The Importance of Founders
This is the Chapter 5 of my e-book Silicon Valley for Foreigners, that can be downloaded for free on www.siliconvalleybook.com or purchased for $2.99 on the iBookStore and Kindle. A new chapter will be posted on this blog every week.
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The Silicon Valley ecosystem disproportionately focus on startups; and the most important asset of a recently created company is considered to be its founding team. Founders are stars and they wield a lot of power. Why so?
The main reason may be that founders are incredibly vested on their businesses, emotionally and rationally. Their companies’ success is the number one priority in their lives. When a founder does well, investors, employees and the whole ecosystem are directly benefited.
A 2016 study by three professors at Purdue University is part of a growing mountain of evidence of the superior and more lasting performance of companies where the founder still plays a significant role as CEO, chairman, board member, or owner or adviser. The study found that S&P 500 companies where the founder is still CEO are more innovative, generate 31 percent more patents, create patents that are more valuable, and are more likely to make bold investments to renew and adapt the business model — demonstrating a willingness to take risk to invent the future.
The most valuable and disruptive tech companies of all time, such as Microsoft, Google, Apple, Facebook, Oracle, Microsoft, Tesla, and SpaceX, were or are controlled by the original founders at their peak. The latest wave of billion dollar startups is no different. One of the few things in common between Uber, Airbnb and Snapchat is that founders are in charge.
The success of startups managed by founders is the main reason why investors in Silicon Valley do not try to buy a majority stake in the first financing rounds. It is considered to be sacrilege in the Valley to have a new startup with an external investor controlling the board or owning more than 50 percent of the outstanding shares.
The control of a startup, of course, might change over time as the company raises more money, goes public and becomes mature. But the ecosystem here is structured in a way that entrepreneurs are in charge, not investors or even executives.
When startups are sold or go through an IPO, lots of early employees get rich through their stock options. Successful founders also become angel investors or venture capitalists, and the most altruistic donate money back to their universities and communities. It is a win-win situation for the whole ecosystem.
For those reasons, founders continue to be the foundation upon which Silicon Valley is built upon. This region revolves around entrepreneurs, and nothing is more important than treating founders with respect. Silicon Valley’s secret sauce is to give founders the support and autonomy to run their startups in the way they want to. It is that simple.
