Founder Mode: Should Entrepreneurs Reject the Conventional Wisdom about How to Manage Their Companies?

Source: Y Combinator

Y Combinator co-founder Paul Graham sparked a vibrant and wide-ranging discussion after posting a short essay titled, "Founder Mode," on his website.  He drafted his blog post as a reaction to a recent talk given by Airbnb founder Brian Chesky.   Graham and Chesky propose that entrepreneurs ought to reject the conventional wisdom about how to scale a business.   Graham writes:

The theme of Brian's talk was that the conventional wisdom about how to run larger companies is mistaken. As Airbnb grew, well-meaning people advised him that he had to run the company in a certain way for it to scale. Their advice could be optimistically summarized as "hire good people and give them room to do their jobs." He followed this advice and the results were disastrous. So he had to figure out a better way on his own, which he did partly 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.

Graham argues that the usual advice to avoid micromanagement might be wildly off-base when it comes to founders leading their companies as they scale.   In short, he suggests that we are advising founders to delegate far more than they should.  He argues that the most effective founders might very well dive deep into the details more often than conventional wisdom recommends.  They can and should talk directly to technical experts at lower levels of the organization and frequently conduct skip-level meetings.  They should employ "founder mode" rather than delegating as much as many leadership consultants suggest.  

Graham acknowledges that you have to adjust your management style as you scale a business.  You cannot run a large organization in the same way you operate a startup.   In short, managing in founder mode is complicated... 

To me, the key argument here is not about whether founders should delegate more or less often.  "Founder mode" sounds interesting, but what exactly does that mean?  The key issue is WHEN one should delegate and when it is appropriate and effective to take a deep dive on critical issues.  I would love to hear Chesky, Graham, and others explain how they think about THAT important leadership choice.  It's all well and good to reference successful founders such as Steve Jobs, but plenty of entrepreneurs meddle too much, alienate people by not trusting them to make decisions, and burn out their subordinates.   Advising entrepreneurs to embrace "founder mode" might do more harm than good unless we help them understand how and when to engage in those deep dives.  

How Do We Select Managers? Where Self-Promotion Goes Awry

Source: https://www.aihr.com/blog/hiring-manager/

Ben Weidmann, Joseph Vecci, Farah Said, David Deming, and Sonia Bhalotra have published a thought-provoking new NBER working paper titled, "How Do You Find a Good Manager?"  The paper ingeniously uses an experimental methodology to examine whether self-promotion is harmful or helpful in the managerial selection process.   They find that people who nominate themselves for managerial roles tend to perform worse than those individuals selected randomly!  Moreover, they find that the "self-promoters" may be underperforming because they overestimate their own interpersonal skills. In short, overconfidence seems to be a significant problem for these self-promoters.  Here's an excerpt from their paper: 

Do people who want to be managers perform well in the job? We explore this question by randomly varying the manager selection mechanism in our experiment. After describing the expected tasks and compensation structure of the manager and worker roles, we elicit participants’ eagerness to be a manager on a 1-10 scale. Half of groups were randomly assigned to a “self-promotion” treatment where participants with the strongest preferences became managers. Managers were assigned randomly in the other half of groups. We find that self-promotion is worse than choosing managers randomly. Teams with self-promoted managers perform 0.1 standard deviations lower than teams with randomly assigned managers. This magnitude is roughly equivalent to being assigned a manager with fluid IQ one standard deviation lower. We show that self-selection can lead to mistaken inferences about the characteristics of good managers. People who prefer to be in charge– who we call ‘self-promoters’– have characteristics that differ from the broader population. For example, we find suggestive evidence that self-promoters tend to overestimate their own social skills relative to an objective test of emotional perceptiveness called the Reading the Mind in the Eyes Test (RMET).   Among self-promoted managers, we find a negative relationship between self-reported people skills and managerial performance. In contrast, randomly selected managers do not tend to overestimate their social skills, and we find no negative relationship between self-reported people skills and managerial performance.

Naturally, more work needs to be done to examine how these dynamics play out in actual organizations rather than experimental settings.  Yet, intuitively, the findings resonate with me.  Considering the implications for hiring process should be top of mind for those leaders tasked with selecting managers for their teams.  

