Founder governance failures: Why success breeds corruption in scaling companies
The thing that destroyed them was not competition. Their very success became a liability.
It is always too early until it's too late. And I'll I'll give you like the example, um I've seen this hundreds of times myself personally. So I've like literally been in the room where this kind of stuff gets discussed. And it starts like this: you're going to you're you're incorporating your company, you talk to your lawyer, 'Hey, I want to have these are called mission protective provisions in the law. I want to have I heard I heard this guy on Lenny's podcast. And your lawyer's like, 'Oh, not again. You know, another guy. How many good ideas from Lenny's podcast are you going to tell me about it? Okay, fine, what's this one?' I told them, 'I need to have mission protective provisions.' And they'll be like, they'll pat you on the head and be like, 'Oh, that's sweet, honey. That's great. Yeah, get product market fit, like get some success. Success is ultimately your source of leverage. Success will protect you, don't worry about it.' You say, 'Okay, good. But just thanks for letting me know.' Now you raise some money, you got these VCs on your board, say the same thing. They're like, 'Yeah, I totally am with you. We're on the same page. We want the same thing you want. We invested because we believe in you as the founder. There's no need to do this now. Let's just do it later. Do it when it's the more appropriate time, okay?'
This structure is more stable, more durable, more likely to invest in quality and R&D and the things we really care about, and better for shareholders. If this all sounds like a huge drag and a lot of work and really annoying, I'd say go back an hour when we talked a lot about just what is it you were trying to avoid and the pain. Yes, that's the thing. It's like, you know what's really a drag? I'll tell you a story. A friend of mine got ousted by his investors. Okay? And I was going to this party to celebrate him, and it was like people had flown in from all over the country to celebrate including like employees he'd laid off came to this party. It must have been a thousand people there. It was amazing. And I was describing to a new founder, like I'm sorry I can't help you with your company right now, I got to go to this party. And he was like, 'Okay, I'm describing to him and he was just like, Wow, what respect that founder sounds like that's just the kind of company I want to create.' I'm like, 'Dude, you have not been listening to anything I'm saying. He doesn't work there anymore. He's like Saul Price. This is not a party, this is a wake.' He was like, 'What, did he die?' 'No, man, he didn't die. Did the company go bankrupt?' 'No, the company's fine. That's not the problem.' 'The new and he was like, do you is the new CEO an asshole or something?' I was like, 'No, I like the new CEO. He's a friend of mine also. Perfectly fine. The problem is,' he's like, 'What's the problem?' 'The problem is, if a company can be decapitated at any time, you can no longer trust it. All the promises that this company had made over its 15-year life, nobody believes them anymore. The new CEO's like going out and making new promises, but we're like, And an activist investor owning 0.5% of the company can oust you at any time. Why should I believe anything you say?'
- Many famous companies are destroyed not by competition, but by their very success becoming a liability, leading to 'corruption' which is a force that no one controls but everyone obeys, dragging organizations into mediocrity.
- Being principled in decision-making leads to unexpected rewards; top AI companies are implicitly adopting 'Lean Startup' principles like MVPs and iterative development, even if they don't explicitly use the terminology.
- The critical question is not what protections a product needs, but when those protections should be enacted, because it's 'always too early until it's too late'.
- Success itself makes a company a target for 'corruption', leading to founders being ousted quickly (sometimes within months) after a successful IPO if short-term gains are prioritized over long-term mission.
- Companies like Novo Nordisk and Zeiss implemented 'industrial foundation' structures over a century ago, allowing them to endure and protect their ethos, proving that 'corruption' is not inevitable.
- Trustworthiness is the most underrated asset in business, directly impacting customer loyalty, employee alignment, and operational efficiency, demonstrating the 'harder is easier' principle in practice.
- The failure to institutionalize mission and governance can lead to companies becoming like 'Frankenstein and his monster', where the original creation becomes malign and uncontrollable.
- Many AI companies, including those on a Vatican panel, lack 'standard governance' and are 'too dangerous' due to the immense power of AI and the risks involved, highlighting the need for mission guardians and robust structures.
- 20% (Only 20% of founders are still the CEO three years after going public (Harvard Law School study).)
- 5 months (A founder was ousted after five months as a public company in an anecdote shared by Eric Ries.)
- 100 years (The structure of Novo Nordisk has endured for over 100 years, protecting its ethos.)
- 500 billion dollars (Novo Nordisk's foundation structure intervention created more than $500 billion of shareholder value.)
- 6 times more likely (Companies with industrial foundation structures are six times more likely to live to year 50 compared to conventional counterparts.)
- 1.1 billion pounds (Philip Morris spent 1.1 billion pounds to buy Vectura.)
- 900 million dollar write down (Within three years of acquiring Vectura, Philip Morris took a $900 million write-down.)
- 10% (Pledging 10% of equity to a non-profit foundation and 1% of future revenue.)
RevBots.ai View:
- Tab Hopper founders should embed mission protections pre-revenue: 10% equity to foundations is a start.
- SaaS Hoarder companies often sacrifice governance for growth, making them vulnerable to activist investors.
- The 'harder is easier' principle applies to ARM adoption: early RevOps discipline prevents future tech debt.
- AI Sprinkler companies mirror governance failures: bolted-on ethics committees without structural power.
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