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Tech’s obsession with founder-CEOs is not over yet

Founder-CEOs are an elevated class in America’s tech sector. They are lauded not only as preternaturally gifted innovators, but as business geniuses too. The tech boom was partly built on the intoxicating idea that some people can see the future and bend the rest of us to their will.

Now those people are leaving. Netflix just presented its first set of earnings without co-founder Reed Hastings, the man who turned a DVD rental company into one of the most powerful forces in entertainment. He follows Jeff Bezos, who stepped down as Amazon chief executive in 2021, the same year that Jack Dorsey resigned from Twitter. Microsoft, Apple and Alphabet have been run by non-founders for years.

A few stragglers remain. Mark Zuckerberg is still chief executive of Meta, Brian Chesky heads Airbnb, Michael Dell is chief executive at computer maker Dell Technologies and Evan Spiegel runs social media company Snap. Marc Benioff may be trying to manage his succession at Salesforce by appointing co-CEOs, but they keep leaving, meaning his tenure continues.

Market performance suggests the departure of founder-CEOs is not always cause for despair. Still, the latest moves mark a cultural shift. The fear is that once founders leave, technocrats will step in and world-building creativity will be replaced with dull, rule-following management. This may be why Elon Musk is yet to appoint new CEOs at his companies, including SpaceX, Tesla and Twitter.

The idea that companies are best managed by the people who were in the garage or dorm room where they were created is particularly popular with Silicon Valley venture capitalists. Ben Horowitz, co-founder of acclaimed VC firm Andreessen Horowitz, once wrote that the firm preferred founder CEOs because they were the key to creativity. “Innovation is almost insane by definition,” he wrote, adding that, “Most people view any truly innovative idea as stupid, because if it was a good idea, somebody would have already done it.”

In tech world mythology, the return of founders such as Steve Jobs to Apple and Steve Huffman to Reddit are often hailed as moments when a company’s vision is restored.

Some of the magic has worn off with the spectacular failures of founders such as WeWork’s Adam Neumann and FTX’s Sam Bankman-Fried. But I have been to enough VC-hosted dinners to know that the idea of founders as a breed apart is still popular. Indeed, one of them used that exact phrase to me. After all, Andreessen Horowitz watched the implosion of WeWork and still chose to back Neumann’s latest business venture.

Limited oversight can sanction bad behaviour on the part of mercurial business leaders. It can also lead to wild imbalances of power, even in public companies. But it’s hard to argue against a set-up that has created trillion dollar stocks and launched ideas such as cloud computing, streaming and AI.

Founder veneration makes tech entertaining, and tends to amplify idiosyncrasies. Amazon’s new chief executive, Andy Jassy, is a sports fan who has put money into ice hockey. That pales beside the investments made by his predecessor, which include an anti-ageing start-up, space travel and a clock that will tell the time for the next 10,000 years.

For the most part, however, the replacement of a founder-CEO need not be cause for concern. Established tech companies can go on to greater success. Research by academics at the University of North Carolina at Chapel Hill and University of California, Irvine, published in the Harvard Business Review, found that companies with founder-CEOs had higher valuations when they listed. But this additional value did not last. In the long term, they underperformed.

The sweet spot, according to the researchers, is an experienced CEO picked by the founder. Apple and Alphabet suggest this is true. Both are run by leaders who proved their loyalty to the company and were appointed with continuity in mind. Tim Cook joined Apple in 1998. Sundar Pichai arrived at Google in 2004.

This bodes well for Jassy, who has been at Amazon since 1997 and says he still speaks to Bezos weekly. But he has had an uncomfortable start to the job. Since he took over, Amazon’s share price is down around 40 per cent.

The trick may be to emulate the disruptive confidence that founders are known for. In a recent letter to shareholders, Jassy declared that Amazon’s best days were ahead. He also managed to make a trillion dollar company sound like the underdog by pointing out that 80 per cent of global retail sales still reside in physical stores. Investors bought it. Since Jassy’s letter was published, Amazon shares are up.

elaine.moore@ft.com

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