Leadership by Geoff Colvin

Why startup founders can make solid CEOs

March 29, 2011: 11:27 AM ET

More and more, companies are reconsidering the assumption that tech founders lack the skills to take a company to the next level as CEOs.

By Joel Bomgar, contributor

FORTUNE -- In the same way that a parent's advice never sounds quite as convincing as a new friend's, and a prophet is hardly ever as believable in his hometown as he is abroad, tech founders have had a hard time making the case that they should, in fact, keep the top seat as their companies mature.

Could Eric Schmidt (right) have accomplished everything he did at Google as president and COO just as well with Larry Page (left) remaining CEO?

But thankfully, the conversation over whether a technology company's founder should be the CEO is back on the table. For years, there was a pervasive assumption that a founder was somehow unfit to lead his or her organization by the sheer fact that he or she was the founder.

As a founder CEO myself, I find the suggestion that a founder is somehow ill-equipped to lead a company to be entirely misguided. Who better than the individual who originally conceived of a company to guide the organization through its various stages of maturity?

When I launched my company at 23, I wasn't a Harvard MBA with a burning desire to become an entrepreneur. I was a recent college graduate and a field systems engineer, frustrated by the amount of time I spent driving from one client site to the next. So I developed software that allowed me to do remote support, and started a company in 2003.

To say I was inexperienced would be an understatement. When I first started out, I found myself in charge of product development, finance, human resources, and marketing. I needed help navigating these unfamiliar environments, and I sought it out from a variety of sources. But as the company grew, so did I. And while I face significantly different challenges as the head of what is now a larger company, I firmly believe that there is value in growing with a company as its founder and CEO.

Unfortunately, the tendency to replace founder CEOs with "professional CEOs" still has a strong following. If it didn't, then Marc Andreessen and Ben Horowitz wouldn't have gotten so much flack for insisting from the outset of their venture capital firm that they had a strong preference for the founder to be CEO in 2009. They stated:

Not all founders can become great CEOs, but most of the great companies in our industry were run by a founder for a long period of time, often decades, and we believe that pattern will continue. We cannot guarantee that a founder can be a great CEO, but we can help that founder develop the skills necessary to reach his or her full CEO potential.

Andreessen and Horowitz's position was so counter to the prevailing wisdom that they felt the need to write a blog post in 2010 explaining their logic again.

Their preference was preceded by a 2005 study of stock market returns for founder-led vs. non-founder-led companies by Martin L. Martens, which was featured in Harvard Business Review. The article states:

Founder-led companies had a market-adjusted return of 12% over the course of three years and a survival rate of 73%, compared with a return of -26% and a survival rate of 60% for firms that hired a new CEO…

In fact, financial results in the wake of founders stepping aside -- voluntarily or involuntarily -- have been so bad that they caused many founders to return to their companies as CEOs to try to save (or reinvigorate) the companies they established. Large company examples of this trend include Larry Page at Google (GOOG), Michael Dell at Dell (DELL), Howard Schultz at Starbucks (SBUX), Charles Schwab at Schwab (SCHW), Richard Schaden at Quiznos, Reid Hoffman at LinkedIn, Tim League at Alamo Drafthouse, Jeffrey Citron at Vonage (VG), and the pioneer of the trend: Steve Jobs at Apple (AAPL). Small-company examples abound as well, such as Rob Kalin at Etsy, David Ulevitch at OpenDNS, and Philip Rosedale at Second Life.

To be sure, the founder-returning-as-CEO medicine doesn't always do the trick. Sometimes the patient is too far gone (i.e. Yahoo (YHOO) and MySpace). But the trend is strong enough to raise the question of whether things might have been different had the founder not stepped down (or been forced aside) in the first place.

Eric Schmidt's transition (or ejection) at Google raises the question of whether Google would have been even more successful had their VCs not forced them to hire an outside CEO. Could Eric Schmidt have accomplished everything he did at Google as president and COO just as well with Larry Page remaining CEO? I think so.

Look at Mark Zuckerberg. Is anyone questioning his ability to lead Facebook? If Sheryl Sandberg, as COO of Facebook, can keep the trains running on time over there, did Eric Schmidt really need to be CEO to do the same at Google?

The reality is that both Google and Facebook successfully kept the trains running, but Facebook has the benefit of a visionary at the top. (A visionary who isn't tied to a "triumvirate" of leadership like at Google.) The titles "president" and "COO" exist to allow for executive-level operational capabilities, which are critical when your company is in hyper-growth mode.

Google had things upside-down: A manager at the top and a visionary stuck underneath. Thankfully that has now been corrected, with Larry Page returning to the helm. If they need a president/COO, they should hire one -- with that title.

I'm aware that I may be a bit biased when it comes to founder/CEOs versus "professional CEOS." But I've never assumed that I deserve to be CEO simply because I founded the company. I've worked hard to demonstrate to my staff and investors that I'm the right person to lead my company, and it's not always been a simple road.

A few years into my company's life, we attempted to expand our product line but quickly realized that we'd achieve more success by keeping things more narrowly focused.  We cut our losses on the expansion, which proved to be the right move for the company. As a founder, I didn't want to see the company I'd built struggle under the weight of our own attempt to diversify too quickly. A new CEO may have continued to push forward to prove his or her ability to expand into new markets.

The founder should start as CEO and remain CEO unless it is blatantly clear to everyone that it absolutely, positively isn't working. If the founder lacks operational expertise -- as I did -- the company should hire a really strong CFO or head of operations, or even a president/COO. If the founder needs coaching -- as I did -- the board or company itself should provide it. A company is a living, breathing organism, and the founder is a key part of its lifeblood.

Joel Bomgar is the founder and CEO of Bomgar Corporation, a provider of remote IT support solutions.

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