Founders have a deep relationship with the business they start and are heavily invested in the dream of long-term success.
Their role goes far beyond a standard CEO title and the responsibilities that come with being in the top position in any other type of company. For this reason, cutting the umbilical cord is difficult for several reasons. It can be difficult to find the right person who shares the vision and values. It can be difficult for a founder, who has filled the role of CEO, to step aside and give a new CEO the autonomy to make decisions that affect the future of the company they started.
This raises the important question: when and why should a founder leave?
The characteristics of the founder and the structure of the company in the early days often influence the future leadership requirements of a start-up. In the case of a company with one founder, this founder will almost be either the product visionary or the commercial expertbut rarely both.
The product visionary has the technical expertise. They are the person closest to the technology, deeply involved in its creation, evolution and ability to solve the customer’s problem. These start-ups are often marketing-driven in the initial phase. Alternatively, a commercial founder CEO will be the person who drives the success of a sales-driven start-up and gains a strong foothold in the market. Both CEO archetypes are of equal value, and startups still need strong leadership from both technical and commercial functions, regardless of founder strength.
As a business grows, needs change. A financing event is often a catalyst for the evolution of the CEO’s role, taking on a new focus beyond his main strength of technical or commercial expertise. The CEO role may require investors to spend more time on sales, investor relations, or developing the team. Some founding CEOs will feel that this distracts them too far from the parts of their role they enjoy and are best suited to, or that they are pulled far out of their comfort zone.
These signals suggest that it is an opportune time for founders and their boards to evaluate the company’s leadership and the role of the CEO. And in many cases, this leads the board of directors to initiate a strategic process to transition leadership from the founder to a new CEO. In the absence of a suitable successor within the company, the tech community and the founder’s startup network – peers, investors and advisors – are often the best place to start the hiring process.
Hiring a CEO from the outside often leaves the board of directors with a choice between a seasoned CEO who has a proven track record of scaling a company, or an emerging talent who may have achieved success early in their career. -up or where they built part of a larger company. Identifying the CEO skills required to help the company achieve its strategy is essential to finding the perfect person.
Some boards first appoint the proposed CEO to a springboard role, such as head of commercial or head of sales and marketing, so that the recruit can demonstrate the value he brings and gain the trust of his peers.
This won’t always be possible depending on their previous position’s seniority, but it’s a way to mitigate reputational risk if the proposed CEO should leave early for any reason.
Some boards may ask the proposed CEO to complete a few projects to assess skills and personal suitability before the role becomes official and permanent.
Regardless of the route taken, boards of directors should conduct extensive due diligence on the CEO, check references and, where possible, speak with those who have worked alongside the CEO to ensure that the skills, chemistry, values and work styles are a good fit.
There will be great hope and expectation for the CEO and the board will look to this individual along with the founder to move the company forward. But a healthy dose of realism should be exercised.
The CEO will need time to achieve his goals and the board should not set out to see the CEO as the instant panacea to solve the start-up’s woes. Nor should the CEO, unless explicitly stated or enlisted to the job, be expected to turn around a floundering start-up.
Founders should also think about their own role after a successful transition to the new CEO. They will have to decide whether to continue their visionary product role or step back from day-to-day operations by taking on a non-executive role or limiting their responsibility to key accounts or projects. In a non-executive role, the founder must abide by boundaries and allow the new CEO to lead with his full support. If the founder remains embedded in the company as a visionary for the product, clearly defined responsibilities will be very helpful, along with a demarcation between them and their supposed governance role.
Letting go is hard for founders. Knowledge transfer is important and facilitating close ties between the new CEO and the team will help keep the company cohesive. Moving forward requires evolution and the founder must fully support the new CEO so that the team respects and understands a new strategy to take the company to the next level of growth.
- Benjamin Chong is a partner at a venture capital firm Right click Capitalinvestors in bold and visionary tech founders.