Today, many founders have more control over their company’s destiny through founder or dual-class shares, including greater say in the timing and processes related to leadership transitions.
Many founders have a “fight or flight” response when confronted with these kind of
leadership challenges, especially the implication they may not be the right person
for the company’s next phase. Some may become defensive or react aggressively in
meetings. Others may act impulsively to make changes or chase shiny objects in the
hope they meet evolving business needs. Some may find reasons to be absent from
the business, leaving for extended business trips or devoting time and energy to a
new venture — sometimes, siphoning off people for the new business.
Founders are more likely to grow with the company if they reframe these situations
as part of a continuous leadership journey rather than discrete gaps to be closed.
Founders who do this well regularly evaluate the changing needs of the company and
how their skills need to evolve in response. They are self-aware about their strengths,
weaknesses and motivations and have the courage to seek out feedback and help.
They are open to coaching, leadership advisers or other support that can help build
or complement their skills. They advocate for regular evaluations by the board, rather
than waiting for a crisis, to stay aligned with directors about where the company is
headed and the support they may need. Without the founder proactively seeking feedback, investors, board members and early employees — who often owe their wealth to the founder — may be all too happy to tell them what they would prefer to hear.
Proactive founders also will view their top team in terms of ongoing development. For
example, many founders find that new capabilities and a different leadership style are
needed once the business reaches a certain scale. For some, this may mean evolving
from a hub-and-spoke structure in which everything goes through them to one that
enables more decentralized and efficient decision making and execution. This, in turn,
may require a review of everything from the degree of trust among team members to
the team’s mandate, meeting protocols, information-sharing practices, management
incentives, and decision-making rights and responsibilities.
Accelerate finding the right person for the company’s next phase
At some point, the requirements for the job may outgrow the founder’s capabilities
or motivations. The founders we interviewed say it’s better to stay ahead of this
issue and acknowledge when a different skill set is needed or when your interests no
longer align with the job that needs to be done.
Being honest with yourself about your strengths and weaknesses and what energizes you can help you understand how and when to transition.
One experienced founder recalls the day he knew he wanted to
make a change: “We were sitting in a meeting, and I was getting
a brief on all the different mechanical ways that we could enter
the country of Brazil from a legal framework point of view. I
thought, ‘As a technical founder, why am I sitting here trying to
learn and then adjudicate the proper business forum to enter
Brazil? There’s got to be somebody way better suited to do that.’
So I started the conversation with my board.”
Being honest with yourself about your strengths and weaknesses
and what energizes you can help you understand how and when
to transition. For example, founders primarily motivated by creating a new business may decide it’s time for a new leader when
the next phase includes an acquisition and a significant jump in scale — and building processes and aligning systems are top priorities.
These conversations are more natural when there is a regular cadence of discussion
between the founder and the board about succession, even if it is primarily focused
on emergency situations. Ideally, these conversations will cover the strategic and
executional priorities of the business and the skills needed at the top to drive results
in these areas. Many founders welcome honest conversations about how the company is evolving and whether they are still the right person for the job.
Find the right balance with the board in managing the transition
While some boards delegate the transition to the founder — and some founders
select a friend or a safe pair of hands inside the company — transitions tend to work
best when there is a structured process and an effective collaboration between the
founder and board. The board should run the process, with the founder having an
important vote. A structured approach helps bring stakeholders along, even if it ultimately produces the same answer.
Because the founders are closest to the business, they play a key role in defining the
skill set the next CEO will need, drawing on their knowledge of the operations and
the capabilities of the current team. A best practice is for the founder to conduct
a job analysis to detail how they spend their time. Founders often create organizations around their strengths and interests, so the job may be very different than a
traditional CEO. Understanding the founder’s activities will be valuable for defining
the requirements for the next CEO and potential restructuring opportunities.
Another founder/CEO went further, pulling together a “data room” to help the new
CEO get up to speed quickly. “We spent a lot of time during the search getting all
of the past board meeting materials together, the last 10 years of budgeting, forecasting work. We really tried to do the work we probably should have been doing
on putting together end-to-end business process flows within the company and
documenting what was working and what wasn’t working. We included historical
information on how the company was formed, how it was operating, what needed to
be changed. We were going through downsizing and restructuring, so we really tried
to take some of that weight off of [the incoming CEO] so he could focus on product
strategy and finance and operations, and I could work on rearranging the go-to-market landscape to drive the business forward, but at the cheapest cost possible.”
