Do You Have A Source For That?
The importance of a singular company vision
“Ubering is what you call it when you order a cab on your phone. Lyft has no chance. It’s like AskJeeves. Who’s ever going to use it?”
While knowing little about startups at the time, this was a not-unreasonable hot take from me back in 2015 when talking with poker friends. It turns out this is a common sentiment about companies from Google to Photoshop to Kleenex and most recently, Zoom. As Mike Moritz says “the best companies become verbs and change the way people live or work.”
Yet, here we are, five years later and Lyft is a public company firmly established in a comfortable duopoly with Uber. UberEats stagnated at ~25% market share of the food delivery business, allowing an upstart in DoorDash to eat its lunch, with a buzzy IPO on its way.
How did this happen?
In case you’ve been in a coma for a few years, the answer is relatively clear. Travis Kalanick, the founder and hard-driving CEO, was ousted in 2017 for an internal company culture that was labeled as toxic. The backlash around the company’s practices gave Lyft a wedge it has never relinquished in the US market. Even if one could argue it was justified, Uber has unquestionably drifted since Kalanick’s removal: rudderless, slashing many previous lines of businesses, and reducing its ambitions to the point where “Uber” hardly seems like an apt name.
It’s easy to say founders should never be removed: in fact, many VCs these days pitch themselves as founder-friendly (or thus name their fund), implicitly selling the fact they will be in the founders’ corner no matter what. Yet, it is not self-evidently obvious why this should be the case. Moreover, this view is a large departure from the 1990s where almost every hot tech startup would bring in “adult supervision” to manage the company.
The best framework I’ve seen to understand why a founder is so integral to company vision and execution comes from Peter Koenig’s work revolving around the role of “source” inside companies. Koenig studied hundreds of companies and came up with the following thesis:
“Every human initiative---from projects to parties to entire businesses---starts with a single founder, the source...The identity of the source is not dependent on who started the legal entity, who provided the money or who had a formal role appointed. It’s simply who invested themselves in taking the first risk. The risk can be as simple as someone asking for help.”
Most startups these days have co-founders which can create confusion around this concept. Can two people be the source for an organization? The answer is no. There is always a single person who took the first risk, whose voice has the most weight, and who is the driving force for the company, regardless of title. A canonical example is Apple. Steve Wozniak did much of the technical work and was an “equal” cofounder, yet the company’s vision, culture, and execution was all driven by Steve Jobs. Apple, the company, would not have been created without Jobs. Wozniak offered the first computer design to Hewlett-Packard, where he was working at the time, and remained skeptical of the company formation until Jobs convinced him.
A more interesting example that the Source blog studies is Larry Page and Sergey Brin. From the outside looking in, the narrative is these were two genius Stanford kids who came up with Google together, an equal partnership: Larry and Sergey, Sergey and Larry, who really cares? In reality, the vision for Google came to Page in a dream: “Like Jobs, Page has a co-founder, Sergey Brin, but Page has always been his company’s true visionary and driving force...Everyone inside Google still regarded Larry Page as their ultimate boss. He approved every hire, and it was his signature on the day of Google’s initial public offering, Aug. 19, 2004, that turned hundreds of people into millionaires.”
There are three schools of thoughts where a company’s purpose comes from:
A: The company is designed top-down from a leadership creative process. Carefully crafted mission statements and missives are a hallmark of these organizations.
B: The company has a soul of its own, distinct from individuals. The purpose is grown organically.
C: The company is a manifestation of the need or vision of the source. Understanding the source’s vision reveals the purpose.
A organizations tend to be companies in the mature, managed decline phase: think IBM or Yahoo. B and C are the most interesting to contrast. Uber was a company famous for a certain culture for better or worse: ambitious, pedal-to-the-metal, and pushing the boundaries in all areas. One could’ve made the argument that this was an organic development over many years, encompassing thousands of employees who had together nurtured a certain culture. Yet, when Travis left, Uber’s culture disappeared.
