In his book Only The Paranoid Survive Andy Grove states “the ability to recognize that the winds have shifted and to take appropriate action before you wreck your boat is crucial to the future of an enterprise”. Although Andy was talking about companies the same thought applies to founders of companies. Should the Founder have an expiration date and how do you arrive at the answer?
Jeff Bezos started Amazon in 1994 and stepped down as CEO in 2021. Other successful founders resigned or moved to some type of BOD role after successfully leading their company’s growth. Others have been pushed out by the board of directors, dissent shareholders or the failure of the company.
Are Founders able to see when they need to move on? What if, the Founder owns the majority shares of the company? When should the conversation start and who should be involved in the discussion? Founders emotional attachment to their company is the same as a mothers to her first born, possessive.
Most SMB companies are closely held businesses with the Founder still leading the company either in title or in a covert way which is not good. If you look at the marketplace for answers to when a Founder should move on, it’s a mixed bag. A fund or an individual buying a company typically keeps the Founder around after the sale for a specific period of time but usually not more than three years (and the Founder doesn’t usually make it to the end). Research around the value of the company (in terms of dollars) for Founders staying or leaving is mixed and is focused on value initially before or after an IPO. [HBR]
Michelle Cordeiro Grant, the founder of start-up Lively points out, “what we need to realize is that it’s a journey. What the founder needs and what the business needs may start out as very aligned, but as the two souls grow, things change.” Having worked with Founders and being involved in having to fire one I find both Michelle and Andy’s advice very sound. Ignoring the topic only leads everyone and the company into a difficult and no-win situation.
Success for a Founder is a two-edged sword. In their way of thinking they have achieved success by controlling everything, a strong fear of failure, and for a number of them working in isolation (an inability to work well with others). Continuing growth of the company can play into all the negative aspects of these traits. The way I have seen this manifest itself inside of a company is major disagreements and personality conflicts with key people within the company which the Founder perceives as threatening. The people closest to the Founder begin to express that ‘the company’ has outgrown the Founder. In my experience as a company out grows it’s Founder’s skills it leads and or taps into these negative personality traits and the Founder turns inward and become more defensive and at times paranoid. As Ms. Grant previously stated, “What the founder needs and what the business needs may start out as very aligned, but as the two souls grow, things change.”
I have found that the best thing for anyone who is personally close to an entrepreneur starting a company or an existing Founder is to have a conversation with them around the question: Should you as the Founder have an expiration date? How will you know when it is time to leave? The earlier this conversation starts the better for everyone.
If you are thinking of investing in a company this should be a major part of your due diligence process. Evaluating the Founder’s ability to lead early on is critical but so is understanding their ‘leave by date’ and how those conversation will be held. Personally, I would have the conversation at the start before I invested.
Founders by their nature don’t even think about when they should move on or if they do they disregard the thought. Founders who haven’t had this conversation should find someone they trust and start having it quickly. This conversation is not a one-time occasion. In the beginning it should be on-going over a period of time until all parties think they have reached clarity and a plan going forward for review. This topic should be revisited on a semi-annual basis.