Why Founders Fail: The Product CEO Paradox (2013)

http://www.bhorowitz.com/why_founders_fail_the_product_ceo_paradox

by ggonweb • 11 years ago

173 62 11 years ago

salimmadjd• 11 years ago

OT: There is a bug in this blog that when I tried to share it on Facebook, it shows: "<a data-width="300" data-height="200" data-bop-link..."

scintill76• 11 years ago

I saw a shared post on Facebook the other day with the title "302 Found". I'm guessing it was taken from the standard generated HTML Apache etc. will send when redirecting. Not sure if it's more Facebook's or that site's fault.

ryandrake3• 11 years ago

Great article. While it's great to have a CEO who stays engaged with the product even as the company scales up, it's awful when they continue to micro-manage it the way they did when the company was 10 people. You hired product managers (and perhaps product manager managers). So let them do their jobs and create great products!

When you're running a 500+ person company, you're not going to go into the code and start optimizing the graph traversal algorithm--you hired smart engineers to do this. You're not going to fire up Illustrator and start drawing buttons--you have artists for this. You're not going to write the company blog yourself, or fix the automated test systems yourself, or design the marketing materials yourself. So why do you feel the need to over-ride your product managers on product direction, feature set, user acquisition plans, retention strategy, etc? Doing so de-motivates the professionals you have whose job is to do these awesomely.

mpdehaan22• 11 years ago

Product managers are potentially both the most helpful and potentially most damaging hire you can make, as you are ceding them control (if you do) over the very definition of the value your company provides.

I think someone like Steve Jobs keeping a lot of that control there is definitely of value - in not delegating it.

I've worked with a lot of PMs that were like "this dialog needs to be more orange" (one defunct startup from many years ago), and miss the picture, because they are just kind of faking it -- they are the guy with the opinion and the title, because somebody had to do it, but not really trying to make the best choice for the end user.

There are some that could be exceptional. (Speaking of several different companies where I've experienced this). You need to have someone with a really good gut feel and instinct, and a lot of passion to believe in the thing they are doing. But if a PM is a "CEO of a product", that makes it the most important choice in your entire organization -- for that product. If you have one product, that's huge.

An alternative approach is to get a company really involved, to where everybody on the team has input in the product, and that you source the ideas from everywhere, but yeah, somebody still has to drive it.

Depending on who you talk to PM can mean like 37 different things, and no one person can concentrate on all 37 -- you do need people doing all of those things, but I think it's GREAT if the person at the helm of your company is all about the product. Else, you're just cranking size and numbers?

The purpose of the company, to me, is about creating the things you believe in and want to create - the business is the means to the end, and the food on the table along the way. Approaching it from a pure business perspective is missing a lot of the fun and opportunity.

omouse• 11 years ago

Product managers are potentially both the most helpful and potentially most damaging hire you can make, as you are ceding them control (if you do) over the very definition of the value your company provides.

I think it ties into what paul graham wrote about hackers making things for users. The more layers you have between the hackers and the users, there's more potentially that your product won't be that great. I've worked with product managers who supposedly talk to the users directly and channel that into the work us developers have to do but they always seemed to just copy the competitor or only make small changes whose value is questionable.

An alternative approach is to get a company really involved, to where everybody on the team has input in the product, and that you source the ideas from everywhere, but yeah, somebody still has to drive it.

It's probably better to create the position of product manager from within.

teacup502• 11 years ago

Unified vision matters. Peer commentator already noted Steve Jobs, but I wanted to focus on this.

Steve didn't draw the buttons, design the hardware, or write the code -- but he sure as shit told the relevant teams exactly what he wanted -- often directly, with a very shallow management hierarchy -- and told them to try again if they didn't pull it off.

At the same time, he did have SVP-level and VP-level people writing serious, core OS-level code themselves. They were better managers by virtue of actually understanding and having a coherent vision for what it was they were managing.

If the management chain doesn't set product and marketing direction at a company whose purpose is to sell products, then what the hell are they doing in charge?

teej• 11 years ago

"At the same time, he did have SVP-level and VP-level people writing serious, core OS-level code themselves."

I find this fascinating. How can I find out more? Which VPs? Which code?

slyall2• 11 years ago

I had a CEO like that once. He was very good at giving them impression that he could do the job of anyone in the company better than that person and the only reason anyone else was hired was cause he couldn't be in 200 places at once.

noskynethere• 11 years ago

Can you elaborate a bit more?

