There’s no doubt that a startup’s central idea is crucial for its eventual success; if it has no originality or innovation, or the idea doesn’t resonate with a target audience, it’s bound to fail. Of course, you also need to have a good CEO in place — someone who can take charge, oversee the execution of that idea and lead the company to success.
But which of these is the more consistent predictor of success: a good idea or a good CEO to support the company?
Startup failure data
There are a few ways to approach this question, but we can start by looking at businesses that have failed, and studying what they did wrong to get to that point. CB Insights recently reviewed more than 242 startup postmortems to uncover the motivating factors for their demise. And what it found was that the most frequently cited factor for failure was a lack of market need — at 42 percent. In other words, a poor idea was one of the root causes for nearly half of all failed startups in the study.
However, other factors tell a different story: Roughly 29 percent of companies examined in the study cited running out of cash as a chief concern, while 23 percent cited not having the right team as a core problem and 19 percent cited having been outdone by competitors.
A CEO was directly or indirectly seen as being responsible for all these issues. And equal blame went to CEOs and the ideas they supprted, for the companies’ being out-competed by competitors. Other common issues, such as pricing/cost, poor user friendliness and products lacking a business model, might be attributed to both the idea and the CEO — but tend to be dependent on a CEO’s control.
Venture capitalist perspectives
Expert opinions may also help us answer our original question. Venture capitalists and angel investors tend to value the leadership of a company — its founder and CEO — more than the company’s idea. Some VCs even take this to the extreme; for example, Taizo Son, founder of Mistletoe (a VC firm, accelerator and incubator in one) invests only in founders, claiming to never check business plans or economic projects and instead focusing on each founder’s passion and mindset.
While other VCs, in contrast, will probably check your business plan and care about your idea, they share a similar mentality about the importance of a strong CEO at the head of a business. Silicon Valley VC and “super angel” Ron Conway has noted, “When you’re talking to me, in the first minute I’m thinking, ‘Is this person a leader?’”
We should also consider the dynamic between CEOs and ideas; namely, ideas aren’t active agents in a business. CEOs have the power to take ideas and change them. They have the power to take a bad idea and execute it perfectly, or to suffer the vulnerability of having taken a good idea and crashed it into the ground. Ideas can’t influence a change in leadership quite the same way.
Therefore, CEOs get the edge in importance when the perspective used is that of logic.
Still, certain problems go with studying the relationship between the idea and the CEO on company outcomes:
CEO sampling. Russell Reynolds Associates, working with Hogan Assessment Systems, surveyed more than 700 CEOs globally to understand what makes a “good” CEO. As you can imagine, there was significant variability, but two characteristics highlighted were the “essence” of the CEO personality: a tendency to act on promising opportunities, and a willingness to embrace calculated risks.
Of course, there’s a significant problem with studies like these or any study that purports to dissect a CEO’s role in a company’s success. We’re looking only at CEOs who volunteer their information, are in a relatively stable place and are high-profile enough to be noticed. What about everyone else?
Leadership styles. There’s no one type of leadership or direction that works better than others. Some successful CEOs are aggressive; others are passive. Some are perfectionistic and demanding; others prefer to delegate and trust others to get the job done.
This means that there’s no blueprint for what makes a “good” CEO, in contrast to an idea, which can be measured based on its projected income, market demand and other factors.
The day to day. The popular podcast Freakonomics Radio recently delved into “The Secret Life of CEOs,” an exploration of how CEOs function within a company. As the podcast’s host, Stephen Dubner, pointed out, we tend to focus on CEOs only when something very good or very bad happens with the company.
Accordingly, we make judgments and understand CEOs only in the most extreme contexts.
So, again, which is more important: the idea or the CEO? Though ideas are fundamentally important, I have to give CEOs the edge. Data from startup failures, VC and angel investor preferences and the impact that CEOs can have on ideas all adds up to make CEOs and business leaders more important than the ideas they’re meant to represent.
Does this mean your idea doesn’t really matter? Of course not. But it does mean you’ll need to make sure it has a strong leader to execute it — and that just might be you.
For more content like this, be sure to check out my podcast, The Entrepreneur Cast!