Startups: Successful CEO-cum-founders a very rare breed
Noam Wasserman, a professor at Harvard Business School, wrote in a Harvard Business Review article in 2008: "Every would-be entrepreneur wants to be a Bill Gates, a Phil Knight, or an Anita Roddick, each of whom founded a large company and led it for many years. However, successful CEO-cum-founders are a very rare breed. When I analyzed 212 American startups that sprang up in the late 1990s and early 2000s, I discovered that most founders surrendered management control long before their companies went public."
Prof Wasserman added in The Founder’s Dilemma:
By the time the ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings. Other researchers have subsequently found similar trends in various industries and in other time periods. We remember the handful of founder-CEOs in corporate America, but they’re the exceptions to the rule.
Irish-American Henry Ford is the classic example of the brilliant entrepreneur/ engineer who revolutionised the car industry and saw the value of paying his workers well. However, he was a micro-manager running an international enterprise. In 1919 he bought out the other stockholders in the Ford Motor Company as he preferred to run the company without interference, and during the Roaring 20s, consumers turned to General Motors' Chevrolet rather than the Model T. In the 1930s Ford became known for his anti-Semitism; paranoia in his treatment of workers compared with his pathbreaking $5 per day pay two decades before; and in 1941 after a second stroke, the Japanese attack on Pearl Harbor likely saved the Ford Motor Company as it became a producer of warplanes.
In “CEO Evolution: Knowing When and How to Transition a Startup from Founder Leadership to Growth Leadership,” Suren Dutia, a Senior Fellow at the Kauffman Foundation, America's entrepreneurship think-tank, calls on research and his own experiences replacing a founder-CEO and serving as an investor, advisor and board member to many startups. Dutia suggests that few founder-CEOs have the skills and experience needed to ensure company growth and shareholder value beyond a startup’s early stages. While a founder’s vision and passion are vital for getting a new venture off the ground, companies require different leadership capabilities as they grow.
“As startups mature, founder-CEOs need to ask themselves hard questions about whether someone else might be better equipped to take the company into the next stage of growth,” said Dutia. “Founder-CEOs who are able to conduct this personal skills analysis and let go of their leadership roles when needed give their companies the greatest chance at long-term success.”
After the decision has been made to put a new CEO in place, the founder-CEO and the company’s board members should jointly plan the hiring process and the change to new leadership. The white paper recommends seven steps for ensuring a successful transition:
1) Determine what skills and experience are needed to scale the company. The right CEO has experience scaling and managing a company that has reached its strategic objectives, and his or her skills will complement those of the current team.
2) Select the CEO for leadership, interpersonal skills and a knack for creating a supportive culture of collaboration. The new CEO should have a proven ability to execute the business model and create value.
3) Evaluate whether any team members are hindering growth. As a company grows, its leadership team’s skills also must evolve. If certain team members have become resistant to change, the founder CEO and board members must decide whether or not these individuals should remain with the company.
4) Foster close connections between the founder, the new CEO and the team. Loosely structured teams may have served the company’s early needs, but growth requires a cohesive team that works across multiple functions.
5) Transfer knowledge. Relevant company knowledge – much of which likely resides with the founder-CEO – should be captured and shared with the new CEO.
6) Minimise the handover period. Ideally, the formal transition to the new CEO should last about two weeks.
7) Define the transition’s strategic significance and keep communication channels open. A successful transition relies on transparency and real engagement so that the internal team understands the new CEO’s strategy for taking the company to the next level.
Because founder-CEOs have been intimately and emotionally involved with their startups’ creation, letting go of the reins is not easy, Dutia recognises. More often than not, however, as the company begins to grow, its continued success hinges on bringing on a CEO whose skills and experience give the company its best chance to be a long-term winner.
Pic above: Paddy Cosgrave, co-founder and CEO of the Web Summit speaking at the last of the series of tech conferences in Dublin, earlier this month. Photo: websummit.net