Why yet another Internet company is bringing back its founder
Another Internet company is looking to its past to help secure its future.
On Monday, amid pressure from competitors like Spotify and Apple Music, the online music player Pandora announced it was replacing its CEO with one of the company's founders. Board member Tim Westergren - who is Pandora's co-founder, was its CEO from 2002 to 2004, and served as chief strategy officer until 2014 - returned to replace Brian McAndrews, a former Microsoft advertising executive who is leaving the company.
The move came as Pandora's stock had fallen by more than a third over the past year and it is under pressure to boost revenues by adding an on-demand streaming model like those offered by Spotify, Amazon and others, reports The Wall Street Journal. To make that work, Pandora will need to make licensing deals with the major record companies, something the company seems to be betting Westergren - a former musician noted for his "charisma" and being an "inspirational founder" - can help make happen, calling him a "visionary" in its announcement and someone "personally committed to advancing the careers of working musicians everywhere."
As FBR Capital Markets analyst Barton Crockett told Bloomberg News, "I think that elevating him to CEO takes someone who's really been kind of the public persona of the company and puts him in charge. I think Pandora's hope is that that combination makes [him] a higher profile public face for Pandora and their vision of where music is going."
That return of a founder to the top job has become a familiar story line among Internet companies over the past year. In October, Twitter gave co-founder Jack Dorsey the permanent nod as CEO, after he returned on an interim basis to help revive sagging growth and plot its strategy amid a crowded social-media market. Last July, Reddit named one of its co-founders, Steve Huffman, to return to the CEO job after an online furor over interim CEO Ellen Pao's leadership of the company. In August, online dating service Tinder brought back founder Sean Rad just five months after replacing him in the top job.
Sometimes these second acts go well - or really, really well, as is the case with Steve Jobs' return at Apple - but other times they falter. Last April, online gaming company Zynga turned back to its founder, Marc Pincus, when the company was struggling. But this month, it replaced him again, naming him executive chairman as the stock traded below where it had been when he retook the reins.
While online startups and tech companies don't have a lock on their love affair with founders - giants including Starbucks and Charles Schwab have put their founders back in charge after a hiatus - it's especially common in the Internet and technology sectors.
A number of potential explanations exist. Founders often have a lot of equity that position them well for a return. They're well known to the board. And influential tech venture capitalists have made the case for keeping the founder in charge.
And when it comes to online upstarts or tech companies, change simply comes faster. Steve Mader, the managing director of board and CEO services for the executive search firm Korn Ferry, said last year that founders have the "moral authority" to step back in and make big changes quickly. "Re-entering founders have no learning curve and [can] reground the business in its purpose most quickly," Mader said, "not always as professional managers but as leaders, which buys time that could otherwise be fatal."
In addition, the sheer pace of how quickly technology companies mature has an impact on how often they turn back to their founders. Scott Galloway, a professor at NYU's Stern School of Business, said that tech companies "age in dog years, so the founders are usually still alive. By the time a [consumer-packaged goods] company goes through maturity and decline, they're talking to the grandkids. Some of it is just the pace of the life cycle."
Companies that turn back to their founders often do so out of a misplaced faith that the CEO has the skills needed as the company matures, Galloway says. "T here are some people who can traverse the entire alphabet of a company's life cycle, but there are very few of them. That is a rare breed."
He thinks so many tech companies turn back to their founders "because we all worship and fetishize Apple. That is an instance where the founder came back and was responsible for the greatest turnaround in corporate history. It's very dangerous to compare your strategy to Apple's."
A recent report perhaps helps explain why companies might be such believers in the magic of the founder as CEO. On Monday, USA Today reported that just 19 companies in the Standard & Poor's 500-stock index still have a founder at the helm - nearly half of which are Internet or tech companies. Using data from S&P Global Market Intelligence, it found that on average, share prices at those 19 companies gained 95 percent over the past three years, compared to the 30 percent gain by the S&P 500.