Make room for your successor
Transitioning from the CEO role can be a rude-awakening even for CEOs in traditional
companies, as they leave a highly public, powerful role in an organization with all its
attendant perks and deference. For many founders, the transition can be even more
emotional; the company represents all the blood, sweat and tears it took to get it to
this point, and it often is the locus of their personal lives and friendships. It literally is
their whole life.
Ideally, founders will view the transition as an important part of their legacy, so that
their only interest is seeing the next CEO succeed for the long-term good of the
company. We like how one corporate CEO described the mindset: “The departing
CEO should be a cheerleader for the success of the organization they’re leaving.
Think of it like a relay race — you want the person taking the baton to run a better
leg than you did.”
Without that orientation, it can be very tempting for founders to get pulled into disruptive behaviors. In the worst cases, founders undercut the new CEO by becoming a
magnet for dissenting voices, interfering in their decisions and even pushing the new
CEO out. There can only be one CEO, and it must be clear to internal and external
stakeholders who that is. Founders can support the new CEO by doing the following:
Founders cannot be silent. They have to visibly support the transition and the new CEO.
Signaling support for the new CEO. Founders cannot be silent. They have to visibly
support the transition and the new CEO. This is true both in the immediate transition — for example, through joint meetings with the new CEO for internal and
external stakeholders — and, over time, as the new CEO begins to make changes.
Otherwise, the founder can become a magnet for complaints by people who preferred the old ways. “Every new leader comes in and begins to do
what they’re supposed to do, which is change things, and some
of the people are grateful for that and some of the people are not
and they go to the old leader and start to complain. As a human,
it’s really hard not to take the bait every now and then,” observed
one founder. Founders should be clear to themselves about their
commitment to the new CEO in the face of such complaints. In
the case of an acquisition, another former founder/CEO signaled
his support for the new ownership by serving as the face of the
business to customers after the sale. “I spoke at their product,
industry and financial conferences. I educated and motivated their sales force. For a
time period, I was their chief closer on key opportunities where their sales team provided introductions. I educated their senior execs on what they just bought — and
how they might be able to leverage it in ways they did not even envision.”
Defining their next act. Founders need to find something that gives them energy
and purpose after leaving the CEO role. For some founders, that may involve
winding down their participation in the operations of company: launching a new
business, starting a foundation, teaching, philanthropic activities or travel. Some
may take on a role that complements the new CEO’s skill set, for example, a CTO or
product leader. Depending on their skills and personality, other roles for founders
who want to stay involved in the company could be leading an innovation center for
the company, serving as non-executive chair or mentoring the next generation of
leaders. Whatever the role, there should be explicit agreement between the founder
and the board about what the founder will be doing at the company and for how
long, avoiding any overlap with the new CEO. One leader we spoke with recommends having well-defined stages for the founder transition over time, where the
founder’s role becomes more narrowly focused post-transition to minimize confusion and leadership dissonance in the organization.
Acknowledging their new role on the board. Many founders stay on the board after
leaving the CEO role if they are still major shareholders. And there is power in
the founder’s continued involvement in the company — if the founder is willing
to give the new CEO room to operate and make changes. In one example we're
aware of, the founder had stepped back from an operational role in the company,
but as board chair, he was able to jump in quickly when business evaporated
in the immediate aftermath of COVID. He had the knowledge and connections to
help the company retool to produce PPE until the core business bounced back. But
the founder should not become a gatekeeper to the board or unduly influence the
board’s response to the new CEO’s plans.
• • •
With significant control over their company’s destiny, founders have
a responsibility to ensure the business has the right leadership as it
evolves. Founders are more likely to grow with the company if they
regularly evaluate how the needs of the business are changing and
what skills they need to develop in response. This requires founders
to be self-aware about their strengths, weaknesses and motivations
and be willing to seek out support. There may come a time when new
leadership is needed to take the business to the next level. When this
happens, founders will recognize that it is in the best interest of the
company to support the transition planning and the new CEO, and
define the right next act for their strengths and interests.