A Second Look at “Idea People” as CEOs: Should vs. Do

In response to last week’s post showing raw data about the propensity of “idea people” to take the CEO position within their founding teams, Tadej commented:

I don’t think having the idea should generally affect your position in the company (that should be determined by your abilities and motivations) – some people say that having an idea is worth 20 bucks, the rest is implementation.

Tadej makes an excellent point about what teams “should” do. In practice, what do teams actually do?

To give us some deeper data regarding this, I ran a quick regression analysis to assess the strongest factors affecting which founder takes the CEO position. The factors I included in the regression were as follows:

  • Serial entrepreneur — Has this founder already founded a prior company?
  • Industry experience — Has this founder worked in the same industry before?
  • Years of experience — This founder’s # of years of prior work experience at time of founding
  • Was idea person — Did this founder come up with the idea on which the venture was based?

The first 3 are meant to capture the “abilities” factor mentioned by Tadej, with the fourth being the variable I described in the “Idea People” post. The dependent variable in the regression was whether the founder was the founder-CEO or not.

Quick technical notes: The pseudo-R-squared of this basic logit model was .07, the Prob>chi2 was .0000, and I clustered the standard errors by venture. Regarding the 3 abilities metrics, 26% of the founders had prior founding experience, 31% had worked in the same industry before, and the average prior work experience was 15.9 years.

Side note: Interestingly, the Idea Person variable was not significantly correlated with Serial Entrepreneur and with Years of Experience, but was significantly negatively correlated (r=-.22, p<.01) with Industry Experience.

The results were as follows:

  • Serial entrepreneur: Strongly significant positive effect (p<.001) on becoming founder-CEO.
  • Industry experience: No significant effect.
  • Years of experience: No significant effect. (Also not significant when curvilinear relationship was tested.)
  • Was idea person: Strongly significant positive effect (p<.001) on becoming founder-CEO.

So although role assignments “should” be done without regard to who was the idea person, in practice, who had the idea seems to have a strong effect on who becomes the founder-CEO. Why do you think we see this divergence between “theory” and practice?

  1. Translation: serial entrepreneurs tend to be “idea people,” have the ability to surround themselves with like minded co-founders and have a strong enough personality to finagle their way to being CEO.Makes sense.BTW, I’m not sure tenure in “a” job and general industry experience are good proxies for “practical ability.” When hiring employees into a startup, I often find that the perfect candidate (i.e. most “able”) has experience in the industry, in the role and in a startup, with the last being the most important.

  2. Very interesting! Two follow-ups about your first points, Furqan:1. You highlight the effect that the choice of co-founders has on what roles people might assume. Is it possible that an idea person might be more attracted to potential co-founders who will let him/her be CEO, and shy away from stronger co-founders if they would push to become CEO instead?2. One small correction (that probably doesn’t jive with your personal experience): As I mentioned in the “Side note,” among the founders in the dataset, there was actually no (statistically significant) correlation between being a serial entrepreneur and being an “idea person.” Not a negative correlation, but not a positive one, either. (Given their past startup experience, maybe they’re even more attractive to non-serial idea people and thus more likely to be invited onto a team?)Regarding your final point, definitely agree that some metrics are stronger than others, and agree with your ordering for many startups. I think the combination of the three is key; e.g., just looking at tenure without looking at startup experience would miss a lot. Given your familiarity with the survey we use, are there other metrics that you think would be valuable proxies to add?

  3. In the early days, there is definitely some jockeying and planning around who to co-found with. Some of it is spoken, but much is unspoken. For example, I know from experience that my skill sets complement a co-founder with a sales/marketing background (which I am thrilled to have found in Mike, my co-founder at Virid.us). But there are a lot of factors and I’d be way out of bounds if I gave the impression that I knew them all.On your other point, I’m shocked that there is no correlation between serial entrepreneurs and “idea people.” It’s so common that it’s a stereotype! I wonder if there is a bias (intentional or now) in the data based on who reported it (e.g. was it reported by one of the founders or a CFO they hired later?).

  4. The reason I highlighted that factor (in both the post and in my comment above)is because it does conflict with what we usually assume. At the same time, those counter-to-conventional-wisdom results often yield deeper thinking and newer insights about what’s really going on. Everyone should feel free to suggest any explanations for it!Response bias is, indeed, one of the first things I check with our survey data. Although there are some (e.g., a higher percentage of VC-backed companies than in the general IT/Life Sciences industries) that should affect results in other areas, I haven’t seen any that would affect this part of the data at all. As always, though, I’m completely open to anyone’s pointing some out that I haven’t examined or considered.<>Would love to hear from more people about their experiences/observations about the "co-founder jockeying" Furqan described.<>

  5. I’m not sure that I agree with the basic assumption of your research that a idea person would not make the best CEO.Is there any data to suggest that startups are less successful if the idea person becomes the CEO?

  6. I am not sure, because I did not take the questionnaire. But could it be possible that some of the respondents incorrectly indicated that they were the idea people. I mean, probably they were being plain honest, because that is what they believe. Egocentric bias(when people claim more responsibility for themselves for the results of a joint action than an outside observer would- Wikipedia)?

