Of the top 10 companies in the U.S. that are best at recruiting and retaining top talent, eight are still founder-led. Here's what investors think founders need to take their idea all the way from pitch meeting to initial public offering.
In 2012, Facebook CEO and founder Mark Zuckerberg made an announcement that to the outside world seemed insane. For $1 billion, the social network's largest acquisition to date, Facebook would acquire photo-sharing service Instagram. At the time Instagram had no revenue, just a $500 million valuation and 30 million users compared with Facebook's 1 billion.
It didn't take long for outsiders to stop questioning Zuckerberg's decision: With more than 400 million users, Instagram is growing at a faster clip than Facebook did in the early days and accounts for 15 percent of the company's total ad sales. What compelled Zuckerberg to make such a seemingly risky decision? Many now say it's because he is Facebook's founder.
If Zuckerberg had given over the reigns to a professional CEO, who knows if he or she would have had the confidence to make such a dramatic bet on the company's future?
"Facebook buying Instagram was one of the smartest investment decisions in the last five to seven years," said Rich Wong, a general partner at Accel, which led Facebook's Series A. "It would have been impossible to do that if the company wasn't led by a founder who was completely behind it."
We know that founder-led companies tend to outperform firms with someone else in the C-Suite on a broad range of metrics, including exit valuations, capital efficiency and return on investment. Most venture capitalists concede that the highest-performing companies in their portfolio are still founder-led.
Now, LinkedIn data support the idea that founders also are better at something much more elusive: talent management.
Of the top 10 U.S. companies on LinkedIn's Top Attractors list, eight are still founder-led. While Zuckerberg's Facebook comes in as the third most sought-after places to work in the U.S., founder-led Salesforce, Amazon, Uber, Tesla, Twitter, Airbnb and Google also made the cut.
While these prominent companies still have their founder in the C-Suite, the arrangement is quite uncommon: Harvard Business Review found from a study of 200 American start-ups that fewer than 2 percent of founders led their companies' initial public offering.
Venture capitalists argue that being able to recruit a great team as the company grows is one of the biggest — if not the biggest — factor that contributes to company success. So how do they attempt to identify the few and far between founders who can grow their team and themselves all the way? LinkedIn spoke with investors from several prominent firms to find out.
"It is easier to start a company than ever before. That's why there are so many start-ups," said Kleiner Perkins General Partner Beth Seidenberg. "Then there is the much shorter list of really breakout successful companies. We try and identify the magic that makes that happen."
It goes without saying that there is no magic ball that can predict whether a founder will be able to grow as the company grows. A vast majority of start-up founders do not know what they are capable of when it comes to growing a business because they have never been tested.
They also typically don't have a track record that investors can point to and see promising results. In lieu of actual data points to indicate performance, a deep-rooted curiosity is key, says David Yuan, a general partner at Technology Crossover Ventures.
"Most of success has to do with his and her ability to attract a great team, but most of the time the founding CEO doesn't have things like sales experience or marketing expertise," he said. "A big part of succeeding in recruiting those people is intellectual curiosity."
Accel's Wong pointed to Zuckerberg's ability to bring in Sheryl Sandberg as COO as a prime example of a hyper-aware founder at work. Zuckerberg identified that his expertise was in product, and then built a team around him that excelled at everything else.
"These companies live or die by the team," added Kleiner's Seidenberg. "The classic example of superior leadership and management is hiring someone who is better than yourself."
There are founders who have an idea because they think that it can make them a ton of money, and then there are the founders who "want to change the world."
While it can be easy to cast aside the latter as cliche, all of the founder-led companies on LinkedIn's Top Attractors list were mission-driven from the start and most investors say that it's that mission that makes them more likely to succeed in the long run.
Aaref Hilaly, a partner at Sequoia Capital, says that the more a founder feels like she is answering a calling, the more likely she will be able to recruit top talent as the company grows.
"At every single one of the companies on your list, if you likely strip it down, they have a story of a small group of people who have achieved incredible things for a purpose," he said. "It is next to impossible to find those people who have the right ideas at the right time."
Yuan of TCV agrees that a belief in answering a higher calling is deeply linked to a founder's ability to attract top talent.
"Ultimately what they are trying to do is attract executives with low-risk jobs and have them take a risk and a pay cut and go do something different," he said. "A founder is a big part of pitching that mission, so he has to feel like he is answering a calling."
While all the investors I spoke with acknowledged the power of founder-led firms, not all were convinced that it's the be-all and end-all to success. Angel investor Joanne Wilson says while at the early stage a founder-led business is crucial, as the company grows it is very likely that a new leader needs to come in to manage the business.
"Once they get more mature it is important to have the founder there, I believe, but it isn't essential," she said. "I want to invest in someone who can lead a company to a very healthy place with a clear creative vision that is always thinking of ways to evolve."
Yuan says it is quite common to meet an entrepreneur who — for one reason or another — does not want to lead the business as it grows. In most cases, the founder is a product guy who would much rather take on the role of CTO.
In that case, in order for it not to turn out like a bad episode of "Silicon Valley," Yuan says the only way that arrangement works is if the founder is a part of the process to find her replacement who she ultimately grows to have a lot of mutual respect and admiration for.
"The founder has to be comfortable in his or her own skin in the organization and has to want to [be] working on things that are exciting to them," he said. "Also the last thing that an experienced CEO wants to do is walk into a company and have a contentious relationship with the founder. That can get ugly really quickly."
You may be looking at the platitudes above and think these are qualities that most founders possess, or at least can pretend to possess, to impress investors. Yet Sequoia's Hilaly stressed that they are "the rarest of qualities." Hilaly contends that the No. 1 reason a start-up fails is because they don't possess the ability to build a great team.
"If a founder cannot recruit and develop talent, you can say with certainty that the company will fail," he said.
Perhaps that's why most investors start out with such a bias for founder-led start-ups to begin with. Referring to his own preference for founder-led firms, Yuan said it is almost Darwinian in nature: If you look at the list of companies that are standouts in his portfolio, a majority are led by founders.
Ben Horowitz of his namesake venture firm is another investor who somewhat controversially — and openly — prefers founding CEOs.
With so much out of their control, one of the only track records with any reliable proof of concept might be having the founder at the helm.
"Start-up companies in tech are about mastering the art of the impossible," said Wong.
"You are going up against a bunch of tough competitors, and you are trying to defeat someone to be the leader in a certain market. There is something about having a founder-led company that makes the impossible possible."
For more on the list:
The man who's worked for Apple, Google, Facebook and Microsoft
Suzy Welch: What it takes to get the best people to work for you
Most attractive employers in the world
The 25 most attractive employers in the UK, according to LinkedIn
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The 40 most attractive employers in America, according to LinkedIn