As a start-up grows, can the founding team continue to make decisions collectively, or does someone have to rise above the others and become the final decision maker?
A couple of years ago at a panel discussion at HBS’s annual Entrepreneurship Conference, the 4 founders on the panel disagreed about almost every topic raised by the moderator. The one thing on which all 4 agreed was that “a start-up has to be a dictatorship.” Each of the founders had started a company with at least one co-founder, and had tried to make all decisions by “consensus.” However, in all 4 cases, this structure had caused major problems for the start-up. Therefore, summed up one of the founders, “Either I have to be making the final decisions, or I have to be working under my co-founder who is. ‘Co-CEOs’ just doesn’t work.” At the time, I had just finished writing my Ockham case, where this issue caused disruptive tension between the founders.
On the other hand, back when I first started focusing on founders half a decade ago, one of the first companies I studied was iWon, which was run pretty successfully for a while by two co-founders and co-CEOs, Bill Daugherty and Jonas Steinman. In our Entrepreneurship MBA class, we refer to this as the “Neverland” approach (the Peter Pan one), after the place where there are no parents, only children.
Here’s an excerpt from an old story about Bill and Jonas. It’s Bill response to the question, “Explain how you manage to both share the CEO title. Doesn’t one person have to make the final decisions?”
Daugherty: Jonas and I met at Harvard, so we’ve been friends a long time. Even though we hadn’t worked together, we had a real good knowledge of each other’s strengths and weaknesses. We shared the same values about what type of organization we wanted to create and focus on getting things done. This is a very open environment and decisions are made continuously during the day, 24 hours, and we’ve had very few issues where we’ve had differences. Where we did, the one who’s been most passionate about his position has carried the day. You talk things through just like any good relationship.
In a query posted to “Founding with Friends,” hiphopentrepreneur resurfaced this issue: “we are currently working out positions in the company and responsibilities…we know each others strengths and weaknesses, but we haven’t yet solidified a business making structure…my question is….Can you really have more than 1 CEO? We all have important product ideas that are a major part of the business so who should reign supreme?”
So:
- Overall, what have been your experiences with the Neverland approach?
- More specifically, were you able to maintain a “consensus” approach within the founding team?
- If so, for how long were you able to keep it up, and how effective was it?
- If not, why did your approach change? At what stage? What did it change to?
- Beyond any personality-specific factors, to what do you attribute your success or failure with the Neverland or Dictatorship approaches?
- From an investor perspective: If a Neverland venture is succeeding, would you be more or less inclined to invest in it than in an equivalent Dictator venture?
I was a part of a triumvirate of co-founders for 7 years: we had three original co-founders, then dropped one and brought on an outside CEO to replace him, and then dropped down to two: myself and my original co-founder. It worked reasonably well for most of that time, when there was a third leg of the stool to offer stability and civility, then devolved into frustration and ineffectiveness.Professors in business school like to preach about the value of having people with diverse backgrounds and perspectives and that was always the case with the three (four) of us. When we were three, things were pretty stable and civil. We resolved differences with a vote when necessary and, more often, by talking things until it was clear that two of us felt strongly in one direction.When it turned into a biumvirate, however, the management situation slowly but inexorably fell apart. At a critical time when all of our energy should have gone into confronting exogenous challenges (and some big opportunities), we instead drained most of our energy by infighting. This was hard for me personally (my co-founder too) but also to the rest of the company who didn’t know who to follow. My partner was (as he put it to me when we first met) a “born engineer”. Whatever I am, it’s the opposite of that, and we had lots of honest disagreements on just about every imaginable issue. Today, I consider one of my greatest accomplishments (as a person, not as a manager) that we always respected each other and tried hard to remain friends (we were friends before we co-founded the company). In the end, however, after years of hard work, we became too exhausted to civilly resolve all our difference and we ended up, reluctantly, agreeing to divide up responsibilities in a way that made us both feel pretty uncomfortable (him making all operational decisions; me handling all external relationships, with each of us sitting on our hands and biting our tongues whenever we felt that the other was making an error). We finally managed to get an exit for the company but it cost us a lot in our personal relationship and, worse, the outcome of the company to which we devoted years of our lives. Arguably the exit was substantially less than it might have been had we been of one mind or had we “fallen into line” (with one of us being dictator sooner). One thing I am clear about now: two people at the wheel is the worst way to drive. You end up going straight when either a right or a left would be better. Then again, the people who preach diversity of perspectives are also right. The same balancing of views that kept us from making a needed turn to the left or right towards the end was what kept us from flying off the road earlier on, which would have resulted in a premature and ugly demise for our company. Our strong diversity of perspectives definitely worked to the benefit of the company for many years. My chief regret is that we didn’t adjust our management structure and style quickly enough to adapt to the changing situation. My view now is that as an early startup where the imperative is avoiding making the big mistake, having a group of partners with divergent views is a good thing (at that point, you’re all very polite and respectful anyway). When the time comes that your business is working and you need to act fast and make decisions quickly to grow and seize opportunities, the best thing is to have a dictatorship. Making the transition at the right time is the elusive challenge here.