Three Critical Questions for the New Starbucks CEO Brian Niccol

As we all know, Starbucks hired a new CEO last week. They hired Chipotle CEO Brian Niccol to replace beleaguered CEO Laxman Narasimhan.  Niccol faces many challenges as the company has experienced declining revenues, frustrated customers, and disgruntled employees.  As a loyal customer (albeit also a frustrated one) and a close observer of the company, I've been considering the questions that Niccol must grapple with as he embarks on this transformation effort.  Here are three key questions:

1.  How much customization can Starbucks offer to its customers?  Give the customers what they want, right?  Customers clearly love to customize their drinks (in far more complex ways than Chipotle faces).  However, it has become abundantly clear that many Starbucks cafes are unable to effectively handle their throughput each day, particularly given the intense amount of customization they must deliver.  We've read about or experienced long wait times, abandoned orders, and incorrect drink orders.  Mass customization only works if a company can actually deliver on its promises.  One might argue that Niccol simply has to figure it out, and that he has to improve operational efficiency so that Starbucks can offer abundant customization.  However, Niccol also has to think about the practical implications of this strategy.  Should he curtail customization at all while he tries to figure out the operational challenges in the cafes?  I'm reminded of the story of Lego's turnaround twenty years ago, led by CEO Jorgen Vig Knudstorp (see HBS case study by Jan Rivkin and Stefan Thomke for details on this story).  He took charge when Lego faced the prospect of bankruptcy.  The number of parts produced by the company had doubled in the late 1990s, leading to numerous manufacturing and supply chain problems.  Knudstorp reduced the number of parts substantially so as to help the company gets its operations back in order.  At the same time, he invested heavily in innovation.  Lego came roaring back stronger than ever.  Niccol might want to study that turnaround as he considers the customization challenges at Starbucks.  

2.  How will the design (or redesign) of cafes balance worker efficiency vs. customer comfort/needs?  Longtime Starbucks CEO Howard Schultz envisioned the cafes as a "Third Place" where people could gather with others either to enjoy a friendly conversation or to get work done.  However, many of the cafes were designed to handle much less volume than they currently receive.  Workers are in each other's way, and they lack the equipment needed to handle as many orders as they receive.  In one of my local Starbucks cafes, they have renovated completely.  Now, the workers have more equipment (two espresso stations rather than one) and more space.  Undoubtedly, the set-up is much more efficient, and wait times will hopefully decline as a result.   However, customers have less places to sit and gather with others.  No tables are within reach of outlets at this point, reducing the ability to work at the cafes.  You can clearly see the tradeoffs that Starbucks must grapple with in their design choices.  Niccol has to determine the appropriate balance here between enhanced efficiency vs. "Third Place" dynamics.  

3.  How will Niccol handle the shadow of longtime CEO Howard Schultz?  We all know the story by now of how Schultz has returned twice after his initial resignation as CEO in 2000.  We also know that he has opined about the challenges his successors have faced, and he's done so in a very public way at times.  Most recently, he took to LinkedIn to criticize the efforts of CEO Laxman Narasimhan.  Niccol will have to think about how to engage Schultz.  He clearly has a great deal of influence, though he no longer serves on the Board of Directors.  Niccol can't allow Schultz to dictate strategy, but he cannot ignore him completely.  

Are We Aligned? If Not, Why Not?

Source: Superbeings

Effective leaders do not just articulate their goals clearly and concisely; they test for alignment repeatedly.  Did their message get through clearly to those several levels below them in the organizational hierarchy? Do middle managers and front-line employees understand the priorities, and do they know what is expected of them?  Why might alignment around goals and priorities not exist?  Here are five key reasons:

1.   Leaders did not repeat their message using different media and in different forums/channels.  They articulated the goals once or twice, and they expected others to hear them, understand them clearly, and embrace them fully.  You have to say it again and again, but using different modes of communication.  Some read their emails, and others do not.  Some listen at the town hall meetings, while others multi-task the entire time.  Some watch the 15-minute video you circulated, while others stop watching after 3 minutes. 

2.  Leaders established too many goals and objectives, and employees experience too many instances of competing priorities.  Employees don't know what really matters.  Employees draw disparate conclusions about what is most important.  

3.  Leaders did not build buy-in.  They didn't engage enough people in the process of determining those goals.  Therefore, employees do not feel a sense of collective ownership of the organization's plans and objectives.  

4.  Leaders have established goals that do not seem attainable to those doing the actual work.  As a result, employees become frustrated and start to make judgements about what is reasonable and achievable.  Those conclusions may be quite different across the organization. 

5.  Leaders create goals that do not match the needs and pain points of customers.  Thus, front-line employees perceive a mismatch between what customers want and what senior leaders would like to achieve.  Employees either address the customer needs and frustrate managers who don't see actions that fulfill their plans, or employees pursue the goals set out by top management while frustrating their customers.  

What Can We Learn From Olympic Fencing Stars?

