Not All Founders Are Meant to Lead

By Markets Fool.com

HBO's Silicon Valley portrays many aspects of start-up culture accurately -- including the sometimes-tenuous balance between the creative or technical skills that give a company its content and the business know-how that lets the company thrive.

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In this clip fromIndustry Focus: Tech,Dylan Lewis and Chris Hill talk about why the founder of a company is not always the best person to run its operations and illustrate the point with a few examples from notorioustech companies.

A full transcript follows the video.

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This podcast was recorded on Aug. 5, 2016.

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Dylan Lewis: Chris, one of the other things we wanted to touch on with this show and how it plays out in reality is the idea of the founder, the person who came up with this brilliant tech idea, not always being the best suited to actually run the business.

Chris Hill: Yeah. It's one of those things that seems obvious, but at the same time, is easy to miss -- the idea that you need balance at a business, you need more than one way of thinking. We've talked about Google (NASDAQ: GOOGL)(NASDAQ: GOOG)a little bit today because Google is the fictional huge company Hooli. By the way, that's one of my favorite things about this show -- the names they come up with for the fake companies. I read in an interview with Mike Judge that that was one of the more challenging things that they run up against, when they're jotting down some fake names, and then they go and do the research and realize, "Oh wait, some of these are actual companies."

Lewis: Yeah, you don't want to get in trouble there.

Hill: If you think about Google before it went public, you have Larry Page and Sergey Brin, who are the guys who come up with Google, they come up with the search algorithm. Along the way, it is clear that they need "adult supervision." That's where Eric Schmidt enters the picture in 2001. He's an experienced older business manager with a background in tech, but Schmidt is really the business manager of the three of them, and he's the one who shepherds them through the IPO process, and through, really, the first decade of Google being a public company. It's interesting, when he left in 2014, Larry Page takes over, there's all these stories about Eric Schmidt giving him lots of credit, and rightly so, and saying, "Well, Larry Page has grown up, and now he's going to take the reins of the company." But pretty early on in Larry Page's tenure as CEO, I would argue that he brings in another smart, experienced "adult" who has a skill set that is not really his forte, and that's Ruth Porat.

Lewis: Yeah, CFO.

Hill: Yeah. Bringing in Ruth Porat was a masterstroke. I remember when the story broke that Google's CFO, a guy who's name I don't even remember, previous CEO, left. I remember we talked about it on MarketFoolery, and I said, "I don't know who Google is going to hire, but I'm pretty sure it's going to be whoever the hell they want." You know? (laughs) They're just going to look out across the entire world and say, "Who's the single best CFO who can help us the most? Let's go make that person a Godfather offer," and they did that with Ruth Porat.

Lewis: And you look at what the company has done since then... Ruth Porat has, I think, steered them in a more Wall Street-friendly direction. They've also announced plans for share buy backs, and they have an authorization there, so they can opportunistically buy back shares. That's something that old Google probably wouldn't have done. They didn't really care much for what Wall Street wanted to do, they were off doing their own thing and experimenting and changing the world, which is awesome. But, as an investor, it's always nice to see them making some of these more shareholder-friendly moves.

In the show, venture capitalist Laurie Breen says to Richard, "You've created a company that is too valuable for you to run. You should be proud."

Hill: (laughs)

Lewis: Which is excellent, and it really embodies this idea of...

Hill: It's such a backhanded compliment.

Lewis: Yeah, "If you have the technical skills for this brilliant, brilliant algorithm, and you're going to change the world... we need someone else to handle it."

Hill: Exactly. And part of the fun of the show is seeing a character like Erlich Bachman, who's played by T.J. Miller, who is very full of himself, a little bit of a buffoon, but he does have his moments throughout all three seasons of Silicon Valley where he demonstrates that he has a skill set that is valuable and helpful to Richard and Pied Piper.

Lewis: Yeah, and in the show, they allude quite a bit to the Jobs and the Wozniak, needing both sides of the business brain, and not just relying heavily on the technical skill set. It is not very often that you get a founder and visionary like Mark Zuckerberg who also gets the business. And even with Zuckerberg, he brought in some great talent to facilitate them becoming this immensely successful company.

Hill: He's a phenomenal CEO, but I think he would be the first to say that Sheryl Sandberg, bringing in Sheryl Sandberg as chief operating officer... if you look at what she did before Facebook(NASDAQ: FB), very much a traditional management background, and this steady hand. And, not the companies need to go out of their way to cater to Wall Street, because there have certainly been a lot of great businesses over time that have largely ignored Wall Street and the wishes of Wall Street analysts, but I think it does send a positive signal to analysts, to investment banks, etc., when they see that type of hire, when they see Ruth Porat, who was hired away from Wall Street, or Sheryl Sandberg, with her background, or an Eric Schmidt.

Lewis: And, I'm going to play devil's advocate here -- it doesn't always work. Look at what happened with Twitter(NYSE: TWTR). Twitter plays out very similarly to what happens in the show with Pied Piper. You have Ev Williams running the show, he goes on paternity leave, they bring in COO Dick Costolo, who had been hired in, he was not part of the founding team there, and he runs the company for four or five years. He brings them public to debatable success. The vision hasn't been clear, the results have not been great, and now you have Jack Dorsey, a founder, back at the helm. That's not all that different from what plays out in the show, where you have Richard Hendricks get unseated because they want a CEO-for-hire type person, someone who went to business school, has written case studies all of this stuff. His name in the show is Action Jack Barker.

Hill: Jack Barker!

Lewis: Excellent character. And they disagree on pretty much everything. He's very growth-focused, very "what's going to improve the bottom line and raise the share price and valuation of the business," and Richard is obsessed with the product, and wants to make the best technical specs. And they fight and fight and fight, and eventually, it plays out well for Richard. He gets his way, and they wind up, maybe begrudgingly, giving him back his CEO seat. But, another art imitating life imitating art kind of workaround there.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any stocks mentioned. Dylan Lewis owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.