Could he not do other people's jobs, not do them as well?

If he was correct in his assessment, was the issue that it affected morale?

Right now, I feel I could do maybe 15 peoples jobs. Not as well, certainly unless I were full time, and so I cede control to them as long as they can explain their decisions.

But often I feel like that statement, even if true, bodes poorly for the company. Is that because of how employees respond to that attitude?

biot2• 11 years ago

  > So why do you feel the need to over-ride your product managers on
  > product direction, feature set, user acquisition plans, retention
  > strategy, etc?

As long as the CEO isn't micro-managing, why wouldn't they intervene on these topics if the product managers are going in a direction the CEO doesn't want to take the company just yet? The CEO's job is to set the strategy and vision; the manager's job is to execute. If you've hired competent managers, how they execute is up to them. What and why they execute is the responsibility of the CEO and, if the managers are off-course, the CEO must sometimes override them to line things back up with the vision and strategy.

ryandrake3• 11 years ago

Overall strategy: fine. Vision: fine. Feature-by-feature product definition? Not so much. If you, as CEO, want to do that, great--just don't go out and hire product management professionals. They'll have nothing to do, with you doing their job for them. They'll eventually leave out of boredom and/or frustration.

mpdehaan22• 11 years ago

"A friend of mine led his company from nothing to over $1 billion in revenue / This worked brilliantly up to about 500 employees."

I'm often confused by the apparent VC assumption with excessive growth and not building right-sized companies sometimes. Is this failure?

To me, this is a great time to say "I'm making lots of money, my employees are making lots of money, and it's ok to be at this size and there's nothing wrong"

It might have been a great time to stop at 100, or even 25, and you could have had a fantastic time, doing one thing supremely well, too.

There's honor in that.

I think the pressure to grow to unicorn sizes inherrent in VC things could often result in weird business choices.

It's important to remember the VC is motivated by the final selling price, and big companies sell more -- but that's totally not failure.

AceJohnny23• 11 years ago

Yes, you've come across the core criticism of the VC business model. They fund 500 startups in the hopes that one of them goes big. Not big, gigantic! Humonguous! The next Google! Facebook! Dropbox! They need such a huge return for their business model to work (do you know how expensive it is to fund 500 pie-in-the-sky startups?)

With that in mind, if as a founder you're happy to settle for mid-size, you're going to get into headlong conflict with VCs who've funded you (and thus own majority shares of the company), because you're failing them according to their model.

You may be interested in jwz's and idlewords's comments, who frequently decry this model.

aaronbrethorst4• 11 years ago

    With that in mind, if as a founder you're happy
    to settle for mid-size, you're going to get
    fired by your board.

FTFY.

interesting_att• 11 years ago

I understand the antagonism towards VCs, but they have financial reasons why they push for only unicorns. Best reasons I have heard so far are:

1) The only way VCs can make large amount of money for their investors is via a liquidity event. Investors would much rather prefer .25% of a 1B dollar public company than 25% 10M dollar private company, because you can liquidate the former far more easily.

2) Overhead costs are significantly less when you focus on fewer companies, which is what happens when you push all companies to be a unicorn. A VC would much rather care about 5 companies with significant promise than 500 small companies. In the latter situation, you would need way more employees to make sure your investments are safe.

3) Funding a few unicorns is better for marketing purposes. VCs need to raise money from institutional investors, hence need to "wow" them.

andrewliebchen• 11 years ago

Yeah, except that the VC wants to continue to squeeze more milk from the cow. "More pasture land!" he demands. "Add growth hormones!" he suggests. The cow dies, then he gets to write posts about how the cow's desiccated udders were the bottleneck for his sweet milk.

aaronbrethorst4• 11 years ago

    I think the pressure to grow to unicorn sizes
    inherrent in VC things could often result in
    weird business choices.

Yes.

    It's important to remember the VC is motivated
    by the final selling price, and big companies
    sell more -- but that's totally not failure.

Maybe not to you, but it would be to the VC. This is a fantastic reason to possibly, just maybe set your startup sights somewhere other than landing funding. Do you want to be beholden to someone who is—ultimately—trying to flip you for a 9 or 10 figure win, or do you want autonomy and the opportunity to pursue a 'modest' success?

hyperpallium• 11 years ago

The problem with leaving oxygen in the room is that someone else will grab it - and burn you alive. The only natural resting place is "right-size": when you've dominated your market/niche. Choose it wisely.

