Internet Finds for Growth Companies: On Scaling and Exiting

This week, I present three internet finds that should be interesting for for growth companies: a deep, insightful blog post by Ben Horowitz, explaining why Andreessen Horowitz prefers to scale their portfolio companies under the reign of the founding CEO – instead of putting in a professional CEO. A recent article claiming that IPOs have become less attractive as an exit option. And several stunning infographics from LUMA Partners related to scaling and exiting.

Why We Prefer Founding CEOs – Ben Horowitz, April 2010

Andreessen Horowitz (a16z) is a stage-agnostic fund, so they also invest in companies that are well into the growth stage. That’s why a16z is frequently faced with the question: Who is the best CEO to run the company in the growth phase? Should we stick with the founding CEO or replace her/him by a professional CEO?

In this blog post from April 2010, Ben Horowitz makes a strong case for sticking with the founding CEO. He acknowledges that the founding CEO typically does not (yet) have the skills to run a larger organization. But instead of replacing the founding CEO by a professional one, a16z will help the founding CEO to develop the required skills.

Ben Horowitz lists several strong reasons why a16z established this guiding principle, including

  • most successful tech companies were built this way
  • the founding CEO has unparalleled knowledge of the company: employees, product, customers, …
  • the moral authority to change course, yet still preserving buy-in from employees and the market

However, the strongest reason favoring the founding CEO is their superior ability to constantly innovate, which is a matter life or death for a technology company:

“The technology business is fundamentally the innovation business. Etymologically, the word technology means “a better way of doing things.” As a result, innovation is the core competency for technology companies. Technology companies are born because they create a better way of doing things. Eventually, someone else will come up with a better way. Therefore, if a technology company ceases to innovate, it will die.

These innovations are product cycles. Professional CEOs are effective at maximizing, but not finding, product cycles. Conversely, founding CEOs are excellent at finding, but not maximizing, product cycles. Our experience shows—and the data supports—that teaching a founding CEO how to maximize the product cycle is easier than teaching the professional CEO how to find the new product cycle.”

To me, that point about innovation makes a lot of sense: at HP, I could see first-hand how a company can end up in a difficult strategic position due to lack of innovation. Despite their long tenures, neither Carly Fiorina nor Mark Hurd were able to “find new product cycles” and to create new, fast-growing, highly profitable businesses. This is even more astonishing, as HP in its long history has re-invented itself several times and created entirely new markets.

Fortunately, with Meg Whitman, HP now has a CEO who clearly recognizes the problem and is determined to achieve growth through in-house innovation.

Marc Andreessen on How IPOs Are Not An Attractive Exit Option Any More – May 2013

In May, BusinessInsider reported that Marc Andreessen sees no game-changing tech IPOs coming because companies simply don’t want to go public any more:

 “… there have been a series of regulatory reforms, a series of corporate governance movements, and the result has been a huge disincentive for companies to go public, and of course the problem with that is if new companies don’t go public then you get exactly what we are seeing, which is the number of public companies falling.”

LUMA Partners on Exit Options – 2013

M&A advisory LUMA Partners regularly publishes LUMAscapes, stunning landscape graphics on various aspects of digital markets. In the context of scaling and exiting, the following three LUMAscapes are especially relevant

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