Sarah Lacy just wrote a fascinating TechCrunch post about the excess of candidates for Digg’s CEO position, which she attributed to new secondary markets for execs at companies like Zynga and Facebook to sell their stock, become those companies have gone public.
That makes a little sense to me, but not a lot. What keeps an executive working at a startup is a vesting schedule, not liquidity: when you get your stock is more important than when you can sell it. If anything, a secondary market should persuade most executives to stay at a startup, because they know what the stock they’re vesting is worth.
And, regardless, most of the executives are coming from publicly traded companies. The two companies on Sarah’s mind yesterday, Digg and Grockit, hired executives from Amazon and Google.
Something else is going on. First there are fewer companies that need executives. The 1990’s presumption that every founder would be replaced has given way to the founder-king, with investors eagerly positioning themselves as founder-friendly.
For evidence of this, look no further than the names of the new breed of investors: Peter Thiel’s Founders Fund, Andy Sack’s Founders Co-Op, Chris Dixon’s Founder Collective. Or look at the founders who came back to run their companies. Steve Jobs and even Jerry Yang turned out to be much better executives than their predecessors.
The entrepreneur-CEO is a good trend. An entrepreneur’s ideas, and the passion and ability to build them into products, are what matter.
But it’s not just that founders are the only executives a company needs. It’s also true that many startups never need executives at all. Fewer companies are being built into operationally intensive businesses. You don’t need a financial wizard if you aren’t trying to generate large-scale profits, and you don’t need a management expert if you aren’t hiring many people.
Meanwhile, the supply of executives has increased even as demand has decreased. Silicon Valley is getting older. When I first started out, Silicon Valley had just begun importing tens of thousands of college graduates every year; San Francisco became a giant college dorm. Nobody was over 30 in 1997 because so few 20 year-olds had been working in software in 1987.
The 1990’s VC was considered a visionary for recruiting executives from sclerotic utilities, like telephone companies, or dysfunctional Hollywood studios. In fact he was just desperate.
Now that giant class of 1997 college recruits is approaching middle age, which explains why so many are having children, why so many want to become angel investors, and why so many feel ready to run companies. Many would-be second-time entrepreneurs are trying to come up with the new, new thing. Google, Microsoft and Yahoo are full of people who think they know how to run a startup because they ran a division.
Sometimes this is true, sometimes this isn’t. But I think the reason there are so many CEO candidates lies in the demographics of supply and demand, not secondary markets.