Retric• 11 years ago

Niche are ill defined. https://xkcd.com/1095/

We are not in the food business, the drink business, the ...

We sell organic locally sourced non fat _ between 6th and ninth street.

shostack4• 11 years ago

The only challenge with saying "eh, this is big enough, I'm satisfied as are my employees" is that the business world is not static.

Your competitors are nipping at your heels, markets change, technology changes, and if you get complacent and say "this is good enough" your business can be swept out from under your feet and suddenly you are struggling or dead.

Like it or not business is a treadmill. You can never stand still or you risk falling off.

marktangotango2• 11 years ago

Just left an example of this, founder built a product with a core cadre of about 5 developers, after a slow first 5 years, the market caught up, and then sales doubled every year for next 5 years ($100M plus in sales).

CEO was highly involved with the product, even led the dev team for several years. Unfortunately he was little more than an enthusiastic amateur when it came to technical matters, and had strong opinions on how to implement things. His team was not experienced, so didn't recognize the hole they'd dug themselves. This led to a lava layered mess that failed to scale to the largest customers.

Enter investors, a rewrite, and plummeting sales. CEO was replaced with a sales guy. See ya, good luck with that!

shostack4• 11 years ago

Out of curiosity, how did the investors and rewrite result in plummeting sales? Was it the distraction from improving the product that let competitors get ahead?

As you wrote it, it seemed the core issue was the technical debt that blocked to large customer sales/hurt retention. So if that was fixed in the rewrite (a big assumption admittedly), I'm left wondering what exactly went wrong.

marktangotango2• 11 years ago

The business was overly optimistic and misunderstood the scope the project and announced it way to soon ie at the beginning of the year. Miscommunication and lack of effective project management caused the rewrite to go way over the already unrealistic deadlines. Sales dried up as everyone was waiting for the new hot.

Investors exacerbated the problem by requiring a 10% head count reduction for no other reason than "it will make everyone else work harder". With blood already in the water, and the train wreck of the rewrite, they started losing their top talent. I bailed because it was clear they missed core functionality, and supporting the new release was going to be a nightmare. And yes I did try to raise awareness of the issues I saw, to the point of shouting in meetings and being a jackass, to no avail. Note I only did that once, then checked out mentally, it's just not worth it. Should've left then, but stuck around for another year.

When the release finally happened, it was situation where vp of IT had to make a deadline or lose his job, so the new release was crippled from the start. Sales went from doubling every year to falling well below the previous year.

Edit: added a lot of detail.

dhimes• 11 years ago

I find this post terrifying!

femto• 11 years ago

The "The Product CEO Paradox" is applicable to anyone who leads the development of a product in a growing company, not just the CEO, but the Chief Engineer or CTO as well. It addresses the question of how to continue to make a useful contribution once the pace of development gets too rapid for a single person to keep up with.

hobs2• 11 years ago

And hidden in the middle of the post is:

Be the integrator – When Larry Page took over as CEO of Google, he spent a huge amount of his time forcing every product group to get to a common user profile and sharing paradigm. Why? Because he had to. It would never have happened without the CEO making it happen. It was nobody else’s top priority.

This is a good example where a strong leader can push the entire company in (what I think even Google would now admit was) the wrong direction, and because they are so powerful, the core products can suffer.

ohitsdom• 11 years ago

I don't think the direction was wrong, I just think the implementation was awful. But your point still stands, it ended up harming the product.

hobs2• 11 years ago

I think that is a fair point and worth the distinction.

G+ did not did not need to be deployed in such a heavy handed fashion, and if it hadn't there is a very strong probability G+ would be highly utilized and valued today.

graycat2• 11 years ago

It sounds like the failings of the product CEO can be fixed with just a good COO. E.g., the OP has:

Then somewhere along the line, employees start complaining that the CEO is paying too much attention to what the employees can do better without her and not enough attention to the rest of the company.

Sounds like the CEO needs a good COO for "the rest of the company". Okay.

It does appear that VCs commonly miss this point. Maybe someone could guess why, with three guesses, where the first two don't count.

For a 101 level lesson on deception, watch, say, Star Wars III -- that lesson is in the movie because audiences are prepared to believe that it is close enough to reality, and many in the audience have good reason to so believe. Deception, etc., go way back, at least to Shakespeare. Don't fall for it.

In the OP, the recommended solution for the product CEO is to write down the vision or whatever for the product. Good.

