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Innovation Economy

As it turns out, you can go home again (if you're a CEO)

Email|Print| Text size + By Scott Kirsner
January 13, 2008

When Cambridge-based E Ink Corp. confronted a cash crisis four years ago, having spent about $100 million without successfully shipping any products, the board bade farewell to the display company's chief executive and replaced him with Russ Wilcox, one of E Ink's founders. E Ink is now supplying the screen for Amazon's much-hyped Kindle e-book reader.

In 2005, after serving as CEO of Endeca Technologies Inc. for less than a year, Jim Baum was benched and eventually replaced by Steve Papa, the company's founder, who wanted Endeca to pursue growth more aggressively. Last year, the Cambridge search software company brought in more than $100 million in revenue.

Last fall, at the biotech company Codon Devices, John Danner, a former executive at Perkin Elmer Inc., left after two years to explore "other opportunities," according to co founder Brian Baynes, who replaced Danner as the company's leader.

It's rare for founders who've been replaced by a seasoned CEO to boomerang back into the corner office. But it happened last week with Howard Schulz at Starbucks Corp., and it happened famously at Apple Inc., where Steve Jobs returned in 1997 to revive the company he had cofounded.

Founders aren't always miracle workers, but often they can inspire employees in ways hired guns can't and can keep companies focused on achieving audacious goals - rather than just hitting the next quarter's numbers. But investors can be quick to replace a founder with a professional manager who has an impressive résumé, reasoning that extensive industry experience and contacts are just what most small companies need to grow.

When things go off the rails, though, sometimes boards find themselves turning back to a known quantity: the person who started it all.

Boston venture capitalist Jeffrey Bussgang, a former entrepreneur, says firing the chief executive is the "only tool in the toolbox" for investors when a company hits a rough patch. Asked whether he's kidding, he says he's half-serious. "Ultimately, the real core of the board's job is oversight, and that includes hiring, evaluating, compensating, and, if necessary, firing the CEO."

Of the latest crop of initial public offerings of Massachusetts tech and biotech companies, the majority had founders or cofounders as CEOs. Could it be that hired guns are quicker to sell a company, rather than continue to grow it?

"A professional manager is incentivized to go from company to company and flip them," says Papa of Endeca, a company that has been mentioned as a candidate to go public. (Papa won't say much about why Baum didn't work out, but Baum's next stop was Netezza - a Framingham company that went public last July with a founder at the helm.)

Conversely, "founders bring a multidecade perspective on where the company is going, versus a multiquarter perspective," says Robert Keane, founder and chief executive of VistaPrint Ltd., an online-printing services company in Lexington that went public in 2005. "Companies need someone whose passion is building an enduring business institution that transforms industries. With all due respect to my venture capitalist friends, their perspective is not decades long."

Zipcar founder Robin Chase, who was replaced by an outside CEO in 2003, says employees respond differently to founders. "Working for the founding CEO, you're willing to work around the clock, day and night - you're a believer," says Chase, who has since founded two other companies, Meadow Networks and GoLoco.org.

But founders' innate optimism can sometimes create friction with boards. "Founders are always focused on the upside potential, and they don't always adjust for risk," says Bouzha Cookman, a principal at Catlin & Cookman Group, a Hingham firm that consults with chief executives. "Expectations get set, and products can get delayed."

And sticking too tightly to the original vision can keep a company from seizing opportunities. "For every company that has been successful, 10 companies have tanked because of rigidity of vision," says John Santini, a boomerang chief executive at Bedford-based MicroCHIPs Inc., a maker of medical devices. For just over two years, Reed Prior served as MicroCHIPs' chief executive - a period that Santini says gave him a chance to mature as an executive, in part by getting experience forging partnerships with bigger device players.

Bussgang says, "It really requires an extraordinary individual to found a company and run it at scale," mentioning Apple's Steve Jobs, as well as local biotech CEO Josh Boger of Vertex Pharmaceuticals Inc.

More typically, Bussgang says, the best-case scenario is retaining the founders but folding in a professional manager. That was what happened locally at Akamai Technologies Inc., where IBM veteran George Conrades was brought in to complement the three founders. "In combination, that was a very potent team," Bussgang says.

A similar mix happened at Google, where former Novell Inc. CEO Eric Schmidt was hired to work with founders Larry Page and Sergey Brin. No one can deny that the amalgam seems to be working there.

Research from Ohio State University found that about 11 percent of the biggest US public companies are still run by the chief executive who started them. Those firms spend more on research and development and make more focused acquisitions, professor Rudi Fahlenbrach wrote. And last year, USA Today analyzed Fahlenbrach's data, looking at the performance of founder-run companies that are part of the Standard & Poor's 500 index. Over the past 15 years, their stock prices were up 970 percent on average, compared to a 222 percent gain for the S&P 500 as a whole. The winners included local companies such as Cognex Corp., a maker of machine-vision systems in Natick, and Parexel International, a Waltham company that coordinates clinical trials of new drugs and devices.

Of course, those are the founder-run companies that have already survived the business world's brutal version of Darwinian selection. If investors only had a way to identify them at the outset, they'd no doubt be more willing to let founders remain in the leadership role.

But for sidelined founders following the stories of Howard Schulz, Steve Jobs, or Russ Wilcox, there's always hope that the phone may ring one day and that they, too, may benefit from the boomerang phenomenon.

Scott Kirsner can be reached at kirsner@pobox.com.

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