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Founders, the CEO role and knowing when to hand over the reins

Founding a company—especially one that becomes successful—is a unique achievement. But while founders often feel strong ties to the organizations they started, they aren’t always strong CEOs. As the needs of a company shift or a founder’s interests shift, often a company needs a change in leadership to ensure continued success or get it on […]

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Founding a company—especially one that becomes successful—is a unique achievement. But while founders often feel strong ties to the organizations they started, they aren’t always strong CEOs. As the needs of a company shift or a founder’s interests shift, often a company needs a change in leadership to ensure continued success or get it on the right track to profitability.

While most founders don’t stay at the helm as long as, for example, Google founders Larry Page and Sergey Brin did—or see the type of exponential growth Google has—their departures from active management roles at the end of last year raised an interesting discussion. Organizations should consider whether founders are always the right person to lead a company and when it’s time for founder/CEOs to step aside.

Identifying strong leadership skills

Not every founder has the self-awareness to know if they’re the right person to lead a venture, but typically the investor community does a very good job communicating their opinion on the matter. You may be a brilliant scientist with a promising idea, but if an investment company doesn’t feel you have the chops to be CEO, they may withhold their funds until there is a CEO on board they feel confident in.

There are many cases where those with great scientific or technical minds make successful leaders. However, in other cases it may be best for them to take on a CTO role to work side by side with someone who is more comfortable in the CEO role. For example, doctors and scientists are often hands-on and used to controlling outcomes, and leading an organization often comes with ambiguity. As Marshall Goldsmith writes in What Got You Here Won’t Get You There, the skills that make someone a great hands-on operator don’t always translate to being a great senior leader, which requires having ample trust in others and living in a world of uncertainty.

Structuring leadership for success

From business partners to boards and investors, CEOs have multiple sources of support and frank feedback.

Anyone looking for a business partner to complement their own technical skills must be prepared to have authentic, honest conversations early on about what they want out of the venture. Business partners need trust and chemistry, but also shared goals and values. Noam Wasserman famously raised “the founder’s dilemma:” being rich or being king. Being king requires limiting growth and taking on limited external capital, while being rich involves growing an organization as much as possible. Business partners must be on the same page regarding which path they’ll take.

When a CEO has reached their bandwidth, they are usually the last to know it. Because humans are generally bad at assessing their own capabilities, it’s crucial that founders find someone to chair their board they trust completely. This, of course, means that founders should not act as the chair of their own board, but rather choose a trusted advisor whose judgment they respect. That way, if there comes a day when the board chair delivers the news that it’s time for the founder to turn over control to someone else, the founder can know that person truly has the best interests of the organization in mind. When CEOs chair their own boards, they can deprive their organization of a valuable mechanism. Employees within the company who receive their paychecks from the CEO certainly can’t deliver that message, and the chair of the board should be someone who is unafraid to speak truth to the CEO and founder’s power.

Investors also have a say here. If an investment company has provided funding in multiple rounds, they may own more than half of an organization and have a majority of seats on the board. While it’s always the hope of investors that the founder will be successful as CEO, if they are not and there’s a significant investment in play, the decision becomes a no-brainer. As Whole Foods CEO and co-founder John Mackey said, “venture capitalists are like hitchhikers with credit cards,” and they’ll take their dollars elsewhere if an investment is no longer sound.

Knowing when to transition

For founders who do take on the CEO role, most run out of capacity long before their ventures get to the scale of Google, reaching a point at which either their ability or interest wanes. For some, that might occur when a company reaches $10 million—or billion—in sales and it’s time for them to build something new from the ground up. Founders who know they enjoy the buzz that comes with securing that first round of funding should be upfront about their intentions to stay on. Other founders may find themselves struggling to manage the complexity of a larger organization and number of people, and balance internal and external stakeholder needs, leading to them being ineffective as CEO.

Whether a founder is looking for the next challenge or is unable to continue to succeed in the role, both situations call for a new leader. Voluntary departures generally lead to positive transitions, with the founder selling the business and using the earnings to start something new, or retaining interest and hiring a new CEO to take over.

If you consider what makes really good senior leadership effective, the CEO is often the person who will fall on their sword and takes responsibility when an organization is underperforming. With that in mind, founders who take on the CEO role must be willing to shoulder that responsibility, and should surround themselves with a team and board of trusted advisors with diverse views who won’t hesitate to tell them when it’s time to move on.  

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