But now we are on the way back to the most rigid version of waterfall development -- documents mostly in advance for each level of the work. I tend to believe that those documents, etc. are a good, maybe nearly essential, approach for the scenario in the OP, but that approach is the polar opposite of lean and agile development. For small projects, sure, lean and agile are okay -- knock out some code, see if like it, else change it, rinse and repeat. But for significant projects, I never liked lean or agile anyway!

But, let's see: The product CEO is to communicate only via a carefully prepared, written document and does prepare one or more such documents.

So, now the VCs can think what that they couldn't before? Three guesses, and the first two don't count.

There is:

The CEO skill set is incredibly difficult to master,

Hmm ... So, how did Gates, Ellison, Page, Zuck do it? Did they have years of experience managing people, from a lemonade stand to the decorations for the homecoming dance to the college PBK awards dinner to a division in the US Army, to salesman, local sales manager, district sales manager, chief marketing officer? Nope -- none of those. What about guys in the flyover states who build businesses big enough to let them have, say, a 60 foot yacht? But, still we're talking something "incredibly difficult"?

IMHO the whole OP is to make excuses for what VCs still very much like to do -- have the CEO their puppet on their strings and, then, pull the strings to get what they believe they want where firing the founding CEO is to be expected. Such firing by VCs used to be expected, and now we see that with A16Z it is again.

Besides, this stuff about how much A16Z likes product CEOs looks like just misdirection to keep from talking about what A16Z really cares about: A company with traction significantly large and growing rapidly in a huge market but where the founders need/want cash and are still willing to sign a standard term sheet that has the founders suddenly go from owning 100% of the company to owning 0% and a four year vesting plan to get back some of the ownership while the BoD can fire them before their stock is vested and, really, makes the VCs' investments more valuable -- it's the VC's fiduciary responsibility to their limited partners.

What is a founder to believe about a VC? What's in a blog post or what's in a term sheet and the other documents, maybe two inches thick, worked out very carefully by bright, well paid lawyers?

Instead, (A) plan the project so that get to positive free cash flow early on, (B) grow just organically, that is, from retained earnings, and (C) plan the project so that have some good barriers to entry to keep out competition long enough for the growth.

Guys, it looks like A16Z just wants your work, ownership, and company and wants to get those by having you sign an onerous term sheet while they give you some excuses about why you should give up your power as CEO and, thus, really, all or a lot of the financial benefit of your work. They are after the founder's money, guys.

shostack4• 11 years ago

In this day and age of high-quality, freely available information and education online about taking investment, do you have data to suggest this level of relationship/terms is common?

My assumption would be that CEOs are getting savvier and things like open source term sheets/agreements are helping level the playing field.

Some companies might be forced to take investment, some founders might be greedy, some might be uneducated. Some ultimately feel that the combined funding, connections, and experience they can tap is the only thing that will let them beat out the competition to being the 800lb gorilla in a hot new market.

graycat2• 11 years ago

do you have data to suggest this level of relationship/terms is common?

Read the on-line stuff about standard term sheets. E.g., pay attention to some of the details that a founder, say, one that was just fired, can encounter in handling the options where they are already vested -- net, they may come away with zip, zilch, and zero or nearly so.

IIRC there was a lot at Fred Wilson's AVC.com, especially part of his MBA Mondays posts.

Long, broad advice has been, don't take VC money unless you really need it. As soon as you sign that term sheet, take that check, etc., you are now reporting to a BoD that can fire you and, with the usual terms, leave you with little or nothing while the investors just walk off with your company and all its software, customers, value, etc.

The OP is giving various reasons why "Really, Ms. Product Founder, you didn't really want to be CEO, did you? Of course you didn't. So, just let us find a really good professional manager to handle that terrible, 'incredibly difficult' work of CEO while you move on to a better quality of life" and the VCs get total control, e.g., with their puppet CEO, and essentially all the financial value.

It's Star Wars III with young, naive, angry, afraid, gullible Anakin Skywalker listening to the Sith Lord about how Anakin really doesn't want to be a Jedi Knight.

vonnik2• 11 years ago

Elephant in the room question: who is Ben talking about?

paulsutter• 11 years ago

It's important to delegate, but the one thing you can't delegate is strategy. The product founder needs to step back from the details but maintain direct involvement in the product aspects related to company strategy.

daniel-cussen• 11 years ago

Typo:

"I thought founders were supposed to better?"

You accidentally a word.

Why Founders Fail: The Product CEO Paradox (2013)

Related Stories