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September 7th 2024

Your essential guide to global business and technology

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The Bottom Line

Your essential guide to global business and technology

Are founders better than managers?

Shailesh Chitnis
Global business correspondent

Startup founders need to be shapeshifters. At first they must be adept at pitching ideas to investors. As a startup grows, they need to become scrappy salespeople, hustling to win early customers. And the few founders whose startups survive into adulthood, have to transform once more, into savvy people managers. In my past life as an entrepreneur I found it difficult to make each of these transitions—and I was certainly not alone.

For years people have debated whether a founder or a hired boss is better equipped to lead a growing company. This week the discussion was reignited when Paul Graham, an influential investor and startup whisperer, wrote an essay championing founders. Graham argued that fast-growing companies thrive under a hands-on management style (which he called “founder mode”). He lamented that traditional managers, who rely too heavily on delegation and hierarchy, often steer companies toward failure.

The history of Silicon Valley is rich with examples of detail-obsessed founders who turned their startups into trillion-dollar giants. Apple and Microsoft soared under the leadership of Steve Jobs and Bill Gates, respectively. But they have also done well under Tim Cook and Satya Nadella, both of whom are seasoned executives. And many other founders stumbled as their companies grew. Jack Dorsey’s uninspiring tenure at Twitter (now X) and Travis Kalanick’s chaotic time at Uber are cautionary tales.

In November we crunched the numbers. Between 2018 and the end of 2021 the share prices of cloud-software companies led by their founders outgrew by a half those which were not. From 2022, however, that gap vanished. During the era of low interest rates investors favoured companies led by founder-bosses that chased aggressive growth, even if it meant burning cash. As interest rates rose, companies led by experienced operatives, which squeeze more cash from their sales, were more attractive to investors.

Perhaps the best leaders are those who can steer their companies to success irrespective of market conditions. These bosses would be in tune with every part of the business—from customers to costs. And they would have perfected the art of being detail-oriented without crossing into micro-management. But pluralism doesn’t make for a particularly snappy management mantra.

Where do you stand on this debate? Please write to us with your thoughts at: thebottomline@economist.com.

If you are an aspiring business, finance or economics writer, and would like to work for The Economist, we are inviting applications for our 2024-25 Marjorie Deane internships. Find out more here.

Fast fact: Among America’s 20 most-valuable tech firms, only three are still led by their founder.

Your preview of next week

Mark Doyle
Editor, The World This Week

Monday September 9th
Mario Draghi releases his long-awaited report into improving competitiveness and economic growth in the European Union. The former Italian prime minister and president of the European Central Bank has briefed members of the European Parliament about his findings. The reaction has been described as mixed, with the centre-right broadly in favour and other political groupings less so.

Apple unveils its latest products at an event with the headline “It’s Glowtime”. The company will launch the iPhone 16, though most of the attention will be on its AI innovations.

Google steps into a courtroom for the start of another trial, this time over claims that it has improperly monopolised the market for digital advertising. The company has described the case, brought by the Department of Justice, as a “meritless attempt to pick winners and losers in a highly competitive industry”. There is no jury. A single judge will eventually rule on the matter.

Elliott Management, an activist hedge fund, steps up its campaign to overhaul Southwest Airlines by holding a meeting with representatives from the company. Elliott blames the chief executive and the chairman for much of the carrier’s recent turbulent performance on the stockmarket, and wants them both to resign.

Tuesday September 10th
GameStop’s share price soared this year when an influential social-media trader known as Roaring Kitty restated his belief in the company’s value. The video-game retailer took advantage of the resulting stock spike to raise over $900m for its cash pile. The company reports results. It may provide more details of its plan to refurbish some stores with a retro theme, including selling older consoles, such as the Wii and Xbox 360, and ancient versions of games like Pokémon and Mario Kart.

Wednesday September 11th
Inditex announces its earnings. The owner of Zara clothing stores saw its sales rise by 7% in its previous quarter, year on year, with net profit up by 11%. The Spanish company has faced criticisms that its fast-fashion model is environmentally out of vogue, but it recently spruced up its green credentials by investing in Galy, a startup that is developing a process to produce cotton in laboratories from plant cells.

Markets will take a keen interest in America’s inflation data for August. The annual rate has been falling since March, dropping to 2.9% in July.

Argentina also updates its inflation figures. The month-on-month rate fell to 4% in July, the lowest it has been since January 2022 and down from 26% in December. The year-on-year rate in July stood at 263%. In December the government raised its tax on imports to 17.5% to help curb a fiscal deficit, but it has just slashed the rate to 7.5% in the hope that retailers will pass the cut on to consumers.

Thursday September 12th
Financial markets widely expect the European Central Bank to cut interest rates again. The doves at the ECB who support a cut are worried that a recession may be on the cards and think the labour market may be weaker than realised. A rate cut will be resisted by the bank’s hawks, who warn of rising inflationary pressures later this year.

Adobe announces its earnings. The graphics-software company has seen its share price flounder since the start of the year, after it abandoned a $20bn takeover bid for Figma, a fast-growing rival, amid competition concerns from regulators. The Federal Trade Commission is also suing it for unclear subscription practices, which the company denies.

Friday September 13th
Russia’s central bank has said that it expects the country’s “overheating” economy to cool next year. The bank meets to decide its next move on interest rates, having raised its main rate in July to 18%, the highest level in two years. With inflation still running high, the bank has said that its decision on rates cannot be taken as “predetermined”. It’s anyone’s guess what it will do.

From our Schumpeter columnist

Has Warren Buffett lost his touch?

Assessing Berkshire Hathaway’s recent performance

Warren buffett’s birthday present arrived early this year. On August 28th, two days before America Inc’s favourite great-grandpa turned 94, his bricks-to-motor-insurance conglomerate, Berkshire Hathaway, reached a market value of $1trn. It became only the eighth American company to claim that title and, as a child of the Nebraskan heartland, the first not to emerge from the west-coast tech scene. Its class-A shares now change hands for $715,000, 55,000 times what they were worth when Mr Buffett took control of a struggling textile mill in 1965. In that period the total return, including dividends, of the S&P 500 index of America’s biggest firms has risen just 400-fold. When Berkshire’s longtime shareholders wish Mr Buffett many happy returns, his customarily folksy response might be: right back at ya.

Amid all the celebrating, though, spare a thought for those who poured their savings into Berkshire shares more recently.

Read the full article →

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