There may come a time when the founding CEO grows their company beyond their ability to grow it even more.
"Ideas are a commodity. Execution of them is not." — Michael Dell
It sounds like a Catch-22. However, it is a standard move that most startups get wrong— they make a move too early or too late to replace the founding CEO at any point in a start-up’s growth cycle comes with a tremendous amount of risk. Getting it wrong likely means shuttering the company. Moreover, getting it right still sets the startup several steps back. The transition requires careful planning.
So why do it?
The founder and CEO of a startup is the lifeblood of the company. Often about three years into the venture or once it grows to about 25 employees, a first time CEOs reflect “I think I’m done being CEO.” For many, it occurs when the fun and excitement turn in to process and structure.
They feel that they have been CEO at the company for longer than they should. However, giving up control of their baby is hard. More importantly, if you want it to thrive, you need to see beyond your ego and accept your limitations. Just because you started something as a founder, it does not mean that you are the right person to grow the business to the next level.
Success is all about leverage our strengths — your performance DNA. High performers in a given role share a subset of common performance traits. Not many people can create a startup and have their baby outgrow them. Equally hard is taking a 25 people company to a 500 person company. It requires different superpowers.
The Case for Ousting The Founding CEO
Often acquirers and investors replace the founder with seasoned talent. I always question this move and the timing of the movement. No one has the same passion for the business as the founder. Assuming the flame is still burning bright, I prefer to build a team to support and develop the founder.
"Don't be a lone wolf. Lean on the experience and smarts of your teammates, investors, and mentors to help solve the tough problems and take advantage of the opportunities." — Seth Bannon, Amicus
Often, they need a high-performance team. We know what the performance traits required for success. We use high-performance analytics to assess the founder and then fill the gaps around him or her. The business needs the complete set the traits in the executive leadership team. However, these do not have to be in one person (and rarely does one person have all the attributes). So, it could be a team effort. I always challenge the replacement question when it comes up.
Build a High-Performance Team
I also offer guidance regarding How to Build Your Start-Up Team for Success, so team members can evolve as your company grows.
Besides being a founding CEO, I have also been CEO at four companies where I was not the founding CEO. I have also been involved with startups and walked away from some because the CEO was not up to the job. The organization was not going anywhere. You can have many problems to fix at every point in the company organization structure. However, a problem CEO, who does not recognize that he or she is the problem, cannot be fixed.
So, the board (or the owner) must replace the problem CEO — even it is yourself! The first step is to agree on the definition of “problem.”
Some founders think they know when their time is up. However, I want to find out what got them into that mindset. If the founder has a growth mindset, where they are open to ideas and input and help and leadership coming from others, the CEO may not be the problem. So, I ask questions to determine why the founding CEO wants out in the first place. For the serial entrepreneur, they love the front end and building a company from nothing. It is beautiful if they realize that their broad aspiration is to create more new companies.
Removing the Founding CEO For One with Better Experience
As the startup grows — the board, the investors, the executive team, the employees, or even the CEO themselves start to believe that the founding CEO has reached their limitations. Moreover, the company has grown past them. So, momentum builds about replacing a non-problem founding CEO.
Market conditions rarely drive it. It this transition happens both in good times and in bad. In good times, the initiating event is often a new investment or an acquisition. In tough times, some see it as a last effort to save a sinking ship. However, a founding CEO also gets replaced at any point and without reason, is seen as no longer fitting with the organization.
Be aware of the psychological push for political reasons. The quickest way for investors to get a first-time founding CEO out is to convince them that they are no longer equipped for the job. If someone wants the founder removed for their reasons, this is what they will do.
"Don't be afraid to assert yourself, have confidence in your abilities and don't let the bastards get you down." — Michael Bloomberg
When the Acquirer Already Has A CEO
Usually, a failing startup means that what the founding CEO was doing was not enough. It is a valid reason to bring in a new CEO.
More likely, the investors are supplying new funds based on a story that has much bigger and broader on the potential market than the start-up’s original story. The investors believe in the product or service; they see the market potential. Their injection of capital can fund growth. However, they often see the new narrative as beyond what the founding CEO can deliver — the market did not appear, the founding CEO could not capture it. They often underestimate the potential of the founder to lead the organization through the next level of growth.
On the other hand, with a growing startup, what the founding CEO is doing is working. So, why replace them? The investors’ response to that question is typical — the company needs to be growing faster. However, in my advisory work with organizations, I look to determine the performance traits that may be lacking in the founding CEO which are preventing them from achieving faster growth. As mentioned above, it may be better to add a new executive team member (i.e. COO, if it is an execution problem).
Ensure You Fill The Performance Gaps
It is essential to know what is missing before making a dramatic change. Even if the investors replace the CEO, while they may cover the missing area, they often create new gaps in performance.
I have seen the investors’ force-fit approach fail too many times. The investors believe that the new CEO has all the tools to get the company from X to the investor’s exit point. However, the startup is at point Y. So, the new CEO starts doing what they have done before, same methods, same connections, same strategy. None of their approaches fit with the start-up’s story, technology, or culture. The new CEO alienates everyone from employee to customer, and it is a slow meltdown from there.
When There Is CEO Who Should Not Be CEO
If the company has not been acquired, not landed new investment, or is not sinking; and the founder is contemplating whether they should be CEO. There are likely only a few reasons why they should not continue as the CEO. These include.
The Startup May Be Growing Fast — Beyond the Leader’s Experience
There is a critical difference between experience and limitations. The fact that the founder got the start-up from the idea phase into growth phase says a lot about their potential to lead. New leaders are made in the field rather than in a classroom.
"You don't learn to walk by following rules. You learn by doing and falling over." — Richard Branson
However, if the founder feels they are not picking up the strategies to be successful at this stage, or they are not surrounding himself or herself with the people who can get them there, then it might be time to step down.
The CEO Cannot Sleep
Leading a company is a life choice — not for everyone. It is in your mind 24-7. It is high-stress and carries high-responsibility. In our leadership ladder, we identify the ten essential competencies at each level of leadership. Our research shows that if you are not naturally high in at least four of the performance competencies, you will find the leadership role to be too stressful.
The people challenges related to a workforce of 25 or more people is often the tipping point. As the company grows to this size, there are a much larger number of people using your products or services. However, there is no shame in admitting the stress is too high. Unfortunately, many founders crumble under that strain of a growing start-up.
Founding CEO Does Not Want to Be the CEO
The CEO needs to be all in, or they should be out.
Concluding Thought — Should the Founding CEO Stay or Go?
There is much nuance in
- Leadership
- a startup
- self-analysis
The founder’s decision to step down is not an easy one to make. Moreover, no magic equation will make your decision binary.
"Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do." — Steve Jobs,
Regardless of the reason, when considering replacing the founding CEO, ensure that the replacement CEO is going to be better than the founding CEO.
Are you willing to bet the life of the company on it?
Because you are, so it is best if you use performance analytics to give you the likelihood that the founder is successful and benchmark other candidates against the same metric.
Want a High-Performance Team?
We are all about evidence-based decisions. We use talent analytics and best practices to create high-performance teams.
Complete Leadership Series
An evaluation of executive potential using SuccessFinder. Reports provided: interaction styles, career success, career summary dynamics, the ladder of leadership.
Project Team Development
Validation of purpose and task clarity, team composition using SuccessFinder, feedback session, team questionnaire, team workshop.
Project Team Development
Assistance in organizing future teams to have employees working in areas where each has the best opportunity to succeed, assessment of performance traits and competencies to get the right mix of team members using SuccessFinder.
Let’s Talk!
