HBR’s “When Founders Go Too Far”
Just last December, the Harvard Business Review published an exceptional piece on the world of venture capital, CEOs, founders and the new age of business in which we find ourselves. The article beautifully illustrates just how different the landscape of business (startups in particular) is today. Author Steve Blank manages to provide an in-depth and easy-to-read explanation of how startups work and how they’ve changed, all while offering a captivating history of the industry.
The article’s only true downside is its length. Coming in at approximately 4,000 words, it’s safe to assume you won’t breeze your way through it. For those of you who are looking to learn the article’s main point, but simply don’t have the time to read, I will distill its main points as best I can.
The article begins with an overview of the state of startups, and how their founders have earned so much power in the company. It does so by giving an example of Uber’s founder and former CEO, Travis Kalanick, who famously stepped down from his high-ranking position after a barrage of complaints from multiple sources. Kalanick’s behavior of ignoring sexual assault complaints and berating Uber drivers was unacceptable, and yet he remained in power for far longer than he should have. Blank then asks the question, “Why was Kalanick shown such extraordinary deference by Uber’s board?”
The Way Things Used To Be
From here, the article begins to provide a bit of a backstory on startups and how venture capital works. Blank explains that, in the days before Uber, Lyft, Facebook and other big-name companies, founders, while visionary, lacked the business development experience required to run a company. Because of this, many founders were replaced by high-ranking professionals with experience, or “suits,” but kept on in high-ranking positions, like a Chief Technical Officer. Venture Capitalists simply did not want to risk investing in a company with an inexperienced CEO, and so, they were the ones setting the rules.
Things Have Changed
Blank then explains how Netscape’s IPO completely changed the rules. With Netscape’s booming IPO launch, startups no longer needed to grow and become profitable before going public, they could simply go public. Blank then illustrates this point with the perfect line: “From 1980 to 1998 the median age of a VC-backed company that went public was seven years; in 1999–2000, at the height of the dot-com boom, it was four-and-a-half years.”
The article then goes on to detail how VCs no longer feared founders; in fact, they embraced founders and began to keep them with the company as much as possible.
Finally, Blank explains just how Kalanick was able to rise to such a level of power. Besides the fact that he was both founder and CEO, Kalanick was also on the company’s board of directors. The board was designed to fit 11 board seats, however, there were only 7 filled, with Kalanick comprising three of the seats himself. If ever there were a power struggle, Kalanick simply needed to fill in the other four seats with his allies, and he would win any and all battles.
Is There A Solution?
Most journalists would explain the story and move on, however, Blank doesn’t simply masterfully weave an engaging narrative, he also provides a potential solution. He claims that there is too much power and not enough oversight of founders/CEOs. Blank suggests that VCs should be partnering founder/CEOs with heavily-experienced COOs in order to create a healthy balance of vision and business knowledge. He also suggests that VC general partners should engage with their limited partners, and a few other helpful ideas.
Blank’s article is an important read; startups (or any business for that matter) should never let one single person hold too much power. It jeopardizes the lives, wellbeing and livelihoods of every person employed by the company. These kinds of cautionary tales are opportunities to grow, learn, and most importantly, avoid similar mistakes.
While my overview of Blank’s article does not do the full story justice, it is a short and sweet summary of what Blank is trying to say. If you would like to read the full story, and I suggest that you do, please click here!