Jan 23, 2013 · 6 minutes

Reid Hoffman has an interesting essay on his site today about when founders should hire professional CEOs. In some ways, it runs counter to Ben Horowitz's seminal post on why his firm prefers founder CEOs -- a theory that has dominated the consumer Web landscape through the Web 2.0 age.

Hoffman is parting company with a lot of his close investor friends here, and he does so carefully. In addition to Andreessen Horowitz, Hoffman's long time friend Peter Thiel was one of the first to push the idea that there is almost never a good case for ousting a founder -- in part a reaction to what happened to him at PayPal. It's the very reason his firm is called Founders Fund. As early as 2007, Thiel saw Facebook's Mark Zuckerberg as an important test case to prove this on a big public company level. After all, even Google's founders had been pushed to hire Eric Schmidt.

Hoffman's essay speaks to a careful cultural shift that's happening in the Valley. It's pushing the pendulum away from the extreme "THE FOUNDER CAN DO NO WRONG!" cult of belief to an idea that all founders -- especially first timers -- need coaching and other skills. Sometimes that may mean investors who demand board seats. Other times, argues Hoffman, it may mean they are not the person to run the company. In both cases, they may have to cede control to grow the company.

These are ideas experienced entrepreneurs have balked at in recent years, and many younger entrepreneurs have echoed the outrage. At our July PandoMonthly, Zynga's Mark Pincus called Yuri Millner the ideal investor because he gives you questions and then goes away unless you need him.

Like Thiel mid-decade, Hoffman is writing out of his own experience here. He wasn't the guy to run LinkedIn -- by his own admission. In part his goal in writing this post was to give founders who similarly don't think they are the CEO their companies need a playbook for how it can work, rather than insisting it won't.

Hoffman starts by correcting what he calls the fallacy that most great companies were run by their founders. He cites Yahoo, Google, eBay as examples to the contrary, and says the Apples and Oracles and Facebooks of the world are the outliers -- not the norm. "When do we stop listing Yahoo and Google and LinkedIn as exceptions and realize the rule we've all started to believe over the last few years is actually incorrect?" he said in a conversation with me about the post last week.

But the real key to his argument is that a company can have multiple "founding moments." This is something Airbnb's Brian Chesky referenced on stage at PandoMonthly a week ago, citing the company "meth head" incident as a new founding moment for the team to catalyze what they stood for, now that they'd reached a level of success and scale. (Hoffman is, perhaps not surprisingly, an investor in Airbnb.)

Hoffman argues: If you buy that a company can have different "founding moments"-- why can't a new CEO be a co-founder of a new type?

A lot of people no doubt see this as a sneaky justification for VCs -- which Hoffman is part-time these days -- doing what they do: Bring in experienced management they know well and feel safer relying on. Cynics may think rather than calling it "grey hairs" or "adult supervision," we're just switching the label to "co-founder."

After all, it's easy for someone like Jeff Weiner -- who everyone admits has done a great job as LinkedIn's CEO -- to come in when the second most valuable social network in the world is scaling and prepping for an IPO. It's quite another for someone like that to take the risk when everyone thought the consumer Web was done, or later when people argued social networking was a "mere feature" not a company, or even later when people believed Facebook would crush LinkedIn. What makes you a co-founder, many would argue, is staking your future on something so unknown, believing when no one else did and when you have nothing.

In fact, the Valley's entire ecosystem is set up to reward those who believe the earliest -- whether it's cofounders, employees, or investors.

Hoffman acknowledged that there's no real substitute for actual co-founders when we chatted. "There's a reason being a founder is a sacred thing," he says. "This is a different kind of founder, the same way an early investor might be a sort of financial co-founder." It's a delicate rhetorical dance, and one that many dictatorial VCs might abuse the same way entrepreneurs have bastardized "pivot" to mask failure.

On the other hand, there may be some founders out there who take some solace in what Hoffman argues. So many investors insist companies with cofounders get further, but you don't always know the right person with the right skill set at the time you start a company. The idea that it's a one-shot opportunity to find that partner can stymy people from getting started -- or worse, force them to partner up with someone that isn't right.

Likewise, the idea that you should always be the CEO can be scary for some entrepreneurs who just don't want to be. "There is no way I would have gotten Jeff Weiner to be CEO just after this company got started or even just after we got profitable," Hoffman says.

So other than the metaphor, what separates a hired gun CEO from a true modern type of co-founder? An equal level of moral authority and control over the company, Hoffman says. When Weiner was hired, he says he took off and traveled so no one could come to him with questions, rather they had to go to Weiner.

From my experience, that's a crucially different mindset than most founders make when they hire CEOs for very human reasons. For me it'd be all but impossible to grant someone else had the same moral authority over my company, and we're only a year old. This was the case at my previous job too. As much as Heather Harde was the CEO of TechCrunch, questions of moral authority always went to Michael Arrington to decide as the founder. When you've grown something out of pure vision, truly giving that up seems almost impossible.

After all, what if they get it wrong? Most hires don't work out as you expect them to. My understanding is that ShoeDazzle's Brian Lee tried to do this when he passed his company off to Bill Strauss. When employees reached out to him, panicked at changes Strauss was making, Lee refused to engage, saying it was Strauss's company now -- the right thing to do, by Hoffman's argument. And that almost tanked the company. If you are really going to cede control and moral authority the pressure to make the right decision is all the more acute. And that can only really be known with hindsight. You can see why this goes wrong so often.

On the other hand, one could argue every venture-backed company only belongs to the founder for a finite period of time, in the grand scheme of things. Most will sell, go under or IPO. And we've seen plenty of examples of founders who were shocked when they sold their companies and no longer had the same moral authority they did when they ran it. Ditto, once shareholders own it.

Remember Yahoo founder Jerry Yang's outrage at Microsoft's offer to buy the company for $40 a share? He made a highly emotional decision that the price -- above what the company was trading at then, and well above what it's trading at now -- undervalued the company's assets, and he traded on his moral authority as a founder to make it.

Perhaps ceding moral authority is something every founder has to face at some point, whether they stay CEO or not.

There's one place where Hoffman agrees with Thiel and Horowitz: The decision should always come from the founder, not the board. The only person who can really cede moral authority is the person who has it.

[Illustration by Hallie Bateman]