It is not often we find founders of startups take a step down as CEOs of their start-ups to give way to a new, sometimes aggressive thought process in the form of a new CEO.
This change, however, often comes at the heels of that start-up bleeding to death or on its way…
The most important question left unanswered here is,
‘Why did the Founder give way to a CEO to run her/his startup?’ or a more fundamental question, ‘Why did the founder let the startup fall into its grave?’
We as humans feel ‘entitled’, not that it is a non-noble gesture, and for something we have built from scratch…
But the more relevant question here is ‘WHY’ should we feel entitled and ‘why NOT’ look at our startup as an entity to be nurtured and brought up to become the full-fledged corporation it has the potential to become?
With this background, let’s see the various aspects of being a Founder and a CEO, and then let us crack the fine line between shifting gears from founder to CEO (or finding out that you are not CEO material and immediately giving way instead of waiting for the downfall).
Who is a founder? Who can you call a CEO?
To answer this fundamental question, let’s look at their origins:
A founder is a person or a group of people who create this entity, typically from the very beginning of its existence.
In most cases, the founder(s) come up with the original idea, bootstrapped with initial funding, s/he recruits her/his first set of employees and works on the initial business model, business and brand marketing strategy, product, and sales.
A CEO, on the other hand, is a leadership executive who takes responsibility for the overall management and direction of that startup. The CEO is typically appointed by the board of directors and is responsible for implementing the company’s business strategy, managing its operations, and making key strategic decisions that affect its long-term success.
It is possible for a founder to also be the CEO of a startup; however, that’s not always the case. As the startup grows and matures to become an organization, it is not uncommon for the founder to be replaced by someone with more experience or expertise in running a more complex organization.
Sometimes, in some cases, a founder may choose to step away from the day-to-day running of the company and assume a different role, such as that of a chairman of the board or take on a more focused leadership role that utilizes her/his core competency or area of expertise.
Why do Founders Opt out of Becoming the CEO?
qThere may be several reasons why a founder might choose not to become the CEO of their startup. Here are some common scenarios that have often been noticed:
- Lack of experience: Founders may lack the necessary experience or skill set to lead a growing company. While they may have the vision and passion for the business, they may not have the experience or expertise needed to manage the day-to-day operations or make complex strategic decisions
- Desire to focus on other areas: Some founders may prefer to focus on specific business areas that align with their strengths or interests, such as sales, brand marketing Strategy, or operations. By bowing down from the role of the CEO, they will be able to free up more time and energy to concentrate on these areas.
- Cultural fit: As the startup grows into a larger entity, the culture and other dynamics of this organization may change. The founder(s) might not feel like they fit in with the new culture, or they may feel that their leadership style is no longer a good match for the company’s needs.
- Investor pressure: In some cases, outside investors may push for a more experienced CEO to take the helm and help the company grow and succeed.
- Personal reasons: Founders may opt out of the CEO role for personal reasons, such as a desire to spend more time with family or pursue other interests
Ultimately, the decision to step down as CEO is a personal and sometimes strategic one, and many factors can influence a founder’s decision. Founders need to evaluate their strengths and weaknesses, as well as the needs of the company, to make the best decision for everyone involved.
What happens when the Founder Becomes the CEO?
When a founder becomes the CEO of their own company, they take on a key leadership role and are responsible for making strategic decisions, managing the day-to-day operations of the business, and leading the company to success. As the person who started the company, the founder has a unique perspective and understanding of its vision, mission, and goals.
However, being a founder does not automatically qualify one to become an effective CEO. The skills and qualities required to start a company and get it off the ground are not necessarily the same as those needed to manage a growing organization.
For example, a founder may have excellent technical skills or a strong creative vision, but they may lack the financial, managerial, or strategic skills needed to lead the company in the long term.
If a founder takes on the role of CEO, they need to be willing to learn and adapt to the changing needs of the organization. They may need to bring in outside expertise or hire additional team members to fill any gaps in their own skill set. It’s also important for a founder-CEO to build a strong management team and delegate responsibilities so that they can focus on the big-picture vision and strategy.
In some cases, a founder-CEO may find that they are not the best fit for the role and may need to consider bringing in an outside CEO with more experience or a better skill set. This can be a difficult decision, but ultimately it may be in the company’s and its stakeholders’ best interests.
When Does a Founder need to Bring in a Professional CEO?
