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ACHIEVING SCALE

Lesson From Zynga: Not All Founders Make Good CEOs

It's official: Mark Pincus is stepping aside as CEO of Zynga. It's hardly surprising: Founders rarely make good public-company CEOs.
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Mark Pincus has left the building. 

Well, sort of. In a statement issued earlier today, Pincus, the founder and CEO of Zynga, the troubled gaming start-up that's been struggling to maintain its relevance ever since its IPO in December 2011, announced he's fired himself, and hired another industry veteran--Don Mattrick, a former head of Microsoft's Xbox division--as his replacement. 

"As I reflect on the past six years, I realize that I’ve had the greatest impact working as an entrepreneur with product teams, developing games that could entertain and connect millions," Pincus wrote

"I've always said to Bing and our Board that if I could find someone who could do a better job as our CEO I'd do all I could to recruit and bring that person in. I'm confident that Don is that leader."

He adds, "Going forward I'll continue in my role as Chairman and Chief Product Officer."

It's a rosy spin on a likely turbulent departure. Zynga has taken a beating in the press over the last couple of years, mostly over rampant employee turnover and complaints about the company's culture. Suffice it to say the company has a bad rap in the Valley. 

But despite what the critics will say about Pincus himself amidst his departure, I empathize with the guy: Founders don't always make the best corporate CEOs of publicly-held companies. In fact, they very rarely do. 

Consider the research from Noam Wasserman, a Harvard Business School professor, who has been studying founder-CEO succession for over a decade. Back in 2003, Wasserman published a fascinating report that detailed the succession histories of founders of 202 Internet companies. The paper, titled "Founder-CEO Succession and the Paradox of Entrepreneurial Success," brilliantly details how and why start-up founders tend to find it so difficult to stay CEO as the company grows and becomes more successful.

Of course, not all founders get fired by their board (or decide to fire themselves)--but it's more common than you might think. 

He writes:

Early on, Founder-CEOs who are adept at solving such challenges are often able to attract high-quality technical people, to manage the product development process well, and to help their organizations succeed at developing the product efficiently. However, once the initial product has been developed, the CEO's job broadens and gets much more complex, for he or she has to begin selling the product to customers, building an organization to support the product, and creating a marketing team.

This dramatic change in the contingencies faced by the firm often results in a mismatch between the skills of the technically adept Founder-CEE--whose skills were the key to success until now--and the new needs of the organization. The fact that the rate of succession increases immediately after the completion of product development suggests that company owners proactively assess the quality of this skills-contingencies fit and make CEO changes before a mismatch would cause problems.

Of the last 100 consumer Internet IPOs since 1996, only about 20 percent of the company founders remain as the company's sole CEO. Clearly, leaders like Jeff Bezos, Mark Zuckerberg, and Jeremy Stoppelman are the outliers--which is probably why they get so much media attention. But that media attention can create a false echo chamber that might lead you to believe that "most" founders are able to lead a publicly-held company. That's just not the case. Mark Pincus, quite frankly, is the more common example. 

The lesson here for founders is important. As Wasserman puts it: 

A founder's early passion, confidence, and attachment to a vision are often the magical ingredients that fuel the launch of a startup rocket ship. Visionary founders are usually the most central, irreplaceable players in a startup. Seen as the guardians of the corporate culture and the ones with deep ties to early employees and customers, such founders enjoy being the generals leading the troops.

However, these early strengths can become Achilles' heels if a founder is not aware of the downsides of passion and attachment. The downsides include things that the founder can’t do and things that the founder won’t do. On the "can't" side, founders fail to realize that success breeds a new class of challenges; challenges that require skills they do not have, such as scaling a larger organization or managing functions in which they haven’t worked. On the "won't" side, they stick with their initial ideas for too long, ignoring clear signals that it is time to pivot. They stick with their early employees and executives, even when those people are not up to the new challenges and demands. 

When news circulated on Monday that Pincus would be leaving the company, Zynga's stock price jumped about 10 percent, which makes you wonder: What if Pincus had removed himself even earlier? Would Zynga be in such doldrums?




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