Rosedale faces “founder’s dilemma” and steps aside

By Eric Reuters

SECOND LIFE, March 14 (Reuters) - Company founders like Philip Rosedale face a troubling choice: Do they want to be in control, or do they want their companies to succeed?

The classic founder’s dilemma — to be rich, or to be king — may not perfectly describe the choice made by Philip Rosedale in his decision to step down as chief executive of Linden Lab. Rosedale clearly believes deeply in the potential for Second Life to be a world-changing technology, not just a lucrative one.

But the bind of executives like Rosedale, recently analyzed by the Harvard Business School’s Noam Wasserman, is very real. Technology veterans like Mitch Kapor and Bill Gurley, who sit on Linden Lab’s board, can only name a few founders who have superseded the founder’s dilemma: household names like Microsoft’s Bill Gates, Oracle’s Larry Ellison and Amazon’s Jeff Bezos.

“Sometimes there are people like Bezos who have the ambition to lead and go all the way, but there are a lot more like (Rosdedale), where the founder wants to focus at what he’s best at,” said Gurley, a partner at Benchmark Capital.

“He looked at what he needed to be doing as a CEO, and what a CEO of a company this size does,” added Kapor, founder of Lotus Development Corp. “That was really not the job he wanted to do.”

Kapor himself went through a similar experience as the founder of spreadsheet pioneer Lotus Development Corp, stepping down as CEO in 1986.

“This little company turned into this enormous thing with thousands of employees making hundreds of millions of dollars a year. And it was awful,” he said in a 1990 interview with Wired magazine. “So I left. I just walked away one day.”

While Rosedale will become chairman of Linden’s board and work full-time on product development and strategy, his departure as CEO represents a dramatic shift in the direction of Second Life.

Since its incorporation in 2001, the image of Linden Lab has been synonymous with that of its founder. The idea for a virtual world was in Rosedale’s mind since the nineties, when he began pitching variations on the theme to investors until he secured the financing to pursue his dream.

With the departure of Linden Lab CTO Cory Ondrejka in December, the company loses the two most prominent figures behind its famously quirky corporate culture in a span of three months. Rosedale and Ondrejka created a company around a philosophy they called the “Tao of Linden”, where employees are encouraged to work on what most interests them and staff send each other affirming messages through an electronic bulletin board called “The Love Machine.”

By the accounts of all parties involved, the decision to find a new CEO was Rosedale’s own, and in that he may have been fortunate, especially given the sharp drop-off in Second Life’s growth rate over the past year amid persistent complaints about stability and usability. Wasserman’s research indicates that four out of five entrepreneurs are eventually forced out.

PASSION FOR COMPUTING

Known for his passion for computing and a boyish enthusiasm for Second Life often described as messianic, Rosedale has been working on the frontier of avant-garde technology his whole life.

The eldest son of an English teacher and a Navy pilot, Rosedale discovered his interest for both technology and entrepreneurship at an early age. He started his first business, selling database systems to small companies, at age 17, and learned how to sell products while working as a used car salesman.

Receiving a degree in physics from the University of California at San Diego, Rosedale, an accomplished computer programmer, started FreeVue, a company specializing in video compression technology. The firm was acquired by RealNetworks in 1996, which named a then 27-year-old Rosedale its chief technology officer.

He worked at RealNetworks for the next three and a half years, spearheading a number of new technological products in the heyday of the dot-com boom.

Convinced that “virtual reality” was the next frontier and frustrated that executives at RealNetworks didn’t share his vision, Rosedale left the company at the end of 1999. By his own recollection, the inspiration for Second Life came from attending the Burning Man festival, an annual event held in the Nevada desert where artists, ravers, and freethinkers erect a temporary city for a week in the wilderness.

“Burning Man is wondrously purposeless,” Rosedale said in an interview last year with Rolling Stone. “It asks you not to have a reason to be there. You’re brought together by a need to protect each other in the harsh environment.”

“Second Life is a new scary, difficult environment,” he added. “Burning Man is Second Life.”

BIRTH OF A NEW COMPANY

Rosedale found a believer in his vision in Kapor, who was a board member of RealNetworks. After Rosedale left Real, Kapor invited Rosedale to be “entrepreneur-in-residence” with the venture firm Accel Partners. After a year and a half of pitching variations on the Second Life theme to dubious investors, Rosedale was able to secure financing to incorporate “Linden Research, Inc.” in early 2001.

He named the firm after its first office on Linden Street, an ode to the San Francisco liberal culture Rosedale felt his company was a part of.

Rosedale’s creation, first called “Linden World” and later renamed “Second Life,” grew extraordinarily quickly, and the company basked in the glow of fawning press coverage. Evangelizing Second Life was a task Rosedale seemed to relish, talking about the wonders of his world with genuine enthusiasm and zeal.

But by mid-2007, Second Life’s magic seemed to fade. Growth leveled off, real-world companies invited into Second Life by Rosedale began to pull out, and concerns over fraud, gambling and child pornography forced Linden Lab to increasingly intervene inside its creation. Rosedale pledged his company’s new top priority was fixing bugs, an answer to longstanding gripes by Second Life’s most committed users about the stability of the software.

New virtual worlds drawn by Rosedale’s success opened their doors. While Second Life enthusiasts insist Linden’s software is more robust and democratic than anything else on the market, it became clear Second Life was in direct competition against upstarts for market share and venture capital. Increasingly, day-to-day management of Linden Lab became a task more like running any other Northern California technology company.

While Rosedale is stepping down as CEO, he will be at the forefront in choosing his successor. And he’s not turning his back on Second Life.

“This is my life’s work,” he told Reuters.