The Founder's Advantage: Paul Graham's Case for "Founder Mode"
How Do Startups Manage? Paul Graham Has the Answer: Founder Mode
Paul Graham, co-founder of Y Combinator, recently published an article on Founder Mode, which went viral, even getting a nod from Elon Musk! In the article, he shares insightful thoughts on managing startups—an absolute must-read for every founder.
Tech Giants Are in Hot Discussion! What Is "Founder Mode" and How It's Shaping a New Wave in Entrepreneurship
Recently, the tech world has been buzzing with talks about one phrase: Founder Mode.
It all started when Brian Chesky, co-founder and CEO of Airbnb, candidly shared his experiences during a talk. As the company grew, many advised him to "hire talented people and give them the freedom to get the job done." At first, Chesky took this advice, but the results were less than satisfactory.
"The less I personally dealt with issues, the more I ended up getting caught in even bigger problems. By the time I needed to step in, the workload had multiplied tenfold."
He quickly realized that too much delegation could lead to the company’s collapse. As a result, he changed his management style and began actively engaging in the company’s operations to ensure it stayed on course. This approach reminded him of Steve Jobs, who was known for obsessing over every detail in product design, user experience, and marketing.
Following the talk, Paul Graham, co-founder of YC, shared Chesky’s insights on his blog, coining the term "Founder Mode." Graham argues that founder-driven leadership is more beneficial for a company’s growth than relying on hierarchical management by professional managers.
The article sparked a massive response in Silicon Valley. Shopify founder Tobias Lütke quickly posted on social media platform X, stating that he had a similar experience and emphasized that "all industries should adopt the founder mode." Tesla founder Elon Musk also shared the article, calling it a "must-read."
Tobias Lütke, founder of Shopify, posted on X, stating that he faced the same situation and urging that "every industry should have companies adopting the founder mode."
Tesla founder Elon Musk shared the article, calling it a "worth reading"
Vercel’s VP Jared Palmer also posted Kanye West’s years-old tweet, joking that it was Kanye who invented Founder Mode.
I no longer have a manager. I can't be managed. - Kanye West @Ye
The core of this discussion revolves around: What role should founders play when a startup reaches a certain scale? Should they dive into every detail of operations, or shift towards strategic planning and decision-making to drive the company’s growth?
Traditional business thinking leans towards the latter. As companies grow, founders typically delegate daily operations to subordinates while focusing on major strategic decisions.
However, after Graham’s article, the voice supporting the "founder mode" has grown stronger in Silicon Valley.
The key question in this debate is: when startups reach a certain scale, should founders deeply engage in the company’s day-to-day operations, or shift towards macro-level strategic planning? Traditional views favor the latter, suggesting that founders should hand off daily operations to subordinates after company expansion and focus on strategy. Yet, Graham’s article has given rise to a growing call for "founder mode."
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Founder vs. Professional Managers
In the article "Founder Mode," Graham points out that Chesky’s approach has proven successful, with Airbnb’s cash flow profitability ranking among the top in Silicon Valley. He highlights that the traditional way of managing large companies—teaching founders to become professional managers—doesn’t suit founder-led companies.
Chesky believes there are three reasons why founders are better suited to managing their companies than managers:
"Founders are like the parents of the company; they have the complete freedom to make changes; and they know how to reshape the company."
During the pandemic, Airbnb suffered significant losses and eventually withdrew from the Chinese market. As the only remaining founder, Chesky led the company through large-scale layoffs, realigned the business focus, and tried to turn things around. However, the shadow of the global economic downturn still looms, with Airbnb facing the dilemma of growing revenue but falling profits: second-quarter revenue grew 11% year-on-year, but net profit fell 15%.
Silicon Valley: The Holy Land for Founders
Since the 2000s, the power of founders in Silicon Valley has gradually strengthened, with many tech giants adopting the founder mode, including Apple, Nvidia, Tesla, Meta, and OpenAI.
However, founder mode is not without its risks. As seen with FTX’s founder Sam Bankman-Fried and Theranos’ Elizabeth Holmes, the mode can lead to the downfall of companies.
The Struggle Between Founders and Capital
As startups move toward IPOs, founders often face fierce battles with capital. Many tech companies have adopted dual-class share structures to ensure founders and core teams retain significant control. This trend began with Google’s IPO and was later adopted by many tech giants.
Since the generative AI field began booming, AI startups like OpenAI and Anthropic have also been exploring new governance structures, which could impact the future startup environment and founder mode.
In public markets, the struggle between founders and capital often revolves around governance rights. For example, Google adopted a dual-class share structure during its IPO in 2004, allowing founders and top management to retain more voting power. This strategy ensures long-term strategic stability amidst market fluctuations and minimizes short-term financial pressure.
Google founders Larry Page and Sergey Brin explicitly stated in their IPO letter that the purpose of the dual-class structure was to protect the founders' vision. They wrote, "We believe this structure allows Google to retain many of the advantages of being a private company while operating as a public company." Though it stirred shareholder dissatisfaction, it undeniably helped Google stay ahead in the fiercely competitive tech market.
Subsequently, tech giants like Facebook (now Meta), Snap, and Airbnb also adopted similar stock structures to protect founders' and management’s control. Notably, these structures often include "sunset clauses," which gradually reduce founders' control over time or when certain conditions are met, eventually equalizing voting rights with common shareholders.
However, this structure is not foolproof. Many companies have had to balance founder control with shareholder interests under Wall Street pressure. For instance, Pinterest adopted a "sunset clause" in 2020, stipulating that founder power would gradually diminish as their shareholding decreases—a compromise with shareholders.
AI Startups and New Governance Models
Since the rise of generative AI technology, AI startups in Silicon Valley have also faced governance model decisions. For example, OpenAI initially operated as a non-profit organization. However, with rapid AI development and growing commercial demand, the company is exploring the possibility of restructuring to attract capital more flexibly.
On the other hand, AI startups like Anthropic, xAI, and InflectionAI have registered as Public Benefit Corporations (PBC), emphasizing societal impact over shareholder responsibility. This governance model downplays their obligation to shareholders and instead highlights their mission to benefit humanity. The governance models these companies choose may lead to new considerations and challenges for founder mode in the future.
Conclusion: The Future of Founder Mode
"Founder Mode" is undoubtedly changing the rules of the game for tech companies and the investment market. This mode emphasizes founders' control over the long-term vision of the company and values their deep involvement. However, this mode is not suitable for every company or founder. As Paul Graham said, founders must find a delicate balance between delegation and hands-on involvement.
As the tech industry evolves rapidly, the pros and cons of founder mode will continue to be tested by the market. In the future, with the advancement of emerging technologies such as AI and blockchain, founders’ roles in company governance may become even more diverse, and innovative governance models will emerge. Silicon Valley, the holy land of entrepreneurship, will continue to serve as a testing ground for founder mode, constantly nurturing the next generation of corporate giants.
Author: Erik Chen
Erik Chen, founder of Tenten, brings over 15 years of experience in advertising, technology, and startups. He is passionate about AI, Blockchain, UX, product design, and marketing, and he actively shares his insights through writing and speaking. Erik’s work at Tenten involves developing innovative solutions for a range of organizations, from startups to enterprise.
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