Thursday, October 6, 2011

OTR: The Founder's Touch

I've started collecting books about the founders of companies. Recently, I read Paul Allen's memoir. Before that, I had read about Google. A book about Hewlett-Packard awaits. A couple of years ago, when I started at the Day Job, I was given a copy of a book called, "The Founder's Touch". It was a book about Paul Galvin, the founder of Motorola. With the death yesterday of Steve Jobs, I spent the commute home reflecting upon the impact and importance of a company's founder -- the founder's touch.

I had the experience of working for a company a few years ago where the founder was still running the business. The company had a great culture and spirit. A wall in the office was covered with professional portraits of the children of employees. The wall was called, "The Heart of Whittman-Hart". It was a touch of the founder. Early on, those pictures were paid for directly by the founder. Unfortunately, the company went public shortly after I got there and the founder effectively lost control of his company. Once it became a public company, the focus shifted from investment in growth opportunities and entrepreneurship to a focus on billing and pipeline. The next company I worked for was a partnership, run by people who were hired by the founder. A key perk was free breakfast and lunch (with leftover lunches for people working late). That was the founder's touch because he wanted people to be near the office where they could be billing instead of driving all over foraging for lunch outside. It too, lost its culture when it became a public company. The Day Job has also struggled. The founder and his son led the company through many years of tremendous growth. They had a long view of investments and R&D. Unfortunately, when the grandson of the founder took the reins, the marketplace had changed and the expectations of the market had also changed. He was out and the founder's family was out. For a variety of reasons, the Day Job is much smaller than it once was. I suspect that this would not have been the founder's choice.

I never begrudge a person who creates a company. As far as I'm concerned, they took the risks and invested their own money and sweat to create the company, so who cares what they take out of it? I really don't mind that Bill Gates is one of the richest people on the planet -- he and Paul Allen created Microsoft and had the guts, brains, and luck to make it an extraordinarily successful company. I feel the same way about Steve Jobs. Sergey Brin and Larry Page are in the same boat. Bill Cosby once had a routine where he tells his son, "I brought you into this world, and I can take you out." That's the prerogative, frankly, of a founder. But strangely, the ones who get beyond the initial growth do whatever they can to create a legacy and sustain the company that they created. There's certainly ego involved, but it is also likely a sense of responsibility.

I fear, however, that the days where someone creates a company in the garage (or the basement here in wintry Chicago), finds a market, grows exponentially, and runs the company until he or she dies, are numbered. What we see too often today is that the garage thing happens, but the founders find venture people with money and a desire to get a high immediate return on investment. In the old days, founders would drive through the tough early times with their own money and ideals. Now they collect checks, promote the business at a breakneck pace, and try to cash out before it falls apart. If they get beyond that point, they take the company public, everyone in on the ground floor makes a lot of money, and the company implodes a short while later. That's why Jobs and Gates are celebrated. They managed to get their companies to success without cashing out first.

Part of the problem is the marketplace in general. Wall Street over-rewards short term results and punishes long-term success. Years ago, buying stock was an investment in a company and the investors understood short term risks for long term gains.Today, the market demands short term gains at the expense of long term success. And investors hate risk... they want their money to grow quickly without any risk. Any idiot can achieve short term gains in a company... cut employees, reduce capital spending, cut research and development, sell off parts of the business. These things make the books look good this quarter, but damage the company over the long haul. Unfortunately, that's what "investors" and market analysts demand today. No CEO is going to stand up in an Annual Meeting and tell investors that the investors are going to share in some short term pain while he or she invests in opportunities that may pay off ten or twenty years down the road, no matter how big that payoff might be.

When I look at the Day Job, I see a company that made a nearly 25 year bet on cellular telephone technology. Cellular development started in 1968, the first call was made in 1973, the FCC approved the technology in 1983 and the cell phone hit the mainstream in 1993. If you were a CEO and told Wall Street today that you had a great idea and that idea would start making a little money in the late 2020's and would be commercially viable in 2036, you'd be run out of the company by next Tuesday. A founder might be able to make that bet, but he'd make that bet out of his own pocket.

I watch these "Occupy Wall Street" people and shake my head. I read their list of "demands". They are no different than Wall Street. They want immediate short term results at the expense of the long term -- and with no risk or investment by the beneficiaries. None of them have the founder's touch.

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