Hmmm. Wouldn’t it be easier to forego the frustrations of developing a fledgling company as a founder, and just exercise the entrepreneurial spirit by accepting the challenge of multi-level marketing? If you pick the right company, the infrastructure is already there and the potential for residual riches is extremely high. Admitedly, most do not have the discipline to drudge forward in multi-level marketing to see any real riches due to becoming discouraged but, far less become rich trying to be the founder and develop a successful company.Multi Level Marketing (not to be confused with illegal pyramid schemes) really has made lots of people rich. True entrepreneurs do quit well in this type of business, but it can be quite challenging. Also, in a sense, you are a dictator and founder of your own organization. You didn’t invent the wheel. Your merely driving the vehicle that sets upon those wheels. Entrepreneurship at its finest!< HREF="http://oneteamglobal.com" REL="nofollow">Globally patented technology<> developed at the University of Utah Cancer Reasearch Facility.I would be interested in your thoughts on MLM. Most pre-judge this fascinating type of business from snipets they heard from someone. And how that someone never made any money. Sad truth of the matter is most start believing that all they have to do is sign up and BAM! THEY ARE NOW RICH. When the realization of having to do actual work sets in, all those hopes and dreams don’t seem as close. Funny how that works.I appologize if I am not on point, but I am commenting more from the header and title description of your blog rather than the actual posts. I really would find a serious discussion, as well as your thoughts on MLM, something worth debating or discussing. MLM actually could be your “good to be rich” v.s. “good to be king.”Oh here is my blog by the way. < HREF="http://livebetterlonger.blogspot.com" REL="nofollow">LiveBetterLonger<>
I’d take a look at Sapient, which I believe has had co-CEOs since the beginning. I’ve never worked there but have heard several say that the co-CEO arrangement “really worked” there.
after reading this blog, i think i may reevaluate my decision to be a business major. seems like this is too involved for me. or maybe it’s the challenge i’m afraid of i guess..
I think you can have both. Each person is a dictator in their own task, outlined via contract beforehand. If you’re in charge of it, you get final say. I saw this working first hand at my last company. It’s how I would do it if I ever decided to have a partner.
We had a very good experience as a triumvirate of founders. The mix of point of views probably slowed down our decision-making process but we felt that the decision that emerged from the collaborative approach was worth the added overhead.On the other hand, how about adding to the mix an external CEO? That is a tricky question we are still debating. Dr. Martin Martens of Concordia University discusses the issue in his “Short and Long Term Consequences of Founder Transitions in IPO Firms”. See my blog for more info: http://www.lepenseur.com/archives/external-ceo-hiring-decision/
We had a Neverland management system for the last year, prior to which we had a lame duck CEO, prior to which we had a decent CEO. Even a lame duck CEO is better than Neverland management. Although, Neverland management might be OK if you don’t have customers or employeesNeverland is inherently less decisive because every move must be discussed and analyzed until a consensus is reached. A dictator has the power to make any decision without discussion or consensus building. Startup management MUST be decisive. I’d rather have a decisive dictator who makes the occasional mistake (and learns from it) than an indecisive committee of founders that can’t make a timely decision.Put all the founders on a committee that votes (or hires) a dictator once a year or so. And let the dictator make the day to day decisions unfettered.
in responce to blasts mlm response…I agree that there are some good mlm’s out there which have very solid business plans, however i disagree with the idea that being involved makes you an “independent business owner” or even an entrepreneur. I have seen money made and lost at both ends, but the satisfaction comes not from money, but from taking control of your own ideas. Not from being a salesman for someone elses.
Some very interesting perspectives. Since there seemed to be quite a bit of support for the dictator approach, thought I’d make some arguments for the flipside:1. Maybe the benefit of having a dictator is that it gives the people someone to hang when things aren’t going well! This is especially the case for public companies where pay for performance, the market for corporate control etc allow shareholders to hold someone responsible.2. The benefits of the dictator model seem to be more inline with US/Anglo-Saxon stock market capitalism than elsewhere. Japanese management is known for its consensus building style. In the German/Rhine model, there are enormous and explicit legal mandates to ensure a consensus approach. For example, the board of directors consists of half of the members being elected by shareholders and half by employees. Both Japanese and German firms rely on patient capital much more so than Anglo-Saxon firms, the Japanese through keiretsu network holdings and the Germans through hausbanks. How much of the US preference for having someone you can hold accountable at the expense of consensus is attributable to the rise of institutional investors, shareholder activism etc? How much of it is then just the assumption about “how things work in the world” and passed onto entrepreneurial firms (whose investors may in fact be more like patient capital!)3. What about SAP, which has two co-CEOs? What about Google which was run by a duo for quite some time? With Erick Schmidt as CEO, the firm more accurately became a triumvirate rather than a dictatorship. What about HP? Tough to argue the firm wasn’t better off under Hewlett and Packard, as opposed to a responsible manager (who was then duly fired.)