When a founder becomes CEO, there are a few potential disasters that can happen if they don’t have the necessary skills, experience, or temperament to handle the role effectively. Here are a few examples:
· Lack of management experience: Founders who don’t have experience managing people, finances, or operations may struggle to make the right decisions, prioritize tasks effectively, or communicate with stakeholders in a way that inspires confidence
· Micromanagement: Some founder-CEOs may struggle to let go of control and may micromanage their employees or try to handle too many tasks on their own. This can lead to burnout, resentment, and reduced productivity
· Failure to adapt: Founders who are too attached to their original vision or way of doing things may struggle to adapt to changing market conditions or customer needs. This can lead to missed opportunities or failure to stay ahead of competitors
· Poor decision-making: Founders who lack experience or expertise in certain areas, such as finance, brand marketing, or product development, may make poor decisions that can have long-term negative consequences for the company
· Personal biases: Founders may have personal biases or attachments to certain products or features that can cloud their judgment and prevent them from making objective decisions. This can lead to a failure to innovate or pivot when needed
It’s worth noting that not all founder-CEOs will experience these disasters, and many can lead their companies to great success. However, it’s important for founders to recognize their strengths and weaknesses and to seek out the support, mentorship, and expertise of a professional CEO to lead their companies effectively.
What stages Best suit a Founder-Mindset or the CEO-Skill?
The journey of a founder and CEO can be broken down into several stages. Here are some of the key stages:
· Idea Stage: This is the initial phase where the founder has a idea or concept for a new product or service. At this stage, the founder may conduct market research, develop a business plan, and start building a basic team
· Startup Stage: This is the stage where the founder launches the company and focuses on growing the business. The expertise of a professional CEO at this stage will not be of much use, but bringing in a right co-founder might be the best choice.
· Growth/ Go-to-Market Stage : Once the startup is established, the company enters the go-to-market stage, where the CEO focuses on scaling the business. This involves expanding the customer base, increasing revenue, and developing new products or services. The founder can now play a more strategic and expert role in her/his domain of knowledge
· Maturity Stage: At this stage, the company has reached a level of stability and profitability. The CEO’s role shifts to maintaining the company’s market position, optimizing operations, and developing new strategies to sustain that growth. During this time, if the founder certainly knows s/he is not CEO material, then they can pick up the role of a Chairman or Managing Director to suit the seniority and the proprietorship of their work
· Exit Stage: The final stage is when the founder and CEO exit the company. This could be through a merger, acquisition, or IPO. At this stage, the CEO’s focus is on maximizing shareholder value and ensuring a smooth transition for the company. Here the founder has to take that sour pill of exiting their sweat and blood organization that they had nurtured from scratch. It is not an easy decision, but this has to be taken if it is for the good of the organization as a whole
It’s important to note that not all companies go through these stages in the same way, and some may skip stages altogether. The founder and CEO’s role may also vary depending on the size and structure of the company, as well as the industry and market conditions.
What is the Investor’s POV?
Does the investor give a Founder driven startup more weightage than a professional CEO-driven company during their due diligence?
During an investment round, investors typically evaluate a startup based on various factors, including the strength of the team, the market potential, the product or service, and the overall growth prospects.
While the distinction between founders and CEOs can be relevant, it is not necessarily the sole determinant in investment decisions.
Investors generally focus on the capabilities, experience, and track record of the individuals leading the company, regardless of their specific titles. They assess the leadership team’s ability to execute the business plan, navigate challenges, and drive growth. This evaluation encompasses a range of factors, such as industry expertise, previous entrepreneurial success, relevant domain knowledge, and strategic vision.
That being said, some investors may place greater emphasis on the role of the founder, particularly in the early stages of a startup. Founders are often seen as the driving force behind the initial idea and the passion that sparked the company’s creation. Their deep understanding of the problem being addressed and their commitment to the vision can be valued by investors.
However, as a startup evolves and grows, investors may also prioritize the expertise and leadership skills of a seasoned CEO who can effectively manage and scale the business. Investors look for a strong balance between the visionary qualities of a founder and the operational and strategic abilities of a CEO.
Ultimately, investors consider a variety of factors when assessing a startup, and the presence of either a founder or a CEO can contribute to the overall evaluation of the leadership team, but it is not the sole factor that determines investment decisions.
Let Go!
This is the mantra that will benefit all parties involved in the seeding, nurturing, and growing stages of the startup. In our blind love and pride in creating the startup, we let our egos play the devil’s role and ruin the fun for everyone. One has to be completely sure that they have tried all routes of being in the hot seat of the said startup before letting go.
But this is one hard decision to take and can’t be decided on a whim or prejudice of entitlement.
