Are professional CEOs really any better than founder CEOs?
Can a Founder CEO still take it all the way?
Before we jump in today, if you could indulge me with one simple question to ensure I keep the content crispy:
Nice. Let’s ride.
The rise of the Professional CEO in tech is (seemingly) a major trend.
Professional CEOs are those who have experience leading companies at scale, and a track record of success when it comes to attracting and mobilizing people to execute against audacious goals. They aren’t founders, but instead have cut their teeth in the trenches, operating companies through organizational changes (cough: firing people) and economic uncertainties (cough: 1987, 1992, 2001, 2008, 2020…)
The shift to Pro CEOs is driven by the need for tech companies to remain competitive in an increasingly crowded market, while demonstrating a sleek financial profile to meet Wall Street’s expectations.
While founders discover the goldmine, professional CEOs know how to get the most gold out.
Rather than assembling servers in a garage and subsisting on a Ramen diet for five years, Professional CEOs have successfully navigated the clay layers of middle management in big orgs.
Or, said another way, they’ve seen some shit.
The most famous professional (non-founder) CEOs include:
Frank Slootman (Snowflake)
Satya Nadalla (MSFT)
Sundar Pichai (Google)
Marissa Mayer (Yahoo)
Tim Cook (Apple)
Shantanu Narayen (Adobe)
Ginni Rometty (IBM)
I wasn’t sure if this trend was a real thing, or something you just “hear about” so I decided to compare random samples of IPOs on the NASDAQ and NYSE. I picked two three year periods: 2009 - 2011 vs 2019 - 2021.
And the results were surprising…
First off - it’s fun to go back in time and remember where you were in life when some of these companies IPO’d. When Facebook went public in 2012, I was coming home from a college final, filling my tank with gas in the rain, and watching the price oscillate on my iPhone 4 (lol we’re on the 14 now?)…
As you can see, 8 of the 15 IPOs above were helmed by founders. So the majority were founder led, but it wasn’t a runaway lead.
Now let’s jump forward to more recent times:
Based on this sample, it’s an avalanche of founders.
WTF?
This runs completely contrary to the headlines about professional CEOs taking companies to the IPO promised lands.
So why is this the case?
What strikes me is that the professional CEOs on the list (specifically Frank Slootman and Dara Khosrowshahi) are household names. They garner a lot of press attention.
To go one step further, I’d venture to say non-founder (or “professional”) CEOs get more press headlines and occupy more airwaves than founders because:
They are seen as more hardened, experienced, and reliable leaders, who’s decision making should be studied and emulated.
Non-founder CEOs have a track record of success in leading other companies, and have established relationships with the media and investors from those tenures, which makes them attractive to write about and safer bets.
And most importantly, non-founder CEOs often have a more polished public image than founder CEOs, which can make them more appealing to the media. They know how the game is played and how to hold the public’s attention, hopefully to the benefit of their stock price. In other words - it’s kinda part of their job description to be a visible figurehead.
Therefore, it’s a self fulfilling prophecy that hiring a professional CEO gets you in the press more often. If perception is reality, they are brought in just as much for grey-haired perception as for actual leadership.
Benchmarking performance
To take this one step further, I reached out to my friends at Virtua Research to benchmark the performance of Professional vs Founder CEOs.
Here’s the cohort we came up with for Founder led companies (all figures pulled in March 2023 and the average of the last four available fiscal quarters):
And here’s the cohort for Professional CEO led companies:
Revenue Growth:
Founder CEOs take the cake here. Over the past four quarters, their companies are growing at a faster clip than those of Professional CEOs.
As the line chart above shows, the gap used to be even wider, but is narrowing.
Profit Margin:
Founder led companies are torching +3x that of their professional CEO counterparts. The gap in losses is much wider than the gap in growth.
But unlike revenue growth, it doesn’t appear that the gap is closing.
Market Cap:
The tech universe is down collectively, but the cohort of founder led companies was hit the hardest, more than double that of professional CEOs.
There isn’t a real winner here, but rather a cohort that’s losing less.
Conclusion:
At the end of the day, Founder CEOs and Professional CEOs are differentiated in their approaches to running a company, and it shows up in the P&L. It appears Founder led companies are growing faster, but Prof CEO led companies are more efficient.
And as a result, as the market has shifted from loving growth at all costs to wanting efficiency, Founder led companies have suffered a more drastic hit to market cap.
It appears that Founder led companies are more aggressive about growth, and are more willing to invest cash in future projects that excite them, while Professional CEO’s are more focused on a beautiful P&L, and more pragmatic in incubating future engines for growth (“how much will this cost???)
At the end of the day, I am surprised by how many Founder led CEOs are still in charge of their companies.
But I am much less surprised by how many Founder led CEOs are (still) saying “Damn the Torpedoes” and pushing for more growth. After all, it’s that aggressive attitude that got them this far in the first place.
(Thanks again to my friends at Virtua and their powerful lifecycle analysis tool, which I use for all my SaaS benchmarking. You the real heroes.)
What I’ve been reading:
There is an abundance of noise in AI right now.
Through the Noise helps you make sense of the chaos and get to the heart of what’s going on.
Join 23,000+ creators, entrepreneurs and investors every Sunday.
It’s written by my friend Alex Banks, and I highly recommend.
Quote I’ve been pondering:
“What's the point of being an outlaw when you got responsibilities?”
-Jesse Pinkman, Breaking Bad
Mostly archives
FP&A F’ Ups - a list of FP&A boobytraps
How much dilution is normal - measuring typical dilution through the rounds
Never let a good crisis go to waste - what’s really happening with the tech layoffs
The only nitpicky note I have is that Elon Musk was NOT a founder of Tesla. He was brought in after - even though it was a year after (small time span).
PS - both of my successful exits were Pro-CEOs but with the founders still present in some capacity.
Fascinating read CJ.
And props on the Pinkman quote 😀