Evolving Through Crises: The Role of Structure and Founder Mode

The past few days have been buzzing with discussions around the concept of “Founder Mode,” a term coined by Paul Graham, which seems to capture something that many successful founders and academics have known for years: leading a company as a founder is fundamentally different from running it as a professional manager. 

So what is founder mode, and how does it challenge conventional business wisdom?

But before I get to that, first I must rant.

An interesting statement in the article linked above is: 

“There are as far as I know no books specifically about founder mode. Business schools don’t know it exists.”

Anyone who tells you they know what we teach clearly doesn’t know how business schools (or universities) work. In most business schools, no one knows who’s teaching what, let alone someone outside the school. 

For example: During my first class, while outlining the cases I intend to cover this semester (and which I’ve been covering for a few years), some students alerted me that one case is now being used by another faculty member from a different department, in a core class, no less. 

That faculty member (and his colleagues) were quite negligent in checking whether other faculty were using the same case. They also failed to update the syllabus repository with their revised syllabus (that included the case) so other more careful faculty (...me) could catch it. 

In other words, never believe anyone who tells you they know what we teach. Half the time, we don’t know what we teach! 

End of rant. 

Back to the topic. 

What Is Founder Mode?

Founder mode refers to the unique way founders lead their companies, often characterized by a hands-on approach, a deep connection to the company’s mission, and a willingness to adapt and evolve as needed. It contrasts sharply with “Manager Mode,” which typically emerges as companies grow and professional executives take over. Manager Mode is structured, process-driven, and relies on formalized decision-making hierarchies. In contrast, founder mode is fluid, fast-paced, and deeply personal.

Founder mode emphasizes the idea that founders can, and should, be deeply involved in the daily operations of their company, often serving as the driving force behind innovation and adaptability. Their leadership is rooted in passion and a vision that transcends formal processes. This form of leadership allows companies to react quickly to challenges and opportunities without being bogged down by rigid systems.

The Paul Graham article is based on an interview with Brian Chesky, CEO of Airbnb, who brought up the point that conventional wisdom—hiring good people and letting them run things autonomously—doesn’t always apply when a founder is scaling a company. Chesky explained how following this advice nearly derailed Airbnb. He discovered that as the company grew, relying on traditional managerial practices led to inefficiencies and disconnects. Instead, Chesky studied how Steve Jobs led Apple and realized that founders need to stay deeply involved in core decisions to preserve the company’s culture and vision. For Chesky, staying in “Founder Mode” meant being hands-on even in a large-scale company, making critical decisions and fostering a sense of creative agility, which contributed to Airbnb’s success. 

While conventional wisdom suggests that as companies scale, they need to transition to manager mode for stability and growth, founder mode challenges this idea, emphasizing how founders bring a kind of leadership energy that’s essential, particularly during times of rapid growth or crisis.

The article resulted in a heated debate, with the NY Times joining the discussion. 

Let’s delve a bit deeper into the merits of these ideas. 

Scaling: People to Processes

One of the key challenges firms face as they grow is transitioning from relying heavily on people—especially the founder—to relying on processes and structure. In the early stages, founders are often the heartbeat of the company, driving decisions, strategy, and culture. However, as firms scale, they inevitably face pressure to formalize operations and implement structured processes that don’t depend on one individual —while a natural evolution for companies, it comes with risks. 

Founder mode suggests that firms may not be ready—or shouldn’t be pressured—to make this shift too early. 

Relying on the founder’s vision, energy, and hands-on leadership may still be the most effective way to navigate the complexities of growth, especially in dynamic or uncertain markets. In some cases, prematurely reducing the firm’s reliance on the founder can hurt the company, as processes and systems alone may not capture the founder's unique intuition and drive.

This is where the tension lies. 

While transitioning to a process-driven organization is often seen as necessary for scaling, it can dilute the founder’s influence and, in some cases, harm the company’s agility. The energy and vision of a founder like Jensen Huang, CEO of NVIDIA, are rare and difficult to replicate. Huang’s leadership, characterized by his hands-on involvement and deep technical understanding, demonstrates how a founder’s continued presence can be a key asset even as a company grows into a global powerhouse.

For many companies, balancing this transition is delicate. Not every CEO exhibits the stamina or vision of a founder like Huang, making the shift all the more challenging. So, founder mode is about recognizing that the founder’s role may still be crucial even after most would assume the company should operate on autopilot.

Running Hot and Being Fluid: The Nature of Early-Stage Firms

Founder mode is about maintaining minimal structure and allowing the founder the flexibility to bypass or dismantle any emerging bureaucracy that could slow the company down. This approach is designed to preserve two key elements that are critical to the success of most startups: running hot and being fluid.

