Twitter Is Proof That Founders Make the Best CEOs
A Note From The Editor
Think your company has what it takes to make our Top Company Cultures list? Apply now.Apply now »
Some company founders only relinquish the reins to professional CEOs when they pass away.
Others make the leap to cope with overwhelming insecurity. Bill Gates stepped down to turn his attention to solving big, global problems. Steve Jobs and Jack Dorsey were given no choice in the matter. Whatever the reason, the change almost always affects the company negatively. Just ask Twitter or Microsoft.
Dick Costolo did a good job as CEO of Twitter -- not a great job, though, because he wasn’t passionate about the company. He tried to please investors and keep the stock price from falling, but under his leadership, Twitter ticked off the development community by essentially eliminating its third-party environment. Some developers even left to work for Uber.
Twitter founder, Jack Dorsey, on the other hand, loves Twitter and the development community that made the platform what it is today. Earlier this year, Dorsey returned to his brainchild, cleaned house and created exactly what Twitter needed -- a small, agile development team.
By scuttling nonsense and focusing on making great products, his company is thriving again.
The dangers professional CEOs pose.
Consider this scenario: The founder of a company is ousted, and CEO A takes over.
CEO A cuts research and development efforts to drive down costs and increase short-term profitability. Most customers are under long-term contracts, so even if the product’s quality declines, the company doesn’t lose customers. The board celebrates CEO A’s success at making the company look more valuable on paper. CEO A then leaves the company.
In comes CEO B, who further cuts research and development costs and severely diminishes capital expenditures, but superficially boost results for the year by increasing marketing spend. The company sees an initial hike in revenue, only to lose it later to churn when a competitor disrupts the marketplace with a better product. CEO B is fired.
CEO C tries to do the right thing, adjusts the budget to increase R&D spending and maybe even acquires a smaller, disruptive company. However, the market is reluctant to trust the company. Angry board members long for CEO A, even though he caused this mess. CEO C is fired.
Although CEO D resumes R&D investment, and the market starts to trust the company again, the business will never regain its prominence as a contender because short-sighted CEO A used accounting tricks to temporarily make the company look more attractive.
The founding CEO’s passion is a game changer. According to a study published by the University of Pennsylvania, founding CEOs consistently beat professional CEOs across several metrics, including raising capital, time to exit and ROI.
What are founding CEOs doing that professional CEOs aren’t?
1. They spend more on R&D.
According to the study mentioned above, founding CEOs spend 22 percent more on R&D and 38 percent more on capital expenditures than nonfounding CEOs, showing that they focus more on making quality products than short-term profits.
2. They fight inertia.
Professional CEOs give in to inertia, whereas founders fight it. In fact, 54 percent of professional CEOs are afraid of becoming disrupted by the next Uber, according to an IBM study. Professional CEOs worry that a kid in a garage will upend their business model, or even their entire industry. The character traits of successful entrepreneurs make them more likely to proactively battle the kind of unresponsiveness that professional CEOs fear will be their downfall.
3. They’re knowledge-hungry.
Most professional CEOs don’t take training courses or earn certifications after graduating from business school. But pedigree alone cannot save a floundering company; what will is the ability to solve problems, get into the weeds, learn new skills, invest in further education and create an environment of continuous improvement.
As Twitter learned the hard way, founders make the best CEOs because entrepreneurs do whatever it takes -- aside from sacrificing quality and company culture for short-lived gains -- to ensure the continuing success of their companies.