Is ‘Founder Mode’ or ‘Manager Mode’ Better? Here’s What 22 Fortune 500 Companies Still Run by Founders Show

The hottest term in tech is suddenly “founder mode,” invented just a few days ago and quickly spreading across businesses around the world. Founder mode is a way of running a company—the way a founder would run it—as opposed to manager mode, the way a “regular professional manager” would run it. So says Paul Graham, cofounder of startup accelerator Y Combinator, who coined the terms in a recent essay. He despises manager mode and thinks founder mode is far superior. So—is it?

Graham is well-equipped to make the grade. Over the past 19 years, Y Combinator has helped launch thousands of companies, including Airbnb, DoorDash, Reddit, and Stripe. He was inspired to identify the two modes of management after listening to a recent keynote by Airbnb cofounder Brian Chesky, who described his terrible experience hiring outside managers. The keynote resonated with the other founders in the audience. Graham distills their views:

“Hire good people and give them the space to do their jobs. Sounds great when you put it that way, doesn’t it? Except in practice, judging by founders’ accounts, it often turns out to mean: hire professional frauds and let them run the company into the ground.”

This is not a warm vote of confidence for MBAs from the outside. To see if such disdain is justified, let’s look at some data.

Founder Mode vs. Manager Mode

The Fortune 500 includes 22 companies led by their founders (listed below). We calculated each company’s performance during the tenure of its current founding CEO and compared it to the performance of the other 500 during the same period. We measured performance based on cumulative return, which includes stock price and dividend performance.

The result: an overwhelming advantage in favor of the founding CEOs. Specifically:

· Cumulative Total Return over Founder-CEO Tenure—Founders and CEOs’ companies achieved a median of 1,129%, while the remaining 500 companies achieved a median of 57%.

· Performance vs. S&P 500 (Performance score of 100 represents the market)—The median return for companies with CEO founders was 202 points, while the median return for the rest of the Fortune 500 was 92 points.

· Performance compared to sector (performance score of 100 corresponds to sector)—Founder-CEO companies had a median score of 656.

The founder-CEO advantage is staggering. But if we used this data to declare that founder mode beats manager mode, statisticians around the world would arrest us for the crime of survival bias. These 22 founder-CEO companies are a tiny fraction of the many thousands of startups launched during the same period, and we have no data on how each was managed. For starters, what percentage of startups crashed and burned under outside managers, and what percentage crashed and burned under founders? We’d like to know that and more.

Still, we know at least two important facts. First, we know that the forces that determine who runs a growing startup have been well studied and explained. Noam Wasserman, dean of Yeshiva University’s business school, was a professor at Harvard Business School when he studied thousands of startups and wrote Founder’s Dilemmas. He details how entrepreneurs balance the competing personal preferences that influence who—the founder or an outsider—runs the company. In response to Graham’s aversion to outside managers, he says: Fortune“Founders who do great in the early stages but don’t have what it takes at the often completely different next stage of a company’s development can be the ones who ‘drive the company into ruin’.”

Second, we know that, on average, a handful of founder-led companies that make it into the Fortune 500 do very well, and we should know more about how they joined this exclusive club. Graham wrote in his essay, “To my knowledge, there are no books specifically about founder mode. Business schools don’t know it exists… But now that we know what we’re looking for, we can look for it. I hope that in a few years, founder mode will be as well understood as manager mode.”

It’s a worthy goal. Founder mode should be studied and taught without fail, not because outside managers are necessarily toxic, but because the research can make available to others the lessons learned by those rare founders—Apple’s Steve Jobs, Microsoft’s Bill Gates, Nvidia’s Jensen Huang—who led their companies from zero to greatness.

Fortune 500 Founders and CEOs of 2024

Business

Airbnb/Brian Chesky

Apollo Global Management/Marc Rowan

BlackRock/Laurence D. Fink

Blackstone/Stephen Schwarzman

Block/Jack Dorsey

Capital One Financial/Richard Fairbank

Carvana/Ernest C. Garcia III

Kupang/Bom Kim

Dell Technologies/Michael Dell

DoorDash/Tony Xu

Intercontinental Exchange/Jeffrey Sprecher

Meta Platforms /Mark Zuckerberg

Nividia/Jensen Huang

Prologis/Hamid R. Moghadam

Regeneron Pharmaceuticals/Leonard S. Schleifer

Salesforce/Marc Benioff

Sanmina/Jure Sola

Skechers USA/Robert Greenberg

The Dynamics of Steel/Mark D. Millett

Super Microcomputer/Charles Liang

Tesla/Elon Musk

Wayfair/Niraj S. Shah

This story was originally published on Fortune.com