The most difficult decision for every entrepreneurial company.
The most important person in any startup company is its founder. This is the person who had the vision to create something from nothing while injecting their creativity and energy to make that vision come alive as a business.
But there can come a time in any business’s timeline when that same person who gave life to the business becomes a liability. The incredible challenge is, how can a company know when it is time to make a change? Even more, how can the change be made while preserving what is great about the founder?
This is an especially difficult challenge for the founder themself–who has likely been the face of the organization both internally and externally for its entire existence. Making a switch represents an enormous stress test for a founder’s ego. It can be incredibly challenging to separate yourself from the business, your baby which whom you have so much emotionally invested in. The pain can feel like medieval surgery. Having your founder exit strategy in your vault can ease that suffering.
Thinking Like an Owner
While there is a lot of ego involvement, it’s important to recognize the business is likely your most important asset. This is a time when you need to think about wearing your “owner’s hat” versus your “CEO’s hat.” Don’t you want a world-class CEO running your business or not? The same question can be posed to your board or your investors–which is why this can become such a thorny issue in so many companies.
The person who got you here might not be the same person who gets you to where you have the potential to go.
What are some of the ways a founder can look themself in the mirror to help recognize if it’s time to stay or go as CEO?
1. Are you the constraint inside the business?
The downfall of many founders is that they become used to the idea that they need to be involved in every decision inside the business. They also may believe they are the only ones who can come up with great ideas and they want to keep their hands on the controls of information flow inside the business. Think about one of those old-fashioned telephone switchboard operators who had to manually unplug and plug wires to connect people to each other. Eventually, there aren’t enough hours in the day to make all the connections, and errors and a reduction in quality follow. If that’s you, you’ve become the constraint inside the business.
2. Is there an exodus of senior people?
Having A-players inside the business, especially in leadership and management-level positions, is critical if a company wants to scale. But A-players won’t tolerate working for someone who won’t give them the freedom to do their jobs. That’s why if you’re dealing with a bunch of unhappy senior people, the problem might be you.
3. Do you complain about how hard it is to find good people?
Every company has a hard time finding and keeping good people. But if you find yourself using that line again and again, either in rejecting a candidate for a job or letting someone go because they didn’t meet your standards, then you might be living in a reality distortion field. Part of your job as a leader is to be a talent coach, to encourage and bring out the best in your people. But if you see only people who don’t match your own demanding standards, you might not have the skills needed to build a workforce that can help the business scale.
4. Do you see ghosts?
Founders can sometimes fall prey to paranoia, especially if they answer to a board or investors. They can become obsessed with the fear of being replaced or even fired, even when there’s nothing there. I have mentioned before that most CEOs have some level of imposter syndrome, but when it begins to dominate and control the actions of the leader, there is a problem. It’s all about their ego at this point, and by misperceiving messages and innuendos, they add fuel to a negative work environment.
Making Hard Decisions
Consider a real-life example from a company I do some work with. The founder was an amazingly creative guy. He was phenomenal in product innovation. But he insisted on being involved in every aspect of the business. The problem was he was a poor project manager, which meant that every product release was late and missing feature sets. He was also terrible at marketing, which meant the company was always behind the curve on customer growth, which drove valuation. It was also burning much more money than it should have, which exposed his lack of financial management skills.
That’s why it wasn’t a total surprise when the company went to raise a second round of funding, the original group of investors all declined to participate in–if the founder remained the CEO. This put the board in a very uncomfortable position, and they eventually were forced to replace the founder.
Unfortunately, this situation happens a lot more than you think.
Look Into the Mirror
Look, I understand that replacing a founder is one of the hardest decisions any business will ever face. That’s why it’s incumbent on the founder to embrace a high-level objective analysis of how their strengths fit the need of the business at that moment or find an objective outsider who will speak the truth to help make the assessment.
Having the skill to start something is both incredibly valuable and incredibly rare. But those same skills might not be what’s needed to help the company scale up to its full potential. And that doesn’t mean the founder has to leave the business. Perhaps there is an opportunity to move into a complementary position like CTO, where he or she can best support the new CEO. Again, that can come down to whether the founder’s ego can make that kind of adjustment.
The key point can often come down to making a decision that is best for the business. Ask yourself, are you really the best person to run this business going forward? Or is it time to hand the reins of your largest asset to someone who can make it sing? Wouldn’t you rather make that decision than have someone else make it for you?
Finding the right answer might be the most important, and valuable decision, any founder can ever make.