Transitioning from Startup to Growth-Stage: Great Job! Please Leave.

While reading Noam Wasserman’s book, “The Founders Dilemmas: Anticipating And Avoiding The Pitfalls That Can Sink A Startup” I encountered a very uncomfortable topic in Chapter 10.  I thought that the challenges of equity and selecting the right hires were the worst facing entrepreneurs.  Considering relationships, leaving people out, trying to maintain control, etc.  The Startup phase seemed to be the most difficult.  However, when I read chapter 10, “Failure, Success and Founder-CEO Succession” I began to feel a concern growing inside me.  Based on research conducted by Wasserman, it appears Founder-CEOs are typically replaced within a short period of time and typically triggered by funding rounds and/or product development (Wasserman, 2012).

The logic of replacing the Founder-CEOs makes sense. The company has matured beyond initial stages and now needs a leader with a broader set of skills to manage the new challenges and opportunities being faced. Similar to relay races, you position runners/swimmers in succession based on how their capabilities maximize the performance of the team.  A strong performer may be needed to make up for lost ground during a race or a coach may try and use the strongest performer to gain ground early in the hopes of intimidating opponents and impacting their confidence.

I have also considered the value of turning a company over to someone else if that means it will be more successful. However, in my mind I had always envisioned the purchase of a business I had started.  My goal was to achieve financial success through the sale of a business that I had built.  Wasserman’s book brought new light to potential outcomes of starting a business and one of them is being removed by the Board of Directors even if I am performing successfully.

Now I am processing this scenario. While I agree with sharing equity and the value of diversity in leadership of a company, I am challenged with the risk of losing control of a company when I am not ready. Logically it would likely make sense and be appropriate for the success of the company’s future.  Emotionally I rebel against the notion of being replaced when I remain successful.  If I were unsuccessful and had accepted investment from others, I would understand replacing me.  In fact, replacing me for poor performance I would understand completely.

The points are clear and understandable.  The data reflects being replaced as Founder-CEO is very likely (Wasserman, 2012). Developing self-awareness around the value a Founder-CEO brings to his/her company allows them to potentially identify when their value may have peaked and a replacement would be beneficial.  Having some ability to influence when and how the departure and replacement occurs gives some comfort. If the ultimate goal is to build a successful business, I would not want to be the reason it was held back.

 

References

Wasserman, N. (2012). The founder’s dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton, New Jersey. Princeton University Press.

3 thoughts on “Transitioning from Startup to Growth-Stage: Great Job! Please Leave.”

  1. Tony,
    I initially had a similar point of view to your ideas. I feel we can create very strong emotional attachment to our startups (especially with the very first startup), but it seems like it would be in the best interest of the business itself to find someone better prepared to take it on to the next level. I was surprised to find out from Chapter 9, about Venture Capitalists taking about 50% of a business equity by the second round of financing. It has been an interesting few weeks learning about so many ways startups and business can turn out given all the variables at play. I look forward to seeing you around in future classes,
    -Jose

  2. Hi Tony,

    I think the challenge for most founders is staying too long. Yes, one wants to see his or her business grow. Yes, there’s a desire to cash out and make some money. So many outlive their skills and abilities with the company and never achieve either growth or wealth. And it all comes back to control, don’t you think?

    The inability to be self-aware and the desire to maintain control well beyond the skillset a founder possesses seems to be the quickest way for that founder to be replaced as the company transitions and scales. Would you agree?

    All the best
    -David

  3. I could only imagine it being emotional to be faced with being forced to relinquish control over a business that you’ve found and run so successfully. But, just as you eluded to, loosing control will happen eventually, rather by force or willingly. I think it’s most important to come up with an exit strategy before opening the business up to investors. This will allow you to have more options upon stepping down.

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