HR & Management

The five most disastrous examples of founders trying their hand at being CEO

11 min read

18 August 2015

While many business founders may feel possessive about anyone else taking the reins, they're not always the best person for the job. We've compiled a list of five notable examples who were renowned for setting up a company, but weren't quite so successful at running it.

People who set up businesses don’t necessarily have the ability to run them – a statement supported by a comprehensive study of management methods in nearly 10,000 firms around the world, by the National Bureau of Economic Research. Those owned and run by founders had, on average, worse management practices than any other structure.

It’s not always the case of course – Mark Zuckerberg, Larry Ellison, Jeff Bezos and Steve Jobs have all been examples of founders who went onto lead their pet projects into hugely successful enterprises.  

There is though, a long line of founders who haven’t had the best of stints leading their firms – here we’ve compiled some of the more disastrous appointments.

(1) Rahul Yadav

He may yet turn out to be a highly successful CEO and founder, but 26 year-old Yadav’s recent reign over property portal Housing.com has been marred by numerous controversies. A highly promising businessman, Yadav dropped out of the Indian Institute of Technology to start Housing.com with 11 others. 

From an early stage, he became well known for being fairly brash and arrogant, with a “hint of Steve Jobs about him” – a volatile attribute that didn’t stand him in good stead as CEO.

While Housing.com had numerous rounds of funding, including a $90m investment from Japan’s Softbank, Yadav began to hit the headlines for his unorthodox approach to dealing with those who had angered him. In March, an email he sent to an MD of private equity firm Sequoia Capital ended up online, with Yadav furious at a reported job offer for one of his employees.

He told the recipient: “If you don’t stop messing around with me, directly or even indirectly, I will vacate the best of your firm.”

His email antics also got him into trouble after an internal message accusing India’s largest media house, the Times Group, of being out to malign Housing.com – it owns competitor MagicBricks – got back to the company in question. The Times Group sent a legal notice to Yadav’s firm, seeking $16m in damages.

Yadav’s quick-temper flared up again in May 2015, resigning in an email to investors, while declaring he’d be available for a week for the transition but “won’t give more time after that”. It also told board members and investors he didn’t think they were “intellectually capable enough to have any sensible discussion anymore”.

A hastily arranged board meeting managed to resolve that initial dispute, but he was then fired in July.

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(2) Jerry Yang

Despite being named one of the top innovators in the world aged under 35 by the MIT Technology Review after creating what came to be known as Yahoo! during his time at Stanford University, Yang’s year and a half as CEO wasn’t so positive.

When he took up the position in 2007, Yang said there would be “no sacred cows” and a 100-day action play – but the company’s notorious bureaucracy triumphed, and not nearly enough layoffs occurred at the time.

The notorious Microsoft buyout also sounded a nail in his coffin – Yang rejected an acquisition offer for $47.5bn, feeling it undervalued the company. This left investors concerned, and Yang attempted to assuage their worries by negotiating a partnership with Google, which then fell apart. 

The search giant withdrew after the Justice Department threatened to file an antitrust lawsuit to block the deal. It would have boosted Yahoo!’s lagging sales and profits, including up to $450m in operating cash flow annually.

He left Yahoo! as it struggled to compete with Google and Facebook for online users and advertising money.

Interestingly, in 2013, Yahoo!’s stock finally exceeded what Microsoft had been willing to pay, though by then Yang was long gone.

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(3) Jason Goldberg

There was a point when Fab.com – founded in 2011 – was considered the fastest growing startup in the world, as the ecommerce site partnered with numerous designers selling their goods through flash sales.

The outlook by 2013 was a lot bleaker. CEO Jason Goldberg gathered his executives and gave them a memo, outlining the dire situation. Valued at $900m just three months prior to the meeting, the company had raced through $200m of the $336m it had raised, struggling to find a sustainable business model. Two-thirds of his employees needed to be sacked.

The letter said he was going to make things work and had to start with “brutal honesty”. His letter and subsequent actions did little to turn around the company’s fortunes however, with employees laid off, executives departing and a deal with PCH Innovations acquiring Fab for just $15m on the horizon.

Much speculation went on as to why Goldberg failed to address the sinking ship, with past employees often pointing to his charismatic ability to sell a vision, but lacking the nous of operations to get a model running afterwards.

He made mistakes like moving into Europe prematurely when the firm was still nascent in the US and moved away from its core business of flash sales to holding inventory – meaning the expansion resulted in less originality and dwindling interest from customers. Coupled with Goldberg’s own ego that saw him hankering to take on Amazon and deviating from the business’ ethos, the company quickly went off track.

He hasn’t yet been put off as founder and CEO though – Goldberg launched furniture site Hem in 2014

Read on to find out how Martha Stewart and the founder of Angry Birds ran into trouble with their businesses.

(4) Martha Stewart

The American media mogul known in the US for her self-titled television show and magazine, founded her company, Martha Stewart Living Omnimedia, in 1997 and after its 1999 IPO was worth $2bn.

While Stewart’s role became chief creative officer and director of the business, many execs said her excessive intrusion into the running of the business restricted CEOs from making effective change. She also controls 96 per cent of the voting shares of the company.

Stewart’s business has struggled as her audience is ageing and, while the brand was strong, a reliance on print revenue and failure to adapt alongside more technologically savvy competitors has left her floundering. Missing out on the ecommerce boat left Stewart’s Living Omnimedia adrift.

In 2004, Stewart’s own image lost its lustre when she was found guilty of conspiracy, obstruction of justice and making false statements to a federal investigator after she was indicted for insider trading. She stepped down from her prior position as chairman and chief executive, though she became chairman again in 2012. Following her release from prison, Stewart’s company hasn’t turned an annual profit since 2007.

Stewart’s pay packet also raised eyebrows – while the company struggled Stewart was paid more than $21m between 2009 and 2011.

A deal was recently announced with the company being bought by Sequential Brands Group for $353m.

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(5) Mikael Hed

It can be difficult to create an app that catches the attention of the masses and manages to stand out among the thousands of others available. Even trickier may be building on the success of one game, as the CEO and co-founder of Rovio Entertainment found after designing the smash hit Angry Birds game.

Mikael Hed said the company had been struggling to innovate its game offerings and, coupled with eye-watering price for in-game upgrades costing as much as $60, the firm soon hit troubled waters. 

Hed founded the company in 2003 with his cousin, after which millions of children and adults alike became hooked on the addictive Angry Birds app.

The duo soon saw that users were reluctant to embrace the new freemium sales model – meaning Rovio’s net profits dropped 50 per cent from the previous year to $37m in 2014

Another of Hed’s mistake was the bloated workforce. While forecasts should have highlighted the business would be losing money, Rovio continued to add around 300 employees – increasing staff count to 800. Hed resigned as CEO in 2014. 

Rovio recently released Angry Birds 2, along with a new business model, and has been downloaded 20m times – though it’s yet to be seen whether this will translate into player spending.

Image: Shutterstock