It’s intuitive — leaders with more years of experience in business should (in theory) stand on a stronger entrepreneurial foundation than those new to the game.
We all know that venture capitalists often stake their strategies around this idea. For many investors, it’s a standard move to kick a young and stumbling founder-CEO out of their office to make way for a veteran leader. The majority of businesses tend to drop their founders as they age; according to statistics published in the Harvard Business Review, 50% of founders lose their CEO titles by the third year, 40% by the fourth, and fewer than 25% lead their companies’ initial public offerings. Research has demonstrated that the decision to oust founder-CEOs is consistent for venture-capital-backed companies in both adversarial situations and those that are amicably discussed.
The rationale behind these replacements is simple. Investors believe that by exchanging a seasoned executive for an untested one, their venture will be in a better position to optimize its structure, finances, and strategy — and provide a return on investment. This approach is often right; recent research indicates that when the probability of founder replacement increased by just 14%, the odds of their company seeing a successful exit rises by a whopping 25%.
But what if a founder already had that corporate know-how and business acumen? Given the above, one might assume that the people who are most suited to entrepreneurship and business development would be the ones who are already involved in high-level business operations at established companies.
Those assumptions, however, would be wrong. In my experience, unless they happen to be professional CEOs, former corporate executives can be among the least-prepared founders on the entrepreneurial beat.
I know this firsthand. Before I decided to pursue entrepreneurship, I spent years climbing corporate ladders within the finance sector. The companies that I worked at — Dresdner Bank, UBS, BNP Paribas — were universally massive and built on longstanding organizational structures. When I became the CEO of an energy conglomerate, the scope of my leadership grew to encompass complex business strategy and international operations.
I thought my years of experience as a corporate leader would prepare me for building a business. When I founded my current company, it was small — a single office in Dubai. The small scale was a far cry from the expansive oversight scope I had in previous roles. Rather than directing operations of hundreds, I oversaw a small team. I thought my work as an entrepreneur would be simpler; after all, if I could successfully lead an organization that spanned continents, creating a small consulting firm should be easy.
It was not. If anything, it was more challenging, because I was responsible for crafting the financial and operational structures that I had taken for granted — even resented for their restrictions — during my tenure in the corporate world.
Former corporate executives can make excellent founders. However, they will have to break free of big-operation habits and retool their approach to suit a smaller, more flexible business. If you don’t — or if you are overconfident enough to think that you don’t need to — your company might suffer for it.
Below, I’ve listed a few mindset changes that ex-corporate, first-time entrepreneurs need to be aware of as they begin to build the foundation for their business.
As I mentioned above, corporate executives can become accustomed to having structures in place. They take their well-oiled processes for granted and rarely need to engineer new approaches. When you begin a business, however, you are responsible for crafting operational structures — and usually, they tend to be clunky at first.
The flexibility and adaptability that entrepreneurship requires may not allow for ex-executives to abide by static structures the way that they could have in their previous roles. When you start a business, you don’t have the comfort of long-established processes and institutional hand-holding. Instead, the responsibility falls to you to create new structures — and, when necessary, change or demolish them.
Companies of every size need to invest funds to make money. The attitude businesses take towards spending those resources, however, is vastly different.
Entrepreneurs tend to be frugal with their spending. Usually, the amount of money that new founders have is relatively modest, and they tend to have a strong sense of ownership over it. In contrast, large corporations usually have a substantial amount of money that corporate leaders can allocate upon demand. Most crucially, these executives often are less worried about spending it because they do not see it as their money in the same way entrepreneurs.
The mindset change is stark; for some founders, it can even cause workplace culture shock. “[Former corporate leaders] seemed to think money grows on trees,” entrepreneur and CEO Kathy Taggares commented in a press piece on the matter, “An entrepreneur doesn’t throw money around as freely as a corporation that can always print more.”
Taggares’ perspective is somewhat harsh, but she does illustrate a critical problem that some former corporate leaders may face when they verge into entrepreneurship — overspending. Those with corporate backgrounds will need to be conscious of how much they spend in the early days of their business and ensure that they take a financially-conscious approach to business development.
To borrow a quote from Forbes entrepreneurship writer Mike Kappel: “A decked out workspace does not translate into a successful company. In the early days of your business, put your money toward growing your brand, not your ego.”
If ex-corporate leaders only take one point away from this piece, it should be the following: the skills required to navigate a corporate career and those needed for entrepreneurship are different.
Despite what intuitive reasoning might suggest, a corporate executive will not be able to leave their corner office and seamlessly begin running a successful startup. The skills a leader gains even over decades of corporate work are not inherently transferable to running a startup operation.
A founder’s mindset needs to be flexible, adaptive, and, most of all, humble. Even a veteran leader can’t assume that they know everything they need because they have successfully navigated corporate environments. Entrepreneurship is an entirely different pursuit, and experienced business leaders are, in many ways, starting over by building an independent business. Some skills are undoubtedly transferable — leadership acumen, financial knowledge, business savvy — but the context that founders use them within is entirely different.
So, yes, leaders with more years of experience in business should, in theory, stand on a stronger entrepreneurial foundation than those new to the game. The truth, however, is that many don’t. When corporate veterans choose to move into the entrepreneurship game, they need to be prepared to leave behind business habits and assumptions that they have honed for decades. If they can’t, the weight of their experience may just become a burden for their business.