Human Capital Briefs

How Twitter’s Leadership Drama Explains its Success

November 15, 2013

One founder pushed aside in the early days of the company, his name scrubbed from its founding story. Another ousted from the CEO role by a co-founder, former boss, and seed investor. That founder himself booted from the CEO role later on by VCs, only to watch the company’s initial CEO return to the day-to-day operations alongside yet another chief executive, who joined well after the founding.

This is the origin story of Twitter, at least according to New York Times reporter Nick Bilton, whose forthcoming book on the subject is excerpted in the Times’ Magazine this week. And it’s a far cry, he asserts, from the version that the company and its current leadership have repeated to the press.

Bilton’s account of how the company actually got its start reads like high drama, but is it at all surprising? Not to those who’ve been through a few startups, or studied the challenges that founders face. Earlier this year, Harvard Business School professor Noam Wasserman published The Founder’s Dilemmas, the result of a decade’s worth of survey data on the challenges startups face. His work suggests that Twitter didn’t just succeed in spite of all the drama Bilton reports, but to some extent because of it. Put another way, the frequent swapping out of executive roles at different stages has almost certainly been key to Twitter’s success to date.

If that seems counterintuitive, consider the “fundamental tension” that Wasserman presents in his book (and in a 2008 article for HBR): founders can choose to be “rich” or to be “king.” Of course, they may end up neither, but Wasserman’s research finds they seldom end up both:

The “rich” options enable the company to become more valuable but sideline the founder by taking away the CEO position and control over major decisions. The “king” choices allow the founder to retain control of decision making by staying CEO and maintaining control over the board—but often only by building a less valuable company. For founders, a “rich” choice isn’t necessarily better than a “king” choice, or vice versa; what matters is how well each decision fits with their reason for starting the company.

The path to value typically requires a change in leadership, not because VCs are somehow nefarious, but because they recognize that different stages of a startup require different kinds of leaders. As Wasserman wrote for HBR:

A technology-oriented founder-CEO, for instance, may be the best person to lead a start-up during its early days, but as the company grows, it will need someone with different skills.

That fits Jack Dorsey, who became Twitter’s first CEO after playing the role of lead engineer as the product was being developed within co-founder Evan Williams’ previous company Odeo. Williams, who previously had sold Blogger to Google, later took the reins and managed the company for two to three years. Sure enough, the company’s growth soon warranted yet another shift, and the board put COO Dick Costolo in the CEO role.

These shifts are the stuff of truly riveting journalism, but aren’t surprising. As Wasserman summarizes:

When [founders] celebrate the shipping of the first products, they’re marking the end of an era. At that point, leaders face a different set of business challenges. The founder has to build a company capable of marketing and selling large volumes of the product and of providing customers with after-sales service. The venture’s finances become more complex, and the CEO needs to depend on finance executives and accountants.

Sound like anyone you know? From Bilton: “Dorsey had also been managing expenses on his laptop and doing the math incorrectly.” Continues Wasserman:

The organization has to become more structured, and the CEO has to create formal processes, develop specialized roles, and, yes, institute a managerial hierarchy. The dramatic broadening of the skills that the CEO needs at this stage stretches most founders’ abilities beyond their limits.

That proved true even for the relatively more experienced Williams.

Nor is it surprising that these shifts caused drama within the team.

Four out of five founder-CEOs I studied resisted the [appointment of a new CEO], too. If the need for change is clear to the board, why isn’t it clear to the founder? Because the founder’s emotional strengths become liabilities at this stage. Used to being the heart and soul of their ventures, founders find it hard to accept lesser roles, and their resistance triggers traumatic leadership transitions within young companies.

But there is one insight from Wasserman’s research that does push back on the narrative presented in the Bilton piece: the focus on executives’ shortcomings as a motivation for change. No doubt Dorsey and Williams did each struggle with the managerial challenges of such a fast-growing company; everything we know about startup leadership predicts as much. What Wasserman points out, though, is that these challenges are the result of executive success more than failure:

Success makes founders less qualified to lead the company and changes the power structure so they are more vulnerable. “Congrats, you’re a success! Sorry, you’re fired,” is the implicit message that many investors have to send founder-CEOs.

And Twitter has no doubt been a success, at least if Williams and Dorsey hoped to be rich rather than king. (Interestingly, Williams is mentioned in Wasserman’s HBR article for having bought back control of Odeo from investors, in order to restore his kingship.)

From the perspective of value creation, what investors ultimately care about, the executive shifts at Twitter were probably critical to the company’s continued growth. When the case study on Twitter is eventually written, it will likely be less about personal drama and more about the leadership transitions necessary for startup success.

 

This blog first appeared on Harvard Business Review on 10/11/2013.

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