How to help Founders stay on offense

Why is it that the best companies, the ones with $10B+ outcomes are founder led? In my opinion, it’s because the process of discovering a new need and getting to product market fit (PMF), requires an exceptionally creative , aggressive and persistent person to discover and exploit. To a person, the outsized outcomes for founder led companies happen because that person never loses those characteristics as the company develops. That makes the company better at adapting and taking advantage of subsequent opportunities. That’s It.

If you treat the founder like a CEO that has a lot to learn about management, or as an investor with a single bet, you are locking in mediocre outcomes. The founders role is to live on the edge, figuring out what’s next. You need them on offense, breaking rules, and thinking creatively. It’s the team’s and board’s job to argue with her and then make whatever they decide happen. If instead you train your founder to follow rules or become rationally risk averse, you lose. That’s your job and the team’s job, not hers.

A few ramifications. First, let your successful founder cash out a few million along the way. Ironically, the founder getting comfortable is far less of a problem than them getting worried about what you worry about. Sure, there will be founders who take the money and run, but those were the ones that found PMF by luck and weren’t going to generate a big outcome anyway. For the rest, they are wired to be problem solving, adapting, creative machines and the fact that their husbands aren’t yelling at them about the rent helps them be themselves.

I would suggest that when it comes to working with your founder, you think the same way you do raising teenagers. If you keep hammering the rules, you will get a very compliant and unhappy founder. If you give them some slack and let them make non-fatal mistakes, they will grow to be stronger more resilient people. The point of strong PMF is that they can make more mistakes.

The biggest ramification is where I think we have truly failed as investors. We haven’t figured out how to develop the professional COO. One of my investors said it to me well when I was growing my first company. ‘John, you are learning how to lead and manage quickly, but your company is growing more quickly.’ That’s really the deal, the founders who do the best on PMF generate the highest growth rates, which makes their lack of management experience the most glaring. Twenty years ago, investors used to kick the founder out and put in a professional CEO. That didn’t work, because the companies failed to adapt in the way they needed as the market changed. Then everyone got ‘founder-friendly’ which seemed to mean that whatever the founder did was fine, and that usually also meant not bringing in anyone that they would have to share power with. That ended with a legion of founder problems at places like Uber and WeWork until the founders got kicked out.

Those two extremes kept us from the real answer, which is you need someone very experienced to pair with a founder as soon as possible. This founder/COO marriage is clearly difficult because it has to be a really great fit. Their skills have to complement each other, and the COO needs to understand that this is the founders show, but they are there to make it happen. That takes more humility than a lot of execs have. But I do not think it is impossible, and I think it is a pretty perfect role for former CEOs and up and coming execs to get excited about. If I could have found that person in my first company, I would have been ten times happier and so would my investors.

I’m very close with my founders by the time they get to Series A. We have navigated a lot of ups and downs and tough decisions getting to PMF. So the personal challenge I’m taking is to bring up this topic when they get there and actively work with my founders to find them the right COO that complements their skills and removes a lot of the management burden. And I’m also going to make sure they take some money off the table so they keep playing offense.

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Co-founder and CEO NetGravity, Rocketship Education, Zeal Learning, Dunce Capital. john@danners.org https://dunce.substack.com/

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John Danner

John Danner

Co-founder and CEO NetGravity, Rocketship Education, Zeal Learning, Dunce Capital. john@danners.org https://dunce.substack.com/

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