YC Founder's Latest Viral Silicon Valley Essay: Founder Mode May Be the Better Operating Model for Startups | Z Talk

Recently, YC founder Paul Graham's latest essay, Founder Mode, has gone viral across Silicon Valley's venture capital circles. Many founders sharing it said they felt deeply seen; Elon Musk reposted it with the comment "worth reading," and Brex CEO Pedro Franceschi said that switching to founder mode was the best thing he'd done at Brex in years.

Graham argues that compared to the traditional, modularly-designed manager mode, founder mode requires deep founder involvement and breaks the rule that "a CEO can only interact with the company through their direct reports."

"Despite opposition on social media, as a small company, we obviously need founders to be hands-on far more than established giants that have already built competitive moats. If you yourself can't figure out some core problems, how can you expect to find someone brilliant enough to solve them? At that point, you should first ask yourself: Why me?

Certain critical matters that require a founder's personal investment and decision-making often cannot be outsourced, because the founder possesses the strongest psychological safety. If you hand these tasks to a team to execute, there's a fundamental misalignment of risk and reward. If things go well, the company profits and grows, but employees see limited upside; if things go poorly, team members lose their jobs and face the risk and responsibility of failure. The risks and rewards borne by each side are clearly not on the same level.

Moreover, today's market environment changes rapidly, technological progress advances by the day, and user preferences keep shifting. Relying on past experience to meet future challenges is nearly impossible. Even if professional managers are capable of running the company, founders themselves must maintain constant vigilance and a sense of crisis, ensuring they don't get eliminated in fierce commercial competition."

— Recommended by: Xiaoyu Wang, founder & CEO of Castbox, a ZhenFund portfolio company

By Paul Graham

At a YC event last week, Brian Chesky gave a talk that impressed everyone present. Most of the founders I spoke with afterward said it was the best talk they'd ever heard. Even Ron Conway, the well-known Silicon Valley angel investor who usually takes notes, forgot to this time. I won't try to reproduce the entire talk here, but I want to discuss a problem it raised.

Brian's topic was that the conventional wisdom about how to manage large companies is wrong. As Airbnb grew, well-meaning people advised him that he had to run the company a certain way to scale. They told Brian to "hire good people and give them plenty of room to operate."

Brian followed this advice for a while, and the results were disastrous. He had to figure out a better way himself, partly by studying how Steve Jobs ran Apple. So far, this approach seems to be working—Airbnb's free cash flow margin is now among the highest in Silicon Valley.

Many in the audience were among the most successful founders we've funded, and they said they'd had similar experiences. They'd received the same advice as their companies grew, and not only did it not help—it caused damage.

Why was everyone giving founders bad advice? This puzzled me. After some thought, I finally found the answer: What they were being told was how to run a company they hadn't founded—that is, how to manage like a professional manager.

But this doesn't work as well for founders. In fact, it works badly. Founders can do things managers can't, and not doing them is a mistake for founders because it goes against their intuition and experience.

In fact, there are two different ways to run a company: founder mode and manager mode. So far, even in Silicon Valley, most people have assumed that as a startup scales, founders must switch to manager mode. But we can infer the existence of another mode from the disappointment of founders who tried manager mode, and their success after escaping it.

As far as I know, there are no books specifically about founder mode yet. Business schools don't even know it exists. So far, we only have experimental patterns that individual founders have worked out for themselves. But now that we know what we're looking for, we can explore this mode.

I hope that in a few years, founder mode will be as well understood as manager mode. We can already guess that they will differ significantly in some ways.

In manager mode, they're taught to run companies like modular design, treating branches of the org chart as black boxes. You tell your direct reports what to do, and let them figure out how. But you don't get involved in the details of what they do, because that would be micromanaging—a taboo in management.

"Hire good people and give them room to operate" sounds reasonable, doesn't it? Yet in practice, from what founders report, what often happens is: you hire professional con artists and let them destroy your company.

One common theme I noticed in Brian's talk and in conversations with founders was "being deceived." Founders felt manipulated by both sides: by people telling them they had to manage like professional managers, and by the employees who worked for them when they did. Normally, when you find everyone around you disagrees with you, you assume you're wrong. But this is a rare exception. Investors who haven't founded companies don't know how founders should run them, and among C-level executives are some of the world's most skilled impostors [1].

Whatever founder mode consists of, one thing is already clear: it will break the rule that "a CEO can only interact with the company through their direct reports." In founder mode, skip-level meetings will be the norm rather than an unusual practice. And once you abandon this restriction, you have countless possibilities to choose from.

For example, Steve Jobs used to hold an annual retreat for the 100 people he thought were most important at Apple, and these weren't the 100 highest-ranking people on the org chart. Imagine the determination required to implement this at an ordinary company.

Yet how useful is this approach? It can make a big company feel like a startup. If these retreats hadn't worked, Steve probably wouldn't have kept holding them, but I've never heard of another company doing this, so we still don't know whether it's a good idea or a bad one—which reflects how little we know about founder mode [2].

Obviously founders can't continue managing a 2,000-person company the way they did when it had 20 people—there must be some degree of delegation. Where the boundaries of autonomy lie, and how clear they are, probably varies by company. Even within the same company, these boundaries may shift over time as management gradually earns trust.

So founder mode will be more complicated than manager mode, but also more effective. We've already seen some clues from the explorations of individual founders.

Actually, another prediction I have about founder mode is that once we figure out what it is, we'll find that some founders were already largely practicing it. Though what they were doing was regarded by many as eccentric, or even bad [3].

The fact that we know so little about founder mode is encouraging. Look what founders have already achieved, despite operating against a headwind of bad advice. Imagine what they'll do once we can tell them how to run their companies like Steve Jobs instead of John Sculley.

Notes:

[1] A more diplomatic way to put this is that experienced C-level executives are usually very good at managing up. I don't think anyone who knows this world would disagree.

[2] If this retreat practice becomes widespread, even at mature companies full of office politics, we could quantify a company's senescence by the average depth in the org chart of those invited.

[3] I have another, less optimistic prediction: once the concept of founder mode is established, people will start misusing it. Founders will use founder mode as an excuse not to delegate things they should delegate. And professional managers who aren't founders will decide to act like founders. To some extent this might work, but when it doesn't, the results will be messy; modular management at least limits the damage a bad CEO can do.

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