On startup dictatorships

There’s a trade-off that CEOs — particularly startup CEOs — must make, and it’s between two roles that can be both conflicting and complementary.

The first role is that of guiding visionary. They guide overall strategy and ensure that the vision, purpose, and values of the organization are aligned with that strategy and permeate the company. This is also a supportive role, where you support other coworkers and projects and try to take an outsider’s perspective on the dynamics of strategy and internal organization. In this role, you are a team-member on the same level as other senior managers (the C-suite, VPs of Product, Marketing, Talent, etc.).

The second role is that of a dictator. Despite being in a team on essentially the same level of hierarchy, as the CEO/founder you have what I call “ultimate dictatorial authority.” This is especially needed in a young startup — there can be no democracy. Firm decisions need to be made and conflicts need to be resolved.

I learned this the hard way when doing Startup Weekend and being part of a team where each person’s opinion seemed to have equal weight (despite the high average intelligence and good intentions of the group, it was hard to make decisions in the uncertainty). We eventually figured it out but a lot of time was wasted.

“If you try to submit everything to voting processes when you’re trying to do something new, you end up with bad, lowest common denominator type results,” says Peter Thiel.

Strategy is hard and everyone will not agree on everything. Decisions need to be quick and a choice needs to be made, even if it turns out to be the wrong one. The CEO also has to have an open mind and be willing to embrace dissension and explore contrary views, but that’s the subject of another discussion.

Monarchy vs. Democracy

Peter Thiel again: “A startup is basically structured as a monarchy. . . . Importantly, it isn’t an absolute dictatorship. . . . People vest the top person with all sorts of power and ability, and then blame them if and when things go wrong.”

If all startups were democracies, the distribution of outcomes would be much more flat and normal. Everyone would be mediocre. But they aren’t, and the distribution of startup outcomes follows a power law: a few huge successes and lots of failures.

There are many reasons for the huge success of only a few companies, but a “benevolent” dictator with board oversight is one of them. Oversight is needed because, as in political systems, a malevolent dictator will eventually find their way to the top. Unlike in political systems, customers / employees aren’t as captive and companies with a poorly performing dictator won’t last long in the marketplace.