Founder-led companies are the most connected to the vision of their source. Every company still needs helpers who execute the purpose, but only one person has the creative authority to be the source. They are the life force of the organization, the one who most deeply understands its voice. The source must set the vision clearly so people are free to build using all of their creativity and without internal jockeying for authority. Recognizing source does not mean the person leads by fiat; rather there is an understanding from where direction flows. Co-founders are often integral to the company’s success, providing necessary support and complementary skills to the founder.* Most spectacular people are oblong, with great strengths in some areas and great weaknesses in others. They need help to shore up their weak points.
“Non-recognition of source often results either in a dictatorial approach to running the company (‘I am the new boss now and you will do as I say!’) or in a spineless egalitarianism (‘We are really all the same and we all have equal say!’). The first leads to organizations with a high number of sick days and a work morale weakened by fear, whereas the latter leads to inefficiency and a culture that values comradeship over performance.”-Nadjeschda Taranczewski
Twitter is a particularly interesting example of the power of source. Ev Williams was the source for Odeo, a podcasting startup that eventually failed but where Jack Dorsey came up with the idea for Twitter. The tension over Twitter’s direction never fully resolved itself, leading to a power struggle that culminated with Dorsey’s departure. Square was Dorsey’s next baby and he treated it as such, with the entire company being managed as a manifestation of his vision. Even today, when Dorsey has returned to Twitter, it does not seem like he has completely reconnected with the company and its purpose. His passion and energy appear to remain with Square, where he still splits his time as the CEO. His most off-the-cuff and genuine tweets relate to Bitcoin (available on Square’s Cash App) and the promise of financial innovation where his messaging about Twitter usually reads like carefully crafted corporate-speak. Twitter’s continued disappointing performance compared to Facebook, Instagram, Pinterest, Tik Tok, and Snap makes much more sense through this lens.
Interestingly, the poor experience at Twitter led Ev Williams to go in an entirely different direction with his next company: Medium. Medium opted for more decentralization in creative authority, an idea which sounds good on its surface: after all, what’s the harm in people coming up with a communal vision? Yet, in a fascinating forecast dated to 2015, Koenig and others predicted that without a clear creative authority, Medium would drift aimlessly.
Five years later:
The best companies are manifestations of their source’s vision: Amazon (Bezos), Tesla/SpaceX (Musk), and Netflix (Hastings) all come to mind. Apple is a company that is still driven by the ghost of Steve Jobs (and one whose near-implosion in the 1990s is explicable through its disconnection from a source.) Whether Apple can continue to be fundamentally transformative without a live source remains to be seen, but there are reasons for uncertainty. Samo Burja argues that “Apple is a dead player. It became much less interesting and powerful after Steve Jobs’ death. Under him, it was a cultural and commercial force that was able to interface effectively with the US government. Now, it is a bureaucracy imitating his taste. It is incapable of adapting, building beautiful new things, and acquiring power.”
Bill Gates drove Microsoft to glory in the 1990s. The failed transition to Steve Ballmer can be explained through the lens of source. Gates hung around and there was never a clear change of source. Ballmer took over as CEO in 2000 but never delivered the opening keynote at CES until 2009. Who was the creative authority behind Microsoft: Gates or Ballmer? This lack of clarity was why Microsoft missed many 21st century technological trends and relinquished its dominance to Apple, Google, and others. When Satya Nadella was named CEO in 2014, Gates appears to have recognized this factor, stepping down from his chairmanship of the board and taking a backseat, only remaining involved as an advisor in service of Nadella. It isn’t mandatory for the former source to disappear completely, but there must be a clear transition of authority. Nadella successfully re-organized Microsoft in his image: the company doubled down on serving enterprise and has reemerged as one of the most valuable companies in the world.
Successful transmission of source requires a clear passing of the torch, with an understanding that the previous source is no longer the driver of the creative vision. This transition is incredibly difficult and many companies will falter here or go into permanent decline, becoming an A organization like IBM. Uber, under Dara Khosrowshahi, is a shining example. Kalanick was forced out and his specter loomed over every decision the company made in the wake of his departure. With no source, the company’s formerly lofty goals deteriorated. It’s unlikely that the company will do anything transformative or attract ambitious young people ever again unless it finds a new source. In Burja-ian language, Uber is now a “dead player.” All that’s left now is financial engineering and 9-to-5ers looking for a great paycheck.
