Peter Thiel, founder of PayPal, taught a course on technology business and one of his students published his lecture notes, including his thoughts on dictatorships.
A startup is basically structured as a monarchy. We don’t call it that, of course. That would seem weirdly outdated, and anything that’s not democracy makes people uncomfortable….
It is certainly not representative governance. People don’t vote on things. Once a startup becomes a mature company, it may gravitate toward being more of a constitutional republic. There is a board that theoretically votes on behalf of all the shareholders. But in practice, even in those cases it ends up somewhere between constitutional republic and monarchy. Early on, it’s straight monarchy. Importantly, it isn’t an absolute dictatorship. No founder or CEO has absolute power. It’s more like the archaic feudal structure. People vest the top person with all sorts of power and ability, and then blame them if and when things go wrong.
We are biased toward the democratic/republican side of the spectrum. That’s what we’re used to from civics classes. But the truth is that startups and founders lean toward the dictatorial side because that structure works better for startups. It is more tyrant than mob because it should be. In some sense, startups can’t be democracies because none are. None are because it doesn’t work. If you try to submit everything to voting processes when you’re trying to do something new, you end up with bad, lowest common denominator type results.
It’s not only startup businesses that benefit from dictatorship; big businesses operate best by dictatorship, too. For example, Nokia used ponderous democratic processes to make decisions and despite investing quadruple the amount of Apple on research and development, it lost most of the phone market.
“What struck me when we started working with Nokia back in 2008 was how Nokia spent much more time than other device makers just strategizing,” Qualcomm Chief Executive Paul Jacobs said. “We would present Nokia with a new technology that to us would seem as a big opportunity. Instead of just diving into this opportunity, Nokia would spend a long time, maybe six to nine months, just assessing the opportunity. And by that time the opportunity often just went away.”
Dictatorships sometimes operate better than democracies even when the leader acts foolishly because following a bad plan is often better than having no plan. For instance, Tim Cook and the board of Apple spent 12 months persuading Steve Jobs that the iPhone would be a much better product with applications from outside developers. Can you imagine the iPhone today if all the apps were developed by Apple? Jobs was a genius because he sometimes changed his mind, escaping his reality distortion field.