Why do firms run hot and have a fluid structure in the early stages? The answer lies in the nature of these companies, which are constantly adapting and facing uncertainty, rapid change, and high stakes. They “run hot” because there is a certain intensity in the pace at which decisions need to be made, products need to be shipped, and strategies need to be adjusted. There’s little time for extensive deliberation or bureaucracy, which is why early-stage firms often operate without the formal structures common to larger organizations.

In a firm’s early stages, founders are typically involved in nearly every aspect of the business, from product development to customer support. This hands-on approach allows them to make rapid adjustments in real-time, staying ahead of competition and market demands. The lack of formal processes and the ability to pivot quickly are essential, and it’s often what gives early-stage companies an edge over their more established counterparts.

In this context, being fluid means that roles and responsibilities are not rigidly defined. A small founding team might wear multiple hats, adapting to whatever the company needs at any given moment. The company’s structure is malleable, allowing it to evolve quickly as new challenges arise. In this phase, decision-making is centralized around the founder or a small group of key leaders, allowing for rapid action but also creating a significant dependency on the founder’s leadership and vision.

The Role of Structure in Evolving Firms

However, this fluid-structure does not, and cannot, last forever. 

As a company grows, it faces issues that require structure. A key challenge for founders in this phase is knowing when to transition from founder mode to a more structured operational form. If a founder holds on too long, they risk becoming a bottleneck. On the other hand, if they transition too early, the company might lose the agility that allowed it to thrive in the first place.

The challenge is balancing the fluid, high-intensity leadership style that defines Founder Mode with the structural changes needed as the company scales. Founders, like Steve Jobs (Apple) and Tesla’s Elon Musk, have found ways to maintain elements of Founder Mode even as their companies have grown into global giants. 

A key lesson from Steve Jobs’ leadership is that skipping layers of management, holding retreats with the most important people (not just the highest-ranking), and staying involved in the core details can help a large company maintain its agility. Jobs’ approach is a prime example of how Founder Mode can be retained, even in a massive, complex organization.

These founders remain deeply involved in key decisions, often bypassing formal structures to ensure their vision is carried out. However, they also recognize the need for processes and systems to handle the complexity of a large-scale operation. 

Furthermore, there is a natural limit to the fluid and “running hot” mentality. As companies grow, it becomes increasingly difficult to find individuals who are both highly self-motivated and able to continuously guide themselves without oversight. At this point, structure becomes necessary to maintain alignment and productivity. 

This structural evolution doesn’t mean abandoning the principles of founder mode. Instead, it’s about finding the right balance. Even as companies grow, founders can retain some of the flexibility and hands-on involvement. The key is to build a structure that supports the founder’s leadership style without stifling the agility that allowed the company to succeed in the first place.

Firms Evolve from Crisis to Crisis

Brian Chesky talks about how he was gaslit by managers who claimed he was overstepping his role as CEO. 

It was described as a crisis of trust and decision rights. 

But this is not a bug. It’s a feature. 

The idea that scaling is a linear path is a myth. One of the core ideas in understanding how firms evolve is recognizing that businesses often grow through a series of crises rather than smooth transitions. This concept is rooted in frameworks such as the “Five Stages of Small Business Growth” and is widely observed across industries. Crises arise as companies transition from one stage of development to the next, forcing them to address new challenges related to size, scope, and complexity.

Each crisis is a turning point that tests a company’s resilience and its ability to adapt structurally, and they are crucial because they often force businesses to make significant structural changes. Whether it’s adding layers of management, implementing new systems, or decentralizing decision-making, companies must evolve in response to the pressures of growth, and reassess how they operate internally, adjusting to the demands of their new scale.

Here’s a summary of each stage:

Stage I Existence: The focus is on proving the viability of the business by attracting customers and generating revenue. Simple in structure, with most decisions made by the founder. The primary challenge is to ensure the company’s survival.

Stage II Survival: The goal is to stabilize operations, build a reliable customer base, and balance revenue with expenses. The structure starts to formalize, with basic systems in place, and the challenge is maintaining profitability while preparing for growth.

Stage III Success: Firms must decide whether to scale up or consolidate and focus on profitability. The structure becomes more complex with specialized roles, and the main challenge is managing the balance between current success and potential future expansion.

Stage IV Take-off: This stage is characterized by rapid growth and expansion, requiring decentralized management and divisional structures. The challenge lies in effective delegation and managing increased complexity without losing control over the business.

Stage V Resource Maturity: The focus shifts to consolidating gains and ensuring long-term sustainability while maintaining flexibility and innovation. The structure is highly developed, and the challenge is preventing bureaucratic inefficiency while staying dynamic and competitive.

