Why did the CEO of the world’s most valuable startup resign at age 38?

“Since the beginning of this year, I’ve spent a lot of time thinking about how to better drive real long-term breakthroughs, which cannot simply rely on steady, but incremental, progress,” Zhang said in a letter to employees, admitting he “lack[s] some of the skills that make an ideal manager.”

Zhang said he decided stepping down as CEO of the world’s most valuable startup would enable him to “have greater impact on longer-term initiatives.” Fellow ByteDance co-founder and current head of human resources, Liang Rubo, will take over as CEO later this year, following a six-month transition period.

While Zhang’s note to employees is surprisingly candid, the young billionaire’s sudden departure comes amid a tougher operating environment for Chinese tech CEOs. Regulators have increased scrutiny of China’s once favored tech behemoths, and jaded tech sector workers are pushing back against grueling work hours.

Navigating the changing tide is a delicate task for any CEO, let alone one who—as Zhang admits—isn’t interested in “actually managing people.”

Turning on tech

Zhang founded Bytedance in 2012 as a news-aggregating site called Today’s Headlines, otherwise known as Toutiao. The site’s savvy algorithms, capable of customizing the home page to best suit any viewer’s interest, was a runaway success and Bytedance quickly became one of China’s most valuable tech start-ups.

Zhang capitalized on Toutiao’s growth to launch TikTok—the video-sharing app that has become the leading social media app for U.S. teens—as well as a slew of other products. But not all Bytedance offerings have matched the popularity of TikTok, among consumers or regulators.

In 2018 Beijing ordered Bytedance to shut down its joke-sharing site for circulating “vulgar and improper content,” forcing Zhang into a rare moment of contrition. “This product walked the wrong path and had content in deviation of socialist core values,” Zhang said on his personal account after the site was banned.

Despite some clashes over content, however, Bytedance has mostly escaped the scrutiny of Chinese regulators, which are in the midst of a campaign to rein in Big Tech. The crackdown began when regulators blocked the $310 billion IPO of Ant Group, an Alibaba affiliate, last November, after founder Jack Ma complained that China’s financial regulations were anachronistic.

Since then, the State Administration for Market Regulation—China’s antitrust watchdog—has placed a number of tech giants under review, including Ma’s Alibaba and service-on-demand leader Meituan. While regulators have yet to single Bytedance out from its peers, the start-up was included on a list of 34 tech firms the SAMR warned to correct anti-competitive behavior in April.

“Heed Alibaba’s example,” the SAMR said in a statement about meeting with the 34 firms, referring to reforms Alibaba pledged after the SAMR slapped a $2.8 billion antitrust fine on the e-commerce leader earlier that month.

The visible hand

Under Zhang, Bytedance has done more than any other Chinese tech company to crack the U.S., dominating the market with its wildly successful TikTok app. But TikTok’s success has apparently won Bytedance little support from Beijing.

Last year, as the U.S. threatened to ban TikTok unless Bytedance sold the app to a U.S. company, Beijing created a new rule that would require Bytedance to seek regulatory approval before making the sale. Approval wasn’t forthcoming, jeopardizing the company’s most promising business.

According to The Information, Zhang was “blindsided” by Beijing’s intervention, because the company “hadn’t been proactive” in cultivating a relationship with Chinese regulators and consulting them about TikTok’s future. Difficulties managing the demands of both Chinese and U.S. regulators have reportedly forced Bytedance to delay an anticipated IPO, too.

“In order to stay successful and relevant, the CEOs of tech vendors need to dedicate a lot of energy to maintain[ing] good relationship with the government,” says Lian Jye Su, principal analyst at ABI Research in Singapore. “Not all CEOs want to dedicate their time and energy on this task or have the right skillset to do so.”

What next?

Zhang is not the only young tech entrepreneur to make a surprise departure this year. In March, Pinduoduo founder and chairman, Colin Huang, resigned from the board, just as Pinduoduo surpassed Alibaba to become China’s largest e-commerce site by users. Huang had given up his CEO title in July 2020.

In March, as he left the board, Huang told shareholders he was stepping down to explore future growth areas for Pinduoduo. Zhang is doing the same.

“After handing over my role as CEO, and removing myself from the responsibilities of daily management, I will have the space to explore long-term strategies, organizational culture and social responsibility, with a more objective perspective on the company,” Zhang said, indicating he intends to remain influential in Bytedance’s future.