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3 strategies to help smooth the founder’s departure as a new CEO takes the reins

Posted by Kanika Sinha

January 31, 2022    |     4-minute read (679 words)

Founders play the most important role in building a startup from scratch. It is their sweat and tears, not to mention sleepless nights, that keeps the team motivated and convinces people to believe in their idea. 

But as the business matures, it may come to require a CEO experienced at running high-growth firms. A sizable body of research, including a study by Harvard Business Review, suggests the value of founder-CEOs diminishes as organizations mature past the IPO stage. 

As Andreessen Horowitz co-founder Ben Horowitz writes in “The Hard Thing About Hard Things,” founder-CEOs frequently struggle to adapt as their firms grow bigger and more complex. The leadership requirements of a startup are different from the challenges faced by a fast-growing firm. Post-IPO, the business’s higher profile and dispersed ownership further complicate the CEO’s role.

In other words, a founder creates something from nothing, but a CEO manages something that already exists. These two disparate roles draw on different skill sets. It is to the benefit of the company to support the founder’s transition from the CEO role when the time is right.

We’ve compiled three strategies for investors, the board and executive teams to ease the exit of founders in advance of the arrival of a new CEO.

1. Funnel founders toward their passions

Every founder is drawn to entrepreneurship for their own particular reasons. A good understanding of what drives a particular founder can help guide their next steps.

Some founders enjoy early-stage startup life. Skullcandy’s Rick Alden stepped down as CEO to pursue other early-stage opportunities more closely aligned with his interests. He said he was interested in the entrepreneurial process but not in running a large, public company.

Some founders are passionate about certain causes. Many successful founder-CEOs have resigned to focus on philanthropy or humanitarian efforts. For example, Bill Gates shifted his focus from running Microsoft to running the Gates Foundation, and Jon Huntsman Sr. left Huntsman Chemical to establish the Huntsman Cancer Institute.

Some founders want to reassess their path. Sasha Orloff, co-founder of fintech firm LendUp, decided to quit his role as CEO to take a 100-day break to reset and reflect on next steps. 

2. Steer founders toward non-CEO roles in the firm

While HBR’s research finds the value of founder-CEOs declines post-IPO, it finds the inverse about their value to non-CEO positions. Founder-CEOs who transition to another role within the organization allow the new leader to leverage the founder’s deep knowledge in an advisory capacity. This approach works best for founders who acknowledge that they are no longer the best fit for the CEO role but are committed to the company and willing to stick around to help.

For example, when Google hit $100 million in revenue, Sequoia Capital, one of its largest investors, was concerned that age 20-something founders Larry Page and Sergey Brin lacked the managerial abilities to lead Google. Sequoia encouraged Page and Brin to hire a CEO

Ultimately, they brought in Eric Schmidt, who led the rapidly growing company through a successful IPO and on to remarkable growth. The three ran Google as a triumvirate wherein Schmidt guided the young founders through the managerial ladder while also relying on their creativity and know-how to develop products and enhance core business activities. 

3. Involve founders in succession planning

The executive succession planning process is likely to go more smoothly if the founder-CEO is involved from the very beginning.

Ideally, the founder leads the transition. Apple co-founder Steve Jobs personally hired his replacement, Tim Cook, and groomed him to lead the company. Kendra Scott appointed long-time executive Tom Nolan upon resigning as CEO of her eponymous jewelry brand.

If the founder isn’t interested in spearheading the effort, the board should take the lead and involve the founder as much as possible. Bill Milliken, the founder of successful nonprofit Communities in Schools, was reluctant to step down even after 25 years as CEO. Rather than oust Miller, the board hired an external counselor to persuade him to move to a board role.

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