I found this article from Aileen Lee fascinating: Welcome To The Unicorn Club: Learning From Billion-Dollar Startups. She looks at the 39 U.S.-based tech companies founded since January 2003 that have reached at least a billion dollar valuation in either the private or public markets. While the whole article has many interesting points, I want to focus on what Aileen and her seed-stage firm Cowboy Ventures discovered about the founding CEOs of these companies.

Even though most of the founding CEOs were first-time CEOs, 76% of them led their companies all the way to a liquidity event. I think it is significant that they made it through many different levels without having any prior CEO experience. Many people think that just because the revenue numbers are bigger, the job of the CEO is harder and different on a linear scale.

I believe the better approximation would be a logarithmic scale. For instance: Being CEO of a company with $10 million in revenue is an order of magnitude different then being CEO of a $1 million in revenue company. Same difference between a $100 million and $10 million in revenue company and so on.

I find it funny when I get calls from headhunters looking for a CEO to take a company from $100 to $200 million in revenue. I don’t think there is much fundamentally different in being CEO of a $100 million or $200 million company.

I think the fact that many of these CEOs made it from zero to in some cases billions in revenue without previous experience is a great lesson for boards that are hiring CEOs. While you wouldn’t hire a CEO of a $1 million dollar company to run a billion dollar company, a good CEO at $100 million should be able to make the jump to a billion.

So what did these CEOs have that allowed them to go from zero to huge market valuations? First, as founders and often inventors of their offering, they had a deep understanding of the market and what customers wanted. This is no surprise, since number one on my list of CEO responsibilities is to own the strategy and vision.

Every CEO must deeply understand the market in which he or she operates. Having run software companies for most of my career, I would not be uncomfortable running a very large software company. However, I would feel totally unqualified to run a $10 million dollar Internet jewelry company, because I just don’t understand the market for jewelry.

Second, most of the founders were in their mid-30s and had often worked together with their co-founders. CEOs are made not born, so experience does matter. Also, most were well educated (or in some cases on their way to being well educated), which implies a thirst for learning that is critical to the CEO position. Getting accepted to a “top ten” school requires that you demonstrate a track record of learning from a young age. This thirst for knowledge may be the most important part, since some who dropped out of college early did very well.

Finally, 90% of the enterprise CEOs had technical degrees from college. As CEO it is critically important to understand how the sausage is made. If you want to be CEO of a software company, you better understand the basics of computer programming.

It is interesting that one of the most respected CEOs of our time, Alan Mulally at Ford, came from Boeing. While airplanes and cars are not the exact same market, they are both at their core large-scale manufacturing operations. As Mulally’s name is thrown around for the Microsoft job, you have to wonder if he could be successful in a business where he doesn’t really understand the fundamental “manufacturing” process.

This study also has implications for early stage investors. The idea that you should fund an idea and worry about finding the right CEO later doesn’t make sense to me. Any time I look at funding a business I want to make sure the person I am funding has these three fundamental characteristics:

• 1) A deep understanding of how the product is bought and sold
• 2) Is willing and able to continuously learn and adapt
• 3) Understands how the product is made

If they have these merits, then I think there is a good chance they will be able to scale with the business. The last thing you want to do in any startup is forcibly replace the CEO.