're not sure which one you lot are yet. In every investment we make, we hope that the Founder-CEO will exist able to lead the company to success, only if not, and if you lot realize equally I did that you want to bring in a professional person CEO, nosotros'll work with you to find someone who is a truthful partner.

So equally it turns out, Ben was correct. You always do desire a Founder-CEO. Only that person doesn't ever accept to be the Founding CEO. Being there at the start isn't the only path to being a founder. "Founder" is a state of mind, not a job description, and if done right, even CEOs who join after day 1 can go Founders.