Paul Graham: Founder Mode vs. Manager Mode

At a YC event last week, Brian Chesky gave a talk that everyone who was there will remember. Most of the founders I spoke to afterward said it was the best one they had ever heard. Ron Conway, for the first time in his life, forgot to take notes. I’m not going to try to reproduce it here. Instead, I want to talk about a question he posed.

The theme of Brian’s talk was that conventional wisdom about running large companies is flawed. As Airbnb grew, well-meaning people advised him that he should run the company a certain way in order for it to scale. Their advice could be optimistically summed up as “hire good people and give them room to do their work.” He followed this advice, and the results were disastrous. So he had to find a better way on his own, which he did in part by studying how Steve Jobs ran Apple. So far, it seems to be working. Airbnb’s free cash flow margin is now among the best in Silicon Valley.

The audience at this event included many of the most successful founders we’ve funded, and one after another they said the same thing had happened to them. They were given the same advice on how to run their companies as they grew, but instead of helping their companies, it hurt them.

Why were these founders being given the wrong advice? That was the big mystery to me. And after some reflection, I found the answer: What they were being told was how to run a company you didn’t found — how to run a company if you’re merely a professional manager. But this approach is so ineffective that it seems broken to founders. There are things founders can do that managers can’t, and not doing them feels bad to founders, because it is.

There are, in effect, two different ways to run a company: founder mode and manager mode. Until now, most people, even in Silicon Valley, have implicitly assumed that scaling a startup meant switching to manager mode. But we can infer the existence of another mode from the bewilderment of founders who have tried it and the success of their attempts to escape it.

As far as I know, there are no books specifically about the founder mode. Business schools don’t know it exists. All we have so far are the experiments of individual founders who have been figuring it out for themselves. But now that we know what we’re looking for, we can go looking for it. I hope that in a few years the founder mode will be as well understood as the manager mode. We can already guess at some of the ways it will differ.

The way managers are taught to run companies seems to be like modular design in that you treat the subtrees of the org chart like black boxes. You tell your direct reports what to do, and it’s up to them to figure out how. But you don’t get involved in the details of what they do. That would be micromanagement, which is bad.

Hire good people and give them room to do their jobs. Sounds great when described that way, right? Except in practice, according to founder after founder, what this often ends up meaning is: hire professional fraudsters and let them run the company into the ground.

One theme I noticed both in Brian’s talk and when I spoke to founders afterward was the idea of ​​feeling manipulated. Founders feel like they are being manipulated from both sides: by the people who tell them they should run their companies like managers, and by the people who work for them when they do so. Typically, when everyone around you disagrees with you, your default assumption should be that you are wrong. But this is one of the rare exceptions. VCs who haven’t been founders themselves don’t know how founders should run companies, and C-level executives, as a group, include some of the most skilled liars in the world. (1)

Whatever the founder mode is, it’s pretty clear that it will break the principle that the CEO should interact with the company only through his or her direct reports. “Level-hopping” meetings will become the norm rather than a practice so unusual it has a name. And once you drop that restriction, there are a whole host of permutations to choose from.

For example, Steve Jobs used to organize an annual retreat for what he considered the 100 most important people at Apple, and these were not the 100 people highest on the org chart. Can you imagine the willpower it would take to do this at the average company? And yet, imagine how useful it could be. It could make a big company feel like a startup. Steve presumably wouldn’t have continued to organize these retreats if they didn’t work. But I’ve never heard of another company doing this. So is it a good idea or a bad idea? We don’t know yet. That’s how little we know about the founder mode. (2)

Obviously, founders can’t keep running a 2,000-person company the same way they ran it when they were 20. There will have to be some degree of delegation. Where the boundaries of autonomy end, and how sharp they are, will probably vary from company to company. They will even vary from time to time within the same company, as managers gain confidence. So founder mode will be more complicated than manager mode. But it will also work better. We already know that from the examples of individual founders who are feeling their way toward it.

In fact, another prediction I will make about the founder mode is that once we figure out what it is, we will find that several individual founders were already almost there — except that in doing what they did, they were regarded by many as eccentrics or worse. (3)

Oddly, it’s an encouraging thought that we still know so little about the founder mode. Look at what founders have already accomplished, and yet they’ve accomplished it against a headwind of bad advice. Imagine what they’ll do once we can tell them how to run their companies like Steve Jobs instead of John Sculley.

Grades

(1) The most diplomatic way to phrase this statement would be to say that experienced C-level executives are often very skilled at managing upward. And I don’t think anyone with any knowledge of this world would dispute that.

(2) If the practice of having such retreats became so widespread that even mature, politically dominated companies began doing it, we could quantify the senescence of companies by the average depth in the organizational chart of those invited.

(3) I also have another, less optimistic prediction: as soon as the concept of founder mode takes hold, people will start to misunderstand it. Founders who can’t delegate even things they should delegate will use founder mode as an excuse. Or non-founder managers will decide they should try to act like founders. That may even work, to a point, but the results will be messy when it doesn’t; the modular approach at least limits the damage a bad CEO can do.