Understanding source is one of the more unique lenses I’ve come across for understanding organizations and movements. I don’t want to get into politics, but I couldn’t help but note one potentially interesting application of this framework. Many are predicting the inevitability of a younger, possibly more competent Trump-like figure who leads the Republican party to a strong bounce-back in 2024, broadening its coalition amongst the working class, possibly even along multiracial lines. The concept of source cautions against that certainty. If Trump remains very much in the national picture and there is no clear transition to who will take the mantle for post-Trump Trumpism, the Republican party might very well find itself in the same position as Democrats in 2016: a candidate that seems correct to lead the party in its next stage but inspires little enthusiasm or turnout. Indeed, one could almost look at Biden’s surprising win in the primaries as voters longing to reconnect with Obama, the source of the broad 21st century Democratic coalition.
Many VCs talk about “founder-market fit,” “founder-narrative fit,” the importance of team, etc. but I propose that what the prospective investor must really understand is the startup’s source. Who is the source that the company will ultimately become a manifestation of? Who is the source who will drive creative authority in the company? Who is the source whose voice will have the most important sway during big product decisions, pivots, and company strategy?
Once you have these answers, you must dig even deeper: Why is the source the right person to manifest this vision? Does their cofounder(s) understand their role as an important, but secondary helper, or will there be a power struggle at some point? Does the source themselves understand their role as source or will they be in favor of democratization, group creativity, or A/B testing vision? Can the source recruit others in service of their vision? What frameworks and structures must be constructed in order to build a successful company executing on the source’s vision? How can I as an investor be in service of the source?
Understanding these questions is the quickest way an early-stage investor can cut to the heart of the ‘team risk’ and assist in early company-building. The power of source is an under-utilized framework that can help provide clarity to understanding the underlying purpose of companies. Would love to discuss this further with anyone who’s interested. Feel free to ping on Twitter or comment below!
* A more esoteric benefit of a cofounder is a defense against scapegoating. Had Travis had his own version of Sergey, the backlash may have been diffused, allowing his survival.
Nutrition Tidbit of the Week
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Book or Podcast of the Week
One of my favorite internal mantras is “be world-class.” When I talk about my aspirations in venture, it’s to be a “world-class investor.” Yet, it’s sometimes unclear what people mean when they say world-class. Is it really good? Is it elite? Take the 15th man on an NBA roster for example: an incredibly small fraction of the planet has accomplished what he’s accomplished but no one would argue they are elite or on the level of someone like LeBron James.
A friend of mine pointed me to this podcast on Elite Scale and Normal Scale. Essentially, whenever you talk about the quality of something, you can break it down into those two scales. On the normal scale, Nick Young is awesome and world-class at basketball. On the elite scale, he’s bottom decile. This reframing has repercussions for many avenues: hiring, self-assessment, even advice. It’s been a new way for me to look at what my goals are and understand where I want to be elite on the normal scale (health) and where I want to be elite on the elite scale (venture capital). Highly recommend checking out the podcast.
I don’t think you are wrong about the power of becoming a verb with Uber. Lyft has stuck around is because the value of network effects don’t apply after a certain point in (the Uber/lyft model of) transportation networks.
“More drivers means more competition for available jobs, which means less utilization per driver. There is a trade-off between capacity and utilization in a transportation system, which you do not see in digital networks.”
https://nymag.com/intelligencer/2018/12/will-uber-survive-the-next-decade.html
While I don’t agree with everything in the article, some good points on physical networks. The choke point is the driver, and with Travis gone, full self driving cars could be their only path to economies of scale. But how far away is that?
You bring up good points about founder vision. One of my investment philosophies is to always look for founder CEOs.
What are your thoughts on “source” with respect to Satoshi and Bitcoin? On one hand, Satoshi made a clean break and handed over future development to the community. With hindsight it seems this was a nearly mandatory decision to keep BTC organizationally decentralized. The community had its first rift with BitcoinCash for payments or maintain the store of value narrative. Everything has worked out so far, and the community has coalesced around BTC and that ideology. Having no source to weigh in on these massive ideological/technical/product decisions, is there a long-term threat?