CEOs of successful tech companies are, surprisingly often, not as competent as they could be. To put it differently, the best companies you see around are not necessarily run by the people most competent to run them.
Think about a time when you looked at a product, and it was just clear that it wasn’t as good as it could’ve been. For some products, you get this tacit feeling that yes, it does generally work, and yes, it does look aesthetic, but something is still not quite there. It’s an implicit feeling, and often hard to put it into words. This can be a sign of a phenomenon playing out – one related to how the company was created – which is the topic of this blog post.1 You’d think that the best tech company in an open, free market economy would also have the best product. But do they? Not quite. Even if we take aside clear monopolies, predatory companies and cronies, there’s still plenty of counter examples that prove otherwise. To understand why, one needs to go back to the origin – the creation of these companies, and the kinds of people that create them.
To understand the circumstances of tech company creation, we need to evaluate the selection criteria and incentive structures. Looking at the criteria for “successful tech CEOs,” it’s roughly two things: 1) being in a position to think about and start a company in the first place and 2) the company surviving long enough to become default-alive, grow, and become successful. This looks simple as a rule, but is extremely hard to do in practice. Why? On average, companies take a minimum of 7-10 years to become successful, and realistically, the road that leads to that is full of risk, second-guessing and uncertainty. Risk as in, “multiple major junctures where you have to risk your whole company’s future on a fork in the road, and if you don’t risk it you’re guaranteed to lose, and if you do, you get to have a chance that it’ll work.” And still on top of this, the companies that succeed on a more grand scale need to get a string of these right, not just one.
Doing all of these requires an immense amount of belief and pure faith in a founder, and I think the reason for this isn’t that “it’s a better way to run a company” – rather, I think the real reason is that it’s the only reasonable reaction of the human psyche to an extreme environment – the only way to run a company and not go crazy.
How does this all connect to competence? The really smart people – the ones with a high intellect, the ones who see through all possibilities, are acutely aware of the risks, the many moving parts outside of their control – the people who would logically be most fit to run a company – for them, it takes an immense amount of mental toll to live with that pressure day-to-day. And if you can’t endure that toll, you won’t be able to work on it for extended periods of time, and as a result won’t make it until the company succeeds. The only real way to sustain this work over a long period is to have very high internal self-belief, almost to the point of being delusional.
This is such an important factor that “immense self-belief” is the primary filter for good founders. It’s the primary filter in the sense that, if you don’t have it, you don’t even have a long-term chance of excelling in being “smart”, in strategy, product sense, etc2.
There’s ample anecdotal evidence for this idea, and it feels as if there’s a sort of unwritten consensus among experienced investors that this is the case. You see this in tech cultural traces e.g. the “reality distortion field” from Apple, or the proverbial phrases that permeate Silicon Valley such as “backing the bold”, “man in the arena”, or “founder charisma.” And for those with an eye for practicality, the fact that equity-pooling (where founders exchange many 1% equity pieces with each other to de-risk) among promising startups doesn’t work also supports this idea. Many promising founders are so confident (delusional, perhaps) in their venture succeeding that they refuse to poor and exchange any equity of their startup. After all, to them, there’s no risk to mitigate in the first place.
UPDATE: A common question I’ve received in response to the original post has been to give real-world examples. For me, the case that had been top of mind while writing this was Airbnb. It’s a typical Silicon Valley success story, and the product, as you’d expect, is perfectly smooth – or so it appears at first. On a deeper look, there are obvious flops. As of 2024, there’s no functional offline mode in the iOS app – for the number one travel app in the world? For the majority of international travel, users land in a new country, often with no internet connection when checking in. The messages functionality sort of works, but has many small issues. The app has perfectly timed animations when selecting listings – but the actual information about the listing itself is neither cached nor pre-fetched, so there’s a 1s lag for every 0.2s of smooth animation whenever a user taps on a listing. Having an animation is surely important, but interactivity and showing a listing immediately would be an even more important thing. There’s likely more – these are just a few of the more obvious examples (without going into customer support, listing management and more nuanced topics). User sentiment of the product seems to be largely mixed.
To be clear, this is not an critique of Airbnb specifically – I have friends there, and I’m sure it’s a good team with decisions made with good intentions. Notably, it has worked out amazingly well for the early team and early investors, and works well as a company. I’m bringing it up as an example here of a more nuanced phenomenon, and if anything, the team and the founders deserve respect as they represent boldness and optimism, which should always be celebrated above inaction.
After writing this in late 2024, I’m growing more perplexed over what’s happening here – there seems to be more. I’m sure founder selection (the topic of this post) is an important element. But there’s also the renewed conversation around “founder mode” now. The increasing product fatigue of everyday consumers. It may be an early zeitgeist, a wave of realization that something has gone off track in product and company running.
If you’re thinking about this, please reach out.