I’m not a businessman, but I do see a parallel between the development of the management structure of private enterprise, and the development of the institutional structure in an economy transitioning to free markets. In both cases you see the initial stages governed by the risk attitudes and information sets of the owner(s)/principal(s). As time goes by, the ownership spreads too far for there to viably exist a management structure which is inherently dependant on the individuals present, and is not systematically stable. The “neverland” structure is indeed viable, as certain examples listed above will testify, and there is no reason to assume that it potentially cannot be so. Consensus based decision making is used in several organizations, particularly if they’re new or comprised of people who will inevitably share certain key values; student societies, for example, and on a broader scale, the Internet Engineering Task Force. Although these examples are different from private enterprise in that they aren’t profit seeking, they illustrate the point that the management structure will work when risk attitudes and information sets are identical, or almost identical. As organizations get larger, the diverse range of risk attitudes has to be mitigated by introducing standardized measures of risk and return, and formulating a firmwide attitude towards risk, set by senior management. In this instance, of course, the final decision is made by the HOD/CEO, whichever may be the case, and the “neverland” structure will not stand the scrutiny of shareholders.
A complex topic. I would say neither neverland or dictorship is quite right.i’ve worked with teams as large as 6 founders, down to single founders and many #’s in between.in the very early stages having two founders with complementary backgrounds is very helpful. one ends up typically being the “alphageek”, the other being the “business guy”. this combination has been the best I’ve seen, where you maximize founder ownership but get two of the core skills in the company early to help hone in on the “right” business.I don’t like the word “dictator” as startups are volunteer armies and while dictators can move resources quickly behind an idea, they can also move resources quickly behind bad ideas and can ignore feedback. Feedback is critical in early companies. I think it is important though for someone to be the “quarterback” as you need one person calling audibles on the field.If there isn’t an obvious quarterback it is dangerous to choose one of the founders as the quarterback. if there isn’t a capable quarterback on the founding team, it should tell you that there is a hole in the founding team. I had a friend who founded a company with three other engineers and they arbitrarily declared one of the engineers as the quarterback. that founder had no experience managing a team and he started making bad decisions. That team would have been better making collective decisions until they found the right quarterback, either as another cofounder or as a hired CEO.the quarterback analogy works for me better than dictatorship as a quarterback needs to call a play, you go run the play, then everyone comes back to the huddle and shares info, and another play is called. if the quarterback isn’t listening to the inputs and adjusting the play calling, the team loses and a different quarterback is selected.
Tomorrow we will determine our business structure. I think we will go with an LLC. We are also considering including another partner to the business (total would be 4). The 4th partner would bring technical knowledge and experience that we need for our business. This potential partner has the equipment and contacts to get our raw materials cheap as well. The question I have if you are a start up and strapped for cash, does it make more sense to outsource your needs or make them partner? Please leave your responses at hiphopentrepreneur.blogspot.com
Though I haven’t been in the shoes of a founder I suggest that a friend band should/may split responsibility and dictatorships over the areas they mean to control. A CTO will have the last word in the technical aspects, a marketing guy will lead the marketing strategy and a business development or a sale fellow will be responsible for his/her area. Of course the startup idea’s creator will act as a CEO and have veto on everything and approve other’s visions. The challenge here for the CEO is not to smoother other’s innitiatives, freedom, and privity of their points of view.I don’t beleive a joint governance may be successful unless the founders are very exceptional (google?:-). I’m afraid a mutual leadership may not only drive to weak execution but to lack of the owner in every strategic direction and finally - to full company degradation. Unfortunately I’ve witnessed such < HREF="http://roman-rytov.typepad.com/miles/2005/11/mossad_french_l.html" REL="nofollow">talibanisation <> of promising teams.
Interesting blog. Third startup I am working in and its a “startup” cause it works on a hybrid US-India model.Amit: As you were mentioning in one of the older posts about startup in India it would be really interesting.Noam: Would be interested in discussing about startups that have an India strategy and how that changes the equation somewhat.Would contribute more to discussions, just finished a marathon session catching up on the old posts here.
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