Saving founders from their companies?
I spend a lot of time with founders. Founders I have worked with, founders I invested into or founders I met socially. One thing sticks out: many are having a blast, but just as many aren’t quite sure they want to continue running their company past a certain size. Some of them actually hate it. Universally, they have no idea what to do with that thought.
Let’s back up a little.
The myth of founder-CEO-for-life
Phenomenally successful entrepreneurs like Mark Zuckerberg, Elon Musk or Jeff Bezos have crystallised the myth of founder-CEO-for-life, which states that the only successful path for an entrepreneur is to make it all the way, from founding the business to exiting with a bang. It implies that the only explanation for leaving before the end is that someone got fired. Not great.
But as product companies grow, the skillset you need to succeed changes dramatically. Some founders managed to reinvent themselves over and over again, no doubt, and kudos to them. But how likely is it?
- Starting a company is about crafting conviction in the absence of unquestionable proof. It is about telling a compelling story over and over again in the face of staunch opposition / indifference.
- As the company gets product market fit and/or reaches series A, it becomes about building a strong team and an overall machine where every part works well individually and combined together, producing repeatable, predictable and scalable growth.
- Past a certain scale, it is about disciplined execution and replication, financial management and running huge teams in the hundreds or thousands of people.
What are the odds all 3 phases appeal to a founder AND they find that fulfilling AND they can do it?
When “investing in people” actually hurts them
VC want to invest in great people and maybe that is another problem: if your strategy is to invest in exceptional founders, what does it mean if they want to leave after a few rounds? Does it mean the bet was wrong?
Institutional investors also want to be seen as founder-friendly, so they would not bring the question of CEO transition unless the company is literally in flames. The founder-CEO-for-life fallacy combined with VC’s we-invest-in-people narrative mean that many companies are run by CEO who do not want to be here. Everybody loses.
Money, of course, compounds the problem. Most founders have a huge chunk of their wealth tied in their company. If they step down, what happens to that amount? Will they get diluted into oblivion? Are they sacrificing their “life’s work”?
When you combine all of this, you end up with situations where many founders feel trapped in their own companies. They stopped enjoying the journey and do not know how to solve the problems they face. Eventually, it is bound to turn into eroding growth, teams feeling powerless and/or mounting employee attrition.
Since most boards in early stage companies tend to be packed with financial investors, founders do not get proper help and instead get stuck on proximate issues (missing targets) rather than ultimate issues (does the CEO want to be here and learn the skills required to succeed?). Things get worse and founders end up having to work absurd amounts of hours just to keep the company afloat, their team acting more as a drag than a multiplier. That leads to personal struggles, burn outs or even depression, all of which happen way more often than Linkedin, Twitter and Techcrunch suggest (although to be fair, this is changing).
This obviously doesn’t have to happen. We just have to think about successful founder’s paths — and CEO roles — differently.
It wasn’t always thus
Back in the day, VC investors had radically different mental models and expected founders to bring in a professional CEO as soon as they raised a VC round — think Larry Page, Sergei Brin and Eric Schmidt. Both Musk or Jobs had to step out of the CEO role in their early ventures. At a much more modest scale, when I worked in a venture capital firm in 2003, discussing CEO transition with the founder was literally part of the fund raising process.
Even today there are alternatives, Sutter Hill Venture being a strong one: When SHV creates a company, they build incentives assuming that there will be different CEO for different stages of the company. Snowflake had 3 CEO between its founding and IPO, the original one being Mike Speiser, SHV’s managing director. If that model enabled the creation of multiple unicorns, then surely founders shouldn’t feel that they have no choice but sticking around from founding to exit.
There are many examples of successful transitions. I have had the chance to go through one when Alicia decided to step away from running Skimlinks and I became CEO. I benefited from the strong brand, culture and category she created, and built upon it to focus the business on our most defensible and differentiated product, accelerating growth and becoming wildly profitable as a result. Fast-forward a few years, we ended up selling in a great all-cash deal. Everybody made good money — Alicia of course, but also all investors and all employees. We did all of that while preserving the key aspects of the culture and team she created.
Parting thoughts: Founders, you are not stuck
A successful transition can take many shapes. Some founders step down and bring another CEO, some hire an executive Chairman who effectively handles the core part of the CEO role (Firming out product market fit, building a team of A-players and allocating capital). But the bottom-line is: there is a positive way out if that is what you want, one where you do what you want and see your company thrive.
Many founders worry that a new CEO will bring the bottom line before the clients / team or will crush the company’s ambition. They worry they’ll destroy what they worked so hard to build. But it doesn’t have to be that way. A successful transition can absolutely bring a financially successful outcome AND enhance the culture of the company AND continue building the people.
In transitions as in creations, the sky can be the limit. Chin up!
I am currently thinking about ways to share my experience with such a transition, hoping it can help some founders who feel stuck. If you have thoughts, questions or remarks — or if you feel stuck yourself and want to bounce ideas — feel free to DM me on Linkedin.