Founder Mode vs. Manager Mode - is there academic research about the concepts?

Famous Silicon Valley investor, entrepreneur, etc. Paul Graham wrote an a recent essay on Founder Mode of Management that has received a lot of attention including a writeup in the Dealbook section of the NYTimes. Graham cites a recent presentation by Brian Chesky, Co-Founder/CEO of AirBnB where Chesky's talk centered on:

"...that the conventional wisdom about how to run larger companies is mistaken. As Airbnb grew, well-meaning people advised him that he had to run the company in a certain way for it to scale. Their advice could be optimistically summarized as "hire good people and give them room to do their jobs." He followed this advice and the results were disastrous. So he had to figure out a better way on his own, which he did partly by studying how Steve Jobs ran Apple. So far it seems to be working. Airbnb's free cash flow margin is now among the best in Silicon Valley."

The phenomenon identified by Graham has been referenced by scholars in the field of entrepreneurial research for some time. At the University of Wisconsin - Madison School, Professor Emeritus Alan Filley carried out pioneering research in this area during the late 1960s and early 1970s, which has been a fundamental aspect of our MBA entrepreneurial management course ever since.

Filley and Professor Ray Aldag summarized their findings in an article in the Academy of Journal Management by identifying typologies of small businesses. Here's a brief description of two of the typologies (of the three).

The Three Typologies: Product/Service, Market/Innovation, and Administrative

The Product/Service-Centered Organization is characterized by its operational framework led by technical specialists rather than business experts. The organization's core objectives revolve around survival, ensuring owner satisfaction, and promoting participant well-being, all of which are gauged through the lens of financial sustainability. Leadership within this organization is predominantly driven by technical expertise, prioritizing stability and security over embracing risks. The organizational structure tends to be informal, with power dynamics dictating an elite official family occupying the top tier. Employee morale is predominantly influenced by feelings of comfort and security, with limited emphasis placed on professional growth opportunities or training initiatives.

Conversely, the Market/Innovation-Centered Organization thrives on fostering unique innovations to gain a competitive edge. Leadership (called the Promoter leadership style) in this setup is characterized by charisma and entrepreneurial spirit, setting high standards and fostering a culture of enthusiasm. Flexibility is a key feature, with minimal policies and planning in place to facilitate swift adaptation to changing market conditions. However, potential vulnerabilities include over-reliance on continuous innovation and challenges in managing rapid growth.

Lastly, the Administrative Type Organization adheres to professional management standards, boasting well-defined positions and a rational hierarchy. Leadership in this organizational model is driven by clear-cut goals and strategic planning, with a structured hierarchy guiding operations. The organization invests in staff dedicated to planning and controlling activities, emphasizing job-specific performance and incentivizing achievements. Policies and procedures are codified and documented, offering explicit guidelines for decision-making processes. Nevertheless, possible drawbacks may include excessive bureaucracy and a tendency towards myopic focus due to an internal-centric operational

approach.

The Table below summarizes key characteristics of each typology.

Summary of Filley and Aldag Research

Filley and Aldag's research findings shed light on the intricate dynamics of different organizational typologies. Their analysis revealed that no single typology emerged as universally superior to the others. Instead, each type of organization exhibited a unique set of strengths and weaknesses that influenced its performance and competitive advantage in the business landscape.

The Product Service type firm (also called the Craft firm) represents most small businesses in the US, especially the 'mom and pop' organzations where the owner/founder is also involved in the operations. This typology tends to survive as long as their isn't a change in the operating environment (e.g., a new technology) or competition enters the market place. The Product-Service firm usually finds a niche that supports their goals but may be a small enough market that doesn't attract larger competitors because it's not profitable enough. The Product-Service leadership is many times called 'benevolent' style in that there is a family feel to it. However, if you're not part of the family, your are typically left out of the power structure.

On the other hand, Market/Innovation firms excelled in dynamic environments due to their inherent flexibility and adaptability. These organizations were quick to embrace change and capitalize on new opportunities, giving them a competitive edge in fast-paced industries. Nevertheless, their reliance on agility and innovation meant that they might struggle to maintain their position once their initial burst of creativity diminished. Without robust managerial systems like those in Administrative-type firms, Market/Innovation companies might find it challenging to streamline operations, identify cost efficiencies, and effectively compete with more established players.

Administrative-type companies, characterized by their larger size and longer lifespan, often enjoyed stability and a strong foundation. However, their bureaucratic and formalized structures sometimes acted as barriers to innovation and rapid adaptation. The rigid frameworks within these organizations could impede decision-making processes and hinder their ability to respond swiftly to market changes and emerging trends.

In essence, Filley and Aldag's research underscored the importance of understanding the nuances of organizational typologies and leveraging their respective strengths while addressing their weaknesses. By recognizing the trade-offs associated with different organizational structures, companies can tailor their strategies to optimize performance, foster innovation, and sustain competitiveness in a constantly evolving business environment.

Implications for posts like Graham's Founders Mode

In his essay on Founder mode versus Manager mode, Paul Graham discusses a specific approach to managing startups and early-stage companies that are experiencing growth. Academic research further expands on Graham's concepts by examining the distinct characteristics of various types of firms. For example, similarities can be observed between the Founder Mode and the Market Innovation type of firm, as demonstrated by Filley/Aldag, where a charismatic leader leads the company with agility in a changing environment. Similarly, parallels can be drawn between Manager mode and the Administrative type of firm. A deeper exploration of entrepreneurship studies, such as the Filley/Aldag typologies, can provide valuable insights into understanding ideas similar to those presented by Graham. It is important to acknowledge that each 'mode' has its strengths and weaknesses, which are supported by scholarly research.

Note: If you want more info on Filley's work, the book Compleat Manager is a great source.

My brief book summarizes Filley's work and other topics in Entrepreneurial Management - At Amazon

The following table summarizes each typology:

Product/Service	Market/Innovation	Administrative
1.      Continuation Objectives 2.      Manager = Technician 3.      Internal Policies by Tradition 4.      Levels of Power – Family, Trusted Employee, Transient Employee 5.      Little Change 6.      Little or no Indirect Labor 7.      Good Morale 8.      Low Risk/Low Innovation 9.      Product or Service Centered – focus on selling or production.	1.      Promoter – Charismatic Leadership 2.      Extreme Goals 3.      Few Fixed Policies/Policies Influenced heavily by CEO/Some Indirect Labor – Soldiers of Promoter 4.      Little Planning/Innovative 5.      Morale – Short Term High, Long Term Low 6.      High Margins, High Overhead 7.      TEMPORARY in nature	1.      Formal Strategic Objectives 2.      Goals by Employees to advance 3.      Professional Management 4.      Rational leadership and Planning 5.      Adapt through Planning and Formal organization Structure 6.      Use of Indirect Labor 7.      Fixed Policies and Procedures, Budgets 8.      Emphasis on product improvement, less emphasis on innovation