Source: Sports Illustrated

As you watch the Olympics this week, take note of a few of the sports that receive much less attention.  For example, consider the sport of fencing.  You might notice something rather odd.  An unusually high number of athletes in the sport are left-handed.  Or, consider trap shooting.  As author David Epstein points out, "Half of the women in the final were left-handed, while fewer than ten percent of women in general are lefties."  Epstein cites fencing as an example of frequency dependent advantage.  Scholars use the term to describe the advantage left-handers may have in certain competitions because right-handers aren't well-equipped to face lefties and do not compete against them often at earlier points in their careers.  (The advantage in fencing seems obvious, but Epstein is not quite sure why such an advantage may exist in trap shooting).  

Jeff Haden, writing for Inc.com, points out that there's a lesson for all of us from these Olympic fencing competitors. He argues that we can CREATE a frequency dependent advantage in our careers. He writes, "Want to build a business? Be willing to do a few things your competition will not. Want to build a career? Be willing to do a few things the people you work with will not."  What terrific advice!  Haden has identified a key source of career success.  You can bet on your ability to do the same thing others are doing, but just better.  You might be successful, but that could be challenging.  Or, you could do things others aren't willing to do, or haven't chosen to invest time and effort into mastering to this point.  That might be a more fruitful way to propel your career forward at times.  

Should Senior Managers Learn about AI from Younger Employees?

https://michaelmauro.medium.com

Katherine C. Kellogg and her co-authors have written a fascinating new HBS Working Paper titled "Don’t Expect Juniors to Teach Senior Professionals to Use Generative AI: Emerging Technology Risks and Novice AI Risk Mitigation Tactics."  They begin by noting that experienced managers often can learn a great deal from younger, less experienced employees.  The scholars note the benefits of this "reverse mentorship" in their paper.  They point out that junior employees are often closer to the work, able to experiment with new methods more easily, and often are more open to learning about new techniques and practices.  They point, for instance, at a famous ethnographic study by Stephen Barley in which he found that senior radiologists learned a great deal about new CT scanning technology in the 1980s from their less experienced colleagues. 

However, Kellogg and her fellow scholars argue that such positive benefits of reverse mentorship do not always materialize.  For instance, senior professionals may find that their status in the organization feels threatened by such reliance on junior colleagues.  Moreover, they argue that we need to be careful in some instances, when junior colleagues may still not have clear knowledge of the benefits AND risks of emerging technologies such as AI.  If the technology is still evolving rapidly, and the risks associated with its use are still unclear, then we may not want to be so reliant on younger employees to teach senior managers.  

Junior employees may simply not be well-equipped to engage in appropriate risk mitigation strategies, and they may not know how best to convey an understanding of those risks and the appropriate ways to manage them.  To me, it seems that we need a more collaborative approach in these cases of emerging technologies with unclear risks.  Together, we need to engage in the type of two-way dialogue that enables us to learn about the appropriate application of these new technologies in our organizations, rather than depending on one set of individuals to teach another set.   Reverse mentorship has its place in organizations, but it may not be the best model for embracing new AI methods and practices. 

What Can We Learn from Nike's Struggles?

Source: Runners World

Over the past year, the S&P 500 Index has risen by roughly 20%.  Meanwhile, Nike's shares are down by more than 30%.  Revenue growth has stalled. In February, CEO John Donahue announced major layoffs.  What happened to Nike?

The company has made a number of key strategic mistakes in recent years.  I'd like to focus on one key blunder.  Nike focused a bit too much on the allure of driving growth by selling lifestyle-oriented shoes and apparel.  As a result, it didn't invest enough in innovation for the hard-core athlete, particularly runners.  Upstarts such as Hoka and On seized upon this opportunity, brought innovations to market, and grabbed market share.   For years, Nike had led with innovation for the serious athlete, and then used its brand credibility to appeal to more casual athletes and lifestyle customers.  

The Nike story is not a new one.  Many companies begin by appealing to a targeted market segment with innovative products, then expand their reach to the mass market.  However, many firms stumble by failing to protect the core, as well as failing to innovate sufficiently.  They begin to lose their hard-core customers, and ultimately, that damages the brand.   The loss of brand equity ultimately makes it harder to succeed in the mass market.  

How can companies avoid this trap?  First, they need to think about how every move to extend a brand or reach the mass market will affect the hard-core loyalists that were at the core of the initial success?  How will they perceive each particular growth strategy?  Are they diluting the brand, or damaging their reputation for technological preeminence?  Second, they need to invest substantially in customer research that focuses on the pain points and unfulfilled needs of their hard-core customers.   Third, they need to make sure incentives within the firm don't over-emphasize growth at the expense of succeeding with the narrow market niche that formed the heart of the firm's initial success.  Finally, they need to scan the external environment voraciously to examine trends that might lead to a change in consumer preferences among their hard-core brand loyalists.   These steps can help a firm make sure that it doesn't leave itself exposed to innovative upstarts.