Time for Social Company CEOs to Step Aside?

Having a founder stay on as CEO doesn't always work out

   

Marc Andreessen is a tech legend, having created one of the orignal browsers, founded Netscape and launched a pioneering cloud company. Now he’s a venture capitalist at Andreessen Horowitz. As should be no surprise, Andreessen has some interesting viewpoints. For example, he believes that franchise tech companies often succeed by having their founders remain as CEOs.

Just look at some examples: Amazon‘s (NASDAQ:AMZN) Jeff Bezos, Oracle’s (NASDAQ:ORCL) Larry Ellison, Microsoft’s (NASDAQ:MSFT) Bill Gates, Salesforce.com’s (NYSE:CRM) Marc Benioff and Electronic Arts‘ (NASDAQ:EA) Trip Hawkins. In fact, it’s hard to imagine that any of these companies would have reached their greatness without these leaders. Andreessen would say that the key reason for success was these execs’ obsessive focus on the product.

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Yet Andreessen’s thesis is looking somewhat weak lately. If you’ve invested in the IPOs of companies like Facebook (NASDAQ:FB), Zynga (NASDAQ:ZNGA) or Groupon (NASDAQ:GRPN), you probably want their CEOs to look for another gig.

The irony is that the top-performing social IPO is LinkedIn (NYSE:LNKD), which has a professional CEO. His name is Jeff Weiner, and he took the helm in 2008. Before this, he was a venture capitalist as well as an executive at Yahoo (NASDAQ:YHOO). Keep in mind he never founded a tech company.

But this hasn’t mattered. In his tenure at LinkedIn, Weiner has evolved three core business models, expanded operations into foreign markets and continued to innovate at LinkedIn.

As for the CEOs of his social media peers, their strategies have been more one-sided. For example, Facebook’s Mark Zuckerberg has been mostly concerned about the product. According to the IPO prospectus: “Simply put: we don’t build services to make money; we make money to build better services.”

What about Zynga’s Mark Pincus and Groupon’s Andrew Mason? They’ve gone to the other extreme. That is, their focus has been primarily on monetization. While this has resulted in substantial revenues, the problem is that the products have suffered. Zynga’s games continue to underwhelm, and Groupon’s technology remains old school.

In today’s tech market, it’s too simplistic to say that the key to creating a breakout company is to have the founder be the CEO. If anything, this can be a liability. Founders are often overly focused on just one part of the business. While this may be good in the early stages of a company, it could prove harmful when the operations scale.

In other words, Weiner’s approach — to balance the product and business model — is spot-on. It’s something that Zuckerberg, Pincus and Mason would to well to learn.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/time-for-social-company-ceos-to-step-aside/.

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