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The founder factor.

Ron Rosenberg, who covers the Boston's Globe's technology beat, raised an interesting point in a conversation a few days ago about the latest upheavals at Lotus. Lotus chairman Jim Manzi, Rosenberg points out, is one of the few chief executives of a major software company who isn't also a company founder. Founders tend to inspire some degree of automatic credibility with customers, employees, the press, and Wall Street, he adds; their successors usually aren't treated as kindly.

In Manzi's case, it's true that Lotus critics have long complained that the company's supreme leader is an ex-management consultant, not a technical wizard. But Rosenberg may have spotted a more revealing issue--the question of whether software companies in general have been able to transfer the founder's vision and authority to second-generation management.

So far, the track record for non-founders isn't good. We took a look at the 25 largest Soft*letter 100 companies last year, seven of which were run by non-founders:
Company Chief Executive* 89-90 Growth
Lotus Development Corp. Jim Manzi 23%
Autodesk Alvar Green 34%
Ashton-Tate Ed Esber 13%
Digital Research R.H. Williams 21%
Mediagenic Bobby Kotick -37%
Wordstar International Ron Posner -13%
Phoenix Technologies Ronald Fisher -32%
 * CEO as of 12/90

It's perhaps unfair to draw conclusions from such a small sample or to ignore other variables, but we do see a rough pattern. Almost every one of these companies has suffered recurring internal crises, loss of sales momentum, and confusion about product strategies. This year alone, Ashton-Tate and Digital Research lost their independence, Mediagenic plunged into bankruptcy, and Autodesk's founding CEO emerged from semiretirement to warn that the company could be facing its "last days" (Soft*letter, 8/25/91). Moreover, these seven companies were comparatively weak performers in the marketplace: They averaged a mere 1.3% growth during 1989, compared to an average of 64% growth for the rest of the Soft*letter 100's top 25.

Admittedly, a few of the chief executives on our list--Ron Posner at Wordstar, Ron Fisher at Phoenix, Dick Williams at DRI, perhaps even Manzi at Lotus--have had better luck at getting their companies back on track. But the successes of these second-generation CEOs have been largely financial; we rarely hear much noise from them about innovative product ideas, fresh marketing strategies, or interesting insights about the future of the industry. (Ironically, Jim Manzi has one of the richest social visions about personal computing we've ever heard, but he's been a reluctant evangelist even within his own company.)

This silence isn't surprising. Unlike entrepreneurs, who often launch companies in response to a compelling personal vision, professional managers typically are pragmatists. Their role is to build stockholder equity, respond to customers, and assemble a management team. If vision helps accomplish these goals, fine; otherwise, it's a speechwriter's job.

The standard textbook observation, of course, is that companies grow stronger once a professional management team takes over from the entrepreneurial founders. maybe so, but the evidence so far suggests that software entrepreneurs--even those who can't write a line of code-- are doing the best job of guiding their companies through the pitfalls and opportunities of a volatile marketplace. If the software industry treats second-generation managers with minimal respect, maybe that's not such an unreasonable prejudice.
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:informal study of software companies and their success with founders and non-founders as leaders
Date:Dec 26, 1991
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