The Role Of Having A Charismatic Leader In Tech Companies

Introduction

The image of a company can make or break it, and no one has more power to create that image than the founder. International tech companies such as Apple and Elon Musk’s Tesla and SpaceX have two things in common, they are all on the forefront of their respective technological fields and are bringing the future to the general public, and their success can be largely attributed to the leadership style of their founders or CEO’s. When you think about Apple it’s hard not to immediately think of Steve Jobs at the same time, and the same goes for Tesla and SpaceX with Elon Musk. These leaders seem to have mastered the art of public image, they know that if people like them, they will probably also like the products that they are developing and selling. This leads me to my research question: To what extent is having a charismatic leader important for companies who are trying to introduce new technologies into the market? When introducing something revolutionary to the market or attempting to make consumers buy into something that already existed but had little adoption, it is important to create an open and friendly public image for your company. Often when introduced with new technology consumers can be apprehensive when it comes to buying the product because of a few reasons. People might write it off as a passing craze or they might simply not see the benefits of the new technology and think that they don’t need the benefits that it can give them. For this reason tech companies trying to do just that often rely on their leader to be a popular figure who is able to get people both interested in new technology and assure them when it comes to potential issues with the new technology, which are often brought up

Leadership Styles

When it comes to leading a company there are a few different leadership styles that one could choose to employ. These range from controlling every aspect of work done by all of your employees to letting them pick and choose what they work on with little to no oversight. Every leadership type has its place but when it comes to a technology company there is a trend that we seem to see in leadership style. The most obvious technique is what is often referred to as “Team Leadership”, this is when the leader of the company encourages their employees, and customers, about what they are working on by creating “A Unified, Singular Vision Of The Future”. If all of your employees are working towards the same goal that they are all onboard with then it will be much easier to get them to actually do the work to achieve that goal. The same theory can be applied to marketing your products, if when marketing your product you don’t focus on what that specific product can do but instead on the future than can exist if all of your products are used together. Consumers who are onboard with this vision of the future may be more inclined to buy the whole set of products.

A second leadership style that goes hand in hand with “Team leadership” is “Transformational Leadership”. “Unlike other leadership styles, transformational leadership is all about initiating change in organizations, groups, oneself and others. ” This again is a style that applies well to companies who intend on changing the world with their products, they may choose to focus on raising awareness and initiating change for the issue that their product solves. An example of a use for this in recent years could be the rise in popularity of electric vehicles, when the concept was first introduced many people dismissed it as they didn’t believe that it could ever match up with traditional cars and also many didn’t acknowledge the environmental benefits that came with it. However through countless companies focusing on trying to bring about change in this, electric cars and being more environmentally conscious has become not just normal but even somewhat of a status symbol.

Personal Connection

The recent rise in the use of social media as a platform for leaders of companies to communicate with consumers has allowed a more personal connection between company leaders and their customers. It not only allows them to announce new developments for free but it gives (potential) customers the feeling that it isn’t just a faceless corporation and that what they say is actually being heard. The below quote from one of Elon Musk’s tweets is a good example of just that.

“Wanted again to send a note of deep gratitude to Tesla owners WW for taking a chance on a new company that all experts said would fail. So much blood, sweat & tears from the Tesla team went into creating cars that you’d truly love. I hope you do. How can we improve further?”

In this tweet Musk acknowledges the potential for failure of his companies, something he often talks openly about. These tweets often gain international attention and thousands of responses, essentially meaning free publicity. This gives support to the theory that by giving a company more of a human feeling and making them less faceless will encourage people to talk about and engage with your company, and for companies looking to introduce a technology that may only be commercially viable after a few more years of research and testing, getting people to talk is one of the most important aims they have before they are able to start mass production.

Another example of a company founder or CEO being a public figure is Apple’s Steve Jobs. Jobs stood as a symbol of progression and technical innovation to many during the early years of apple. When Steve Jobs announced in 2004 that he has a rare form of pancreatic cancer people where worried that without him Apple would stop being an innovative as they had come to be known as and after his death there where even people who predicted the death of Apple.

