The Problem With Founders
Moneyball is a fortnightly newsletter from Koble exploring the limitations of human decision-making and their implications for startup investing.
We’ve spent two years developing our groundbreaking algorithms, which discover early-stage startups that outperform the market and predict their probability of success.
This week
🧠 Mental Model #15 – Founder’s Syndrome – The Problem With Founders
📖 Investor reading – Tiger Global looks to cash in part of $40 billion portfolio – Patrick Collison in conversation Sam Altman – Learnings exploring the GPT/ LLM space
💬 Some tweets – “ChatGPT can pick stocks better than top fund managers” – The AI hype cycle handed investors exactly what they wanted – A job that you enjoy
The problem with founders
Founder’s Syndrome is not a medical condition, but it is part of the Startup Condition, and as such, worthy of study.
In the early-stages of a startup’s evolution, the influence of founders over the business is absolute. They are more-often-than-not performing multiple (critical) roles, most notably Head of Product, Head of Sales, Head of People, Head of Everything.
This concentration of power and decision-making is important, perhaps even critical. Indeed, Marc Andreessen and Ben Horowitz – two people who know something about supporting companies throughout their life-cycle – describe their ideal founder as “egomaniacal”.
Think Jobs, Musk, Gates, Bezos. And by the same token, Neumann, Holmes, and Bankman-Fried.
The cult of the founder is a thing in startup culture. Indeed software developer and activist Justine Tunney has argued for the founder's “right to rule”. Speaking of Linus Torvalds – the creator of the Linux kernel and distributed version control system Git – Tunney wrote:
"There’s no democracy in Linux. There’s no parliamentary system for deciding which features get merged into the kernel. There’s no political commissars who tell Mister Torvalds what he can and can’t do. He’s a literal dictator.”
At early-stage, high concentration of power is healthy for a startup, since the founder's level of influence is proportionate to the needs of the business.
But as startups grow and scale, some founders continue to wield enormous power over the smallest details. This mismatch can tip over into something disproportionate, unhealthy, and counterproductive. It’s this state of dysfunction that we call Founder’s Syndrome.
Founder’s Syndrome limits the potential of companies by defining their opportunity set to that which can be accomplished by a single person – however great they might be.
In other words, it’s not what the founder is doing that is the problem – it’s what the founder cannot do.
Micromanagement can be highly effective in small teams. But it doesn’t scale. The best CEO’s see themselves as companies within a company, and figure out how to scale themselves with simple but powerful heuristics – and the help of good people.
The trick lies in balancing intensity and reality distortion with pragmatism and perspective. As Scott Kupor says:
“Really successful entrepreneurs are able to willfully suspend disbelief, but then also figure out a way to not make themselves impossible to deal with.”
The first line of defence against Founder’s Syndrome is judicious governance. An experienced board can help to protect a founder from themselves, guiding them through the often unsettling experience of relinquishing personal influence in order to scale the collective power of the company.
This is a well-trodden ground for VCs. Investors spend a lot of time managing (and massaging) egos. But even strong governance doesn’t always succeed in mitigating Founder’s Syndrome. The board may conclude that the founder, however critical to the company’s journey to date, is impeding its progress and must be removed.
Implications for investors
The personal attributes required to take a startup from 0 to 1 are not necessarily the same attributes that will take a startup from 1-1000.
Founders spend a lot of their time in survival mode – growing up and out of that psychological state is difficult, and investors can play a pivotal role in supporting this transition.
Coaching is an interesting (and still under-explored) offshoot of the Founder’s Syndrome discourse. It feels like VCs are getting better at recognising the outsized role that brilliant-but-complex individuals play in building successful startups, but failing to take action by applying more sophisticated and humane techniques for aligning personal potential with commercial success. There’s a lot of wood left to chop when it comes to integrating coaching into the investment monitoring and portfolio value creation process.
A provocative thought – maybe Founder’s Syndrome is necessary; a structural component of the greatest startups and an antidote to the slow moving and sclerotic modus operandi of large corporations? Few could argue that egotism, grandiosity, and micromanagement are lesser sins than corporate buzzwords and bureaucracy.
Founders are special. They are the Promethean heroes of the Internet Age, stealing fire from the gods for the good (and sometimes, bad) of the people. But they are also human. To maximise financial returns, investors should nurture the extraordinary, complex, and gloriously flawed people behind them.
Work with Koble
At Koble, we’ve spent two years developing our groundbreaking algorithms, which discover early-stage startups that outperform the market and predict their probability of success.
We’re working with forward-thinking angels, VCs, family offices, and hedge funds to re-engineer startup investing with AI. If that resonates, get in touch.
Investor reading
🐅 Tiger Global looks to cash in part of $40 billion portfolio – Technology-focused hedge fund aims to return money to investors by tapping secondary market.
🎤 Patrick Collison in conversation Sam Altman – Stripe CEO Patrick Collison speaks with OpenAI CEO Sam Altman about the future of AI and more.
🎓 Learnings exploring the GPT/ LLM space – The pace of ML adoption by consumers and enterprises has reached an inflection point. Point Nine’s Louis Coppey shares his notes from an exploratory trip.
Some tweets
Parting shot
“It’s hard to do a really good job on anything you don’t think about in the shower.”
― Paul Graham
Regards from your [collaborative] startup investing AI,
About Koble
Koble is re-engineering startup investing with AI, applying quantitative strategies that have disrupted public markets to early-stage startup investing.