How should a C.E.O. operate?

By Geoffrey Moore

Author – The Infinite Staircase: What the Universe Tells Us About Life, Ethics, and Mortality

The September 3 posting of Dealbook with Andrew Ross Sorkin led off with a great topic: How hands-on should founders be in their companies? As Sorkin notes,

In the framing of Brian Chesky, the Airbnb co-founder and C.E.O., and Paul Graham, the Y Combinator co-founder, it comes down to “founder mode” versus “manager mode.”? It’s not a new question — and it draws on longstanding examples like Steve Jobs — but it has taken on fresh significance as start-ups struggle with how to grow while keeping antsy investors happy.

This relates directly to the Zone to Win and the discipline of zone management, so I want to riff off of Sorkin’s column in a Point/Counterpoint way to tease out what I think are the key issues.?

My core thesis is that “founder mode” is centered in leadership and is critical to the operating models of the Incubation Zone and Transformation Zone, and that “manager mode” is centered in management and is critical to the operating models of the Performance Zone and Productivity Zone.? This is an and, not an or, situation—both are mandatory—but who is in charge where can be up for grabs.

My view, however, is that it should not be.? The CEO needs to call the shots when it comes to dealing with disruption and catching the next wave, be that through incubation or transformation.? In parallel, the ELT executive suite needs to be in charge of current lines of business in established categories, delivering performance and productivity.? The ELT reports to the CEO, so the latter has oversight over the Performance and Productivity Zones and is accountable to the board of directors for their success, but this should largely be accomplished through hiring and promoting the most talented operators, not standing shoulder to shoulder with them on the front lines.

As for the struggle start-ups experience between how to grow and keeping antsy investors happy, the key point is that growth investors are willing to accept short-term shortfalls in financial metrics in order for the enterprise to invest in incubation and transformation initiatives to catch the next wave.? Value investors are not.? They prefer predictable execution of performance and productivity initiatives that leverage the inertial momentum of established categories.? When a high-growth start-up goes public, they get reviewed by financial analysts who are inevitably focused on performance and productivity, and it takes all the narrative skills that the CEO and CFO can muster to build support for any kind of transformation.?

Graham, as reported by Sorkin, tells a somewhat different story:

The prime example Graham cited was Chesky. The Airbnb boss shared his story at a recent Y Combinator event, and also discussed it on a podcast: “The less hands-on I was, the more I got sucked into problems. And by the time I got sucked into a problem, it was like 10 times as much work,” Chesky said on the podcast.

Instead, he decided: “I’m going to be involved in every single detail. And Airbnb is not going to do anything more than I can personally focus on.”

That has gotten results, Graham wrote, with Airbnb now having some of the best free cash flow in Silicon Valley. Then again, Airbnb’s stock price is 31 percent below its 52-week high.

Okay, there’s a lot to unpack here.? Brian, in my view, is a great CEO leader.? The fact that he got sucked into a lot of problems, I suspect, is not because his team does not know how to manage but because the category itself is transitioning from hypergrowth to growth, the competition is catching up, the regulators are weighing in, and so there is still a lot of pathfinding to do.? As these paths become more established, he should deliberately step away from those operations to free himself for the next wave of changes.? The fact that the company’s stock price is 31 percent below its 52-week high, given that Airbnb has great free cash flow, is far more likely to be due to category dynamics than management execution.

Sorkin goes on to list a number of well-known examples of CEOs, in addition to Jobs, who have taken a very hands-on approach to management, including Jensen Huang, Elon Musk, Mark Zuckerberg, and Sam Altman.? All, however, are living in the midst of categorical disruption, where leadership takes precedence over management.? That is because categorical stability and inertial momentum, which are the prerequisites for management success, are simply not there yet.

Sorkin also mentions Howard Schultz, who built Starbucks from a local Seattle coffee chain into a global colossus and was famously hands-on, also fits the mold.? But here I think we have a CEO who has not orchestrated the transition to management well, witnessed by the volatility in its stock price for the first half of this decade, in a category that is not under disruption.

Finally, there are a handful of examples at the end of the column that can serve as litmus tests for zone management principles:

Dan Rose, who held leadership positions at Amazon and Meta, wrote that Jeff Bezos and Zuckerberg “were both micro-managers, deep in the details of the product and business. They never set expectations of autonomy, and they fired anyone who resisted their oversight.”

Amazon has never stopped disrupting, and the core of its innovation engine, and Bezos’s personal genius, is an incredibly deep and fine-grained inspection of established processes which underpins their radical reengineering to generate astounding competitive advantage.? Meta is more of a mixed bag, but again, with a quarter of the Earth’s population on the platform, it is in the midst of every disruption on the planet.? The idea that management should have autonomy under such conditions is ludicrous.

Others said there were nuances. Jessica Lessin, the founder of The Information, argued that founders do need capable managers, noting that Jobs relied on Tim Cook to oversee the vast and intricate manufacturing operation that became one of Apple’s most crucial assets.? A start-up investor, Henrik Torstensson, agreed that execution mattered, citing Microsoft under Satya Nadella as a “Hall of Fame example” of manager mode done right.

In both instances, Apple and Microsoft are leveraging well-established businesses in personal computing, supplemented by Apple’s success in smartphones and media distribution, and Microsoft’s in business applications and, most recently, cloud computing, while at the same time engaging with the category disruption of AI.? This calls for a balance of leadership and management, which is Satya’s gift.? Tim has a tougher hand to play because Steve is an impossible act to follow.? But since they are running two of the most valued companies on the planet, I think they are probably doing OK.

Stepping back from this whole line of thinking, the key takeaway is that the discipline of zone management is well-equipped to deal with these challenges.? The first question to answer is not who should be in charge, but rather, how should we tackle this?? What zone, in other words, offers the best operating model for coping with the challenges at hand?? Once we decide that, then we know whether leadership or management gets the primary nod, and, thus, whether the CEO or the ELT should take the reins.

That’s what I think.? What do you think?

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