However this works both ways and if the leader of your company says something that people are not a fan of it will automatically be associated with your company. An example of this by the same person as the above tweet is the effect that one of Elon Musk’s tweets had on Tesla stock. On the fifteenth of July 2018 Elon musk sent out a tweet to someone criticizing his idea on how to rescue 12 Thai boys who had gotten stuck in a cave Musk referred to the man, who had an important role in the successful rescue of the boys as a “pedo guy”. This of course resulted in outrage in not only the public who read the twee but also Tesla investors as quickly after the tweet Tesla stock dropped by 4%, which at the time was equivalent to 2 billion us dollars. This goes to show that there are risks involved in having the leader of your company be such a prominent figure that cannot be talked about without mentioning the business.

On the other end of the spectrum, one of the biggest tech companies in the world, and fifth most profitable company in 2017, Alphabet INC CEO Larry Page has had a remarkably different approach to running his business. He chooses to let the company exist as a separate entity from himself and the average consumer isn’t even aware of who the CEO of Alphabet is and in most cases people only know they daughter company Google. When faced with controversy Page chooses to not comment on it in the hopes that it will go away on its own. The CEO has even been remarkably absent from any public events seemingly in an attempt to keep himself out of the spotlight “He hasn’t presented at product launches or on earnings calls since 2013, and he hasn’t done press since 2015”. This form of leadership is one which has it’s own positives and drawbacks specifically that some consumers are less trusting of Alphabet and specifically Google, because they hold so much information about consumers are faceless in the public eye. This leads to people worrying that they are doing things with their information that people will not like and therefore choose to not talk publicly about what the company is up to. However this doesn’t seem to be too much of an issue to Alphabet as in 2017 they reported revenue of 111 billion USD and as of the 14th of September 2018 have a market cap of just less than 820 billion USD.

Statistical Evidence

There is a surprising trend in businesses where when the original founder of a company leaves or is no longer in direct control of the company the growth of that company seems to stagnate comparably to before the founder left and in comparison to other businesses in the market. Jay Somaney wrote on Forbes that during a study done on long term investments it was discovered that companies who’s founders had given up control of the company had on average lower returns on investments in the period from October 5th 2011, the day of Steve Jobs’ passing, to September 2015.

The companies where chosen based on having a global brand recognition and/or a recognizable founder. The analysis of these figures is based off of the return on investment within the allotted period, this is done as it is a good representation of the growth of the company and it doesn’t give companies who were already large an advantage over smaller companies.

Google, Netflix, Amazon, Facebook and Tesla each have their founders involved in the company in some way, while Microsoft and Cisco no longer have their founders involved. It is clear from this table that companies who lack their original founders seem to lag behind in terms of growth. There are a number of theories as to why this might be the case, there are two possible angles to look at this phenomenon from, the public perception of the company and the change in leadership objectives. If the founder of a company publicly leaves or dies, as in the case of Steve Jobs, public perception of the company might change as people begin to worry about the future. This is evidenced by the numerous articles and blog posts on the internet from around the time of Steve Jobs’ death that claimed that it would be the end of apple and that there was no way for them to be able to continue growing. To put this into perspective Steve Jobs passed away on October 5, 2011. On that day, shares of Apple closed at a split-adjusted price of $50. 53 per share. As of September 2016, Apple closed at $115. 96 per share. Since Steve's death, shares of Apple are thus up 129. 5% or lets says 130% in 3 years and 10 months rounded up. Basically, if you had bought one share of Apple that day, you would have made 1. 3x your money in this time frame. Since that time apple shares have almost doubled though and it has become the first company in history to be worth over 1 trillion dollars, this can be attributed to people no longer being concerned about apple’s ability to innovate without its founder, through their introduction of both new product lines and new technology since that time. But there is still a clear decrease in growth around the time period that Steve Jobs announced that he was ill and the time that he passed away. On the other hand there is the theory that the new CEO’s that are brought in after the departure of the founder have a different approach to running the business as they are less emotionally invested. The founder of a these successful tech companies often already have all the money they want and are therefore not motivated solely by numbers when running there businesses. Contrary to this the hired CEO’s are there to make money and become rich themselves and they are often paid the same salary no matter of the company grows unimaginably or stagnates. For this reason it can the assumed that these hired CEOs’ sole objective is to keep their business alive for as long as possible and are not focused on the goal with which many tech companies are set up, to change the world for the better.