For the founder, these crises often take on a more personal dimension. Founders are usually deeply involved in crisis management, and these turning points can be a make-or-break moment for their leadership. The decisions made during crises can define the company’s trajectory, and the founder’s ability to navigate them while maintaining control over the core mission and values is critical.

Founders have a unique level of authority, both perceived and real. Their vision, energy, and understanding of the company’s mission often surpass that of future CEOs. This is not to say that professional managers don’t bring value to the table, but their relationship with the company is fundamentally different. 

The crises during which Brian Chesky changed the mode by which he led Airbnb, are part of the evolution of every firm that's figuring out the right decision-rights model and the right structure. At the time, for Airbnb, keeping decisions more fluid with a higher level of founder involvement was the right decision. But it was just part of a longer-term evolution bound to end with more structure, as that part is inevitable. Steve Jobs’ main achievement was that he managed to build a firm that transcended him. 

Academic Literature

The academic literature provides extensive insights into the differences between professional CEOs and founder-led firms, focusing on aspects like performance, innovation, leadership styles, and long-term company evolution. 

A well-known study by Noam Wasserman found that founder-CEOs generally have better knowledge of their companies and industries, allowing them to make more effective strategic decisions, particularly in the company’s early stages. They also tend to have higher levels of ownership, giving them greater incentives to prioritize long-term success over short-term metrics.

Furthermore, the paper by Fahlenbrach, titled “Founder-CEOs, Investment Decisions, and Stock Market Performance”, provides strong evidence that firms led by founder-CEOs tend to outperform those led by professional CEOs. 

The paper shows that an investment strategy that targeted founder-CEO firms would have earned an abnormal return of 8.3% annually, with a robust 4.4% after controlling for various firm characteristics, CEO characteristics, and industry affiliation. Founder-led firms outperformed both in stock market returns and firm valuation compared to non-founder-led firms.

More specifically, as measured by Tobin’s Q, founder-CEO firms are associated with higher valuations compared to non-founder-CEO firms. This suggests that the market places a premium on founder-led firms.

What drives this? 

The paper shows that founder-CEO firms invest more in R&D and capital expenditures than non-founder-CEO firms. 

Founder-led firms tend to be more innovative and risk-tolerant than those led by professional CEOs. Founders, who often have a deep personal connection to the mission of their companies, are willing to take bigger risks to achieve breakthrough innovations. Miller and Le Breton-Miller (2011) suggest that founders are more willing to disrupt existing business models and invest in long-term innovations, which can lead to higher growth in industries driven by rapid change, which will also lead to superior performance. 

But as we discussed above: it’s always a crisis. 

The transition from a founder-led firm to a professional CEO is often one of the most challenging periods in a company’s lifecycle. Noam Wasserman (2003) describes this as a “Founder’s Dilemma,” where the founder must decide whether to prioritize control or growth. Founders often resist bringing in outside professional managers because they fear losing control over the company’s vision and culture. 

This tension can lead to founder-CEO entrenchment, where founders stay too long in their leadership role, potentially hindering the firm’s ability to scale and professionalize. However, in certain cases, founders successfully navigate this transition by recognizing when they need to delegate or step aside, allowing the company to evolve under professional management while maintaining influence over strategic direction.

Conclusion

Founder Mode represents a distinct style of leadership that can be particularly effective during a company’s early stages and periods of rapid growth. While it might seem to run counter to conventional management wisdom, it aligns with the core idea that leadership depends on the situation. Founder Mode embraces flexibility, hands-on leadership, and crisis management. For the founders who can harness it, this mode of leadership may be the key to scaling without losing the essence of what made their company successful in the first place.

However, firms evolve from crises to crises, and each crisis necessitates a change in structure and leadership style. In the early stages, firms run hot and fluid because they need to. The founder’s ability to stay deeply involved, make rapid decisions, and keep the company focused is critical during this phase. But as the company grows, the structure must evolve to support its new scale and complexity.

Founder Mode is not something that needs to be discarded as a company grows. Instead, it can be adapted. Founders who successfully navigate this evolution retain the flexibility and vision that defined their leadership in the early stages, even as they implement the processes and structures needed to sustain long-term growth. Ultimately, the ability to evolve fluidly from crisis to crisis, while maintaining the core principles is what sets successful companies—and founders—apart.

Now back to my initial rant about the case that is now used by another faculty member. This is also a feature, not a bug. Wharton doesn’t have formal processes to ensure that faculty don’t teach similar content. A curricular review happens once a course is introduced, but there are no formal review processes afterwards. The benefits are clear: it drives faster innovation and higher accountability for each faculty. The downside is duplication and clashes like the one I described. 

Personally, I prefer faster innovation over consistency.