  7. Absolutely love the level of dialogue (both quantity and quality) regarding this post! It’s been a while since we’ve had such active discussion about a post about early-stage research, and it’s precisely when the research is still in its “raw data” stage that our online discussion can most shape the research.(My original hope for the blog was that it could become an online version of a “work in process” faculty seminar, but rather than having only a dozen or so people contributing their thoughts and critiques — as would be the case in a faculty seminar — that we could have a much broader set of brains working collectively to shape the research.)Regarding the specific comments by Venkat and Anand (and one thing Furqan mentioned that has sparked further thinking for me), I’ll try to carve out extra time today to think about and respond to them. Thanks again!

  8. Venkat-My apologies if I gave that impression -– I think we are several steps away from being able to conclude “more successful or less successful” with this issue.My approach to these types of issues matches yours: I look to the data to guide me about whether things are good/bad, rather than making random assumptions. At the same time, until data/results are available, we do accumulate experiences or anecdotes that lead us in a preliminary direction. Based on my past work experience, consulting, and case writing, I have seen idea people both be the best people to lead their ventures and be suboptimal CEOs. However, if I have any “basic assumption” at this early stage of analysis, it would be that the idea person is often the best CEO during the early stages of venture development, but that that can change dramatically as the venture’s challenges change and the idea person’s strengths no longer match the venture’s most critical needs. After that point, I would indeed say that “the idea person would not make the best CEO” in many ventures, as you put it.In that sense, this question resembles the one I tackled in my founder-CEO succession research (see < HREF="http://founderresearch.blogspot.com/2007/01/topics-covered-in-this-blog-so-far.html" REL="nofollow">the Succession section here<>).

  9. Great question about one other type of bias that might apply here, Anand!22% of our respondents are founder-CEOs who might be susceptible to that issue. To test whether the results were affected by that, I created a flag for those ventures and ran two regression models:1. The first was the same model as in my original post, but with the founder-CEO respondents dropped, to see if the results changed. The statistical significance of the Serial Entrepreneur variable was slightly weaker but still very strong (p=.014). The Idea Person variable was still highly significant (p< .001 again).2. The second was the full original model, but with the indicator variable for “founder-CEO respondent” (1 if yes, 0 otherwise) added to it. The results for the other variables were unchanged (i.e., Serial Entrepreneur and Idea Person were both p< .001) and the "founder-CEO respondent" variable itself wasn't significant at all (p=.623).These results suggest that that bias didn’t skew the original results, but great question nonetheless. Let me know what other weaknesses you see (or alternative explanations) that I should assess.(This is one way the blog is superior to a faculty seminar — in the seminar room, we can’t take a step back to create new variables and run new models to test alternative explanations or the robustness of results. :->)

  10. Certainly years of experience, skill sets, etc. are key variables. I feel the successful assignment of the CEO, especially in the early stages, also needs to take into account who is the most passionate about the venture. In most cases, that passionate person is the the idea person. I have seen quite a few teams willing to sacrifice some of the mainstream skills of a CEO for the passion and drive that an “idea person” can bring to the table. I agree with Noam’s point regarding the change in a venture’s challenges over time – the CEO’s position (along with the rest of the team) needs to be assessed throughout the growth of the venture. The challenge is being open to the potential need for change.

  11. The idea guy is also usually the entrepreneur. When you take an idea and then spend 18 months with no salary, living and breathing the idea, raising $150k from friends and family, putting together an executive team etc… You have one driven CEO. No one is going to care about the company more then the idea guy. No one will be driven more then the Idea guy, and no one will be able to make the tough decisions and shape the direction of the company like the idea guy.When you go through what most idea guy/entrepreneurs go through to make their idea a success, their idea becomes like a child to them and no one will love their child more then a parent. I know because I am both an entrepreneur and a Father of 4.

  12. Totally agree with ongoing discussions- idea-man is the best CEO initially, though not necessarily further down. BTW, last week I quit my job at a promising startup, after I ran out of, er, “risk capacity”. Been witnessing the kind of drive and conviction needed to ensure that ideas survive initial short-term crises.Wonder what is the trend in the following against the firms’ years after founding:- incidence of “idea person”-CEOs (Hyothesis1: comes down over time)- “success” of firms with “idea person”-CEOs[*] compared with non-“idea person”-CEOs (Hypothesis2: former trends down while latter trends up)[*] As an aside, wonder if it is U-shaped. Because Larry Pages and Larry Ellisons are rare, but look at when they do appear! Just a wild hypothesis(3), but thought would be interesting if true.

  13. Really enjoyed it, I wanted to click out and you kept pulling me back in! Many thanks and keep up the great work!

  14. the reason you see the correlation between idea and becoming the CEO is that “ability” is only one factor in being a CEO. I reject the “doer” mentality, because it doesn’t tell the whole story.. it creates a stereotype of the creative genius idea guy rambling in the corner but with no ability to execute, versus the guy who can run the company but isn’t particularly original.A huge percentage of being a CEO of an early stage startup is inspiring the team, keeping them unified and focused, and having the peer authority to change the core idea should the market dictate (which happens so often with a startup). As Richard points out, the person who came up with and believes in the idea often has the most internal credibility to run with it, to pitch it, to inspire with it.

  15. My take is that great business leaders are a combination of idea and execution.

    The creativity of the idea person has to be at a level where he could learn the ropes to execute his idea into a product or service that could be experienced and measured in terms of customer satisfaction.

    Pure execution people make excellent program managers and COO but to give them the role of CEO is a folly for they won't be able to see byond what their experience is teaching them.

    Your thought??

    i write on entrepreneurship at http://007rohitarora.blogspot.com

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