One of the companies who founder was, and is, still actively involved is Tesla and the upwards trend in stock price from 2016 onwards matches almost perfectly with the uptake in searches for Tesla founder and CEO Elon Musk. The below graph shows the total internet searches for Tesla and Musk Respectively and its clear to see the correlation between the two and the stock price for the Company. Similarly the large dips in stock price in April and July of 2018 can be directly linked to Musk’s actions causing major panic and thus a drop in price. On April fools day of 2018 Musk tweeted that his company was going bankrupt. This proved to be an expensive April fools joke as Tesla’s Stock dropped 7% the next day reaching an 7 year low for a day before slowly returning back to normal when people realized that it was a joke, but even after people realized they had been duped there is a clear effect on the stock price of Tesla in that period. This is followed quickly by the aforementioned ‘Pedo’ tweet controversy, which cost Tesla 4% of its stock price, the equivalent of 4 billion USD. These two examples show the power that the founder of a company can have on a company’s success but also how it poses potential risks. Companies who’s founders are more prone to keeping quiet about controversy and letting it blow over pose less of a threat to the stability of the company. Such founders include Amazon’s Jeff Bezos who has become the world richest man as of September 2018 and ops to stay out of any controversy that arises around Amazon and it’s practices or employee treatment.

The Tech Industry

It’s no coincidence that most of the most well known CEO’s in the world run tech companies. These companies offer people a product that they have most likely never used before, often at high prices. For this reason there is a natural mistrust of these products as people are against change and the unknown. A founder who is often in the public eye and who seemingly speaks openly about their business leads consumers to believe that they aren’t hiding something and therefore can be trusted. This trust is important as most modern tech companies collect data form their users, and they can’t collect that data if the consumers are too suspicious to give them any of it. There are of course exceptions to this; such as Google who as mentioned before prefer to remain secretive and faceless yet still have probably the world’s most comprehensive databases of millions if not billions of users. Google does this by making it seem to many people that they are simply a way for them to get to where they want to go on the internet, while they unknowingly give up their search habits and interests in the process. But even Google has made an attempt recently to become less so, particularly since they started selling physical products they have seen the importance in no longer being such a secretive and shady company. The recent revelations by many consumers that their data is being collected by every site that they visit which arose from the Facebook controversy surrounding Cambridge Analytica has meant that now more than ever it is important for companies to seem trustworthy to their customers.

One of the most impressive examples of the power of a charismatic founder is that Tesla Inc. famously has no budget for “traditional marketing” instead relying on word of mouth and media coverage to spread the message of their products. This would not have been possible if they hadn’t mastered the art of winning over the customers’ admiration through a public face that many feel a connection to or look up to. Although this may come with a few potential downsides as mentioned previously it seems that without the thought and persona of Elon Musk Tesla and electric vehicles in general would be far behind what they are today. This showcases the immense power one person can have on the buying habits and the wants of customers.

Conclusion

When starting a new tech company it’s important to decide what kind of founder you want to be. You could be the kind who talks publicly about future projects and your company’s problems, like Elon Musk, you could be the kind who prefers to keep out of the lime light and run the company from behind the scenes, like Jeff Bezos, or you could give up leadership of your company and hire a professional to run it for you. Each option can be appealing for different reasons but ultimately you have to look at what your company is going to offer. If it’s something which people are likely to use without thinking about what you are doing with their information then the route of a mostly unknown founder may be best for you as to avoid any potential controversy that they may cause. Companies who’ customers need to have more trust in them such as those introducing products which have never been commercially available may wish to be as open and communicative with their customers as possible in order to win over their trust and hopefully with that their business, while risking the possible controversy that could arise form this. Looking at real world examples it seems that the initial growth of a company relies greatly on the founder and whether he or she is present. It would seem that it is beneficial to remain at your company for as long as possible to avoid stagnant growth. The effect of the leader is hard to quantify exactly but it seems that it can be an enormous help in getting customers to buy your product and therefore is mostly positive.