You worked hard. You beat the odds. Your company is growing fast. How could your board possibly have any motivation to replace you?
If you are like most founders, it’s very clear what failure looks like. I’m sure you find nothing about it the least bit inviting. But your expectations of success might actually be different from that of your board members. It turns out that your organization’s success does not guarantee your tenure as a founder. In fact, it may have just the opposite effect. Research has found that the faster your organization grows the more likely it is you will be replaced. It may be hard to believe, but your success can be the direct cause of your demise as the CEO of your own company!
As a founder, once you take on outside capital, you risk that someone else can decide your fate. The more you dilute your ownership the greater the risk. Statistics show that more than half of all founders who have attracted outside capital are ousted by their C round of capital raise. The faster you grow, the quicker you reach that round.
Despite the statistics, your board doesn’t really want to fire you. In fact, even if your performance warrants your removal, they will probably wait for quite a while to convince themselves that it is really necessary. No board member ever lamented that he or she had acted too quickly to replace a founder. Replacing a founder is a traumatic event for the organization and an experienced board is appropriately reluctant.
Don’t let their reluctance to act lull you into complacency. Remain keenly aware that your eventual replacement is still bound to occur! Even with this knowledge that the odds are stacked against you, when it happens, almost every founder is devastated.
Excluding a situation involving the founder’s bad behavior (something that feels more widespread during the past few years) the most common reason for replacing you is that your company has outgrown your skills. Fast growth means that the requirements of your job are changing rapidly. Before you know it, your role has morphed into something that may not match your experience. It may even become a role you don’t like doing at all.
When the need becomes pronounced, your board will be galvanized to act. Objectively, the skills that caused you to be a great founder may now be holding you back from succeeding as the CEO. It’s difficult for most founders to understand, but most of the skills you employed during your entrepreneurial climb are obsolete. Replicating those same behaviors now will be a prescription for failure. Continuing on the same path will be your downfall.
There is an important lesson to be learned from our good tasting crustacean brethren. Success for a lobster is found in survival and growth. But growth causes the animal to outgrow its own shell. In order to thrive, the lobster has to shed that enclosure — that layer of protection separating the animal from its enemies and environment. Not that the lobster has the intelligence to consider its options; nature induces the behavior. But the lesson is clear. Without that molt, a process that makes the animal temporarily much more vulnerable to the elements, the animal would not have the opportunity to grow. The same is true for a founder.
Every founder needs to make herself vulnerable in order to grow, in order to shed her “skin” to allow for growth. We’ve all heard the expression: “if it ain’t broke don’t fix it.” In the case of a founder of a growing company, every process, person and system should be continually evaluated to ensure it is not constricting your growth, even if it appears to be working. If it is not contributing to your success, it should be discarded.
Change Things that Work
What worked for you when your organization was small will not work at scale. Most founders start out as individual contributors then evolve into micromanagers. Only a small percentage get beyond that encouraging others to make decisions and mistakes. When we consider most successful founders, the term control freakcomes to mind. While sweating all the details can be the thing that spurs initial success, it also will be just the thing that will inhibit growth.
Founders are usually involved in too many things to enable their behavior to scale. Finding competent specialists that can take on some of these jobs, completing them even 80% as well as you, are prescriptions for a healthy growing organization.
We all like to act in ways that generate positive reinforcement. When our prior behaviors work, we tend to replay them over and over again, creating behavioral ruts. The deeper the rut the harder it is to surmount. Repeated behavior builds habits that are hard to break.
A great example of how difficult it is to change an engrained behavior resonates in the “Backward Brain Bicycle.” Destin Sandlin, an aerospace engineer who hosts a video series called Smarter Every Day, rigged up a bicycle with a special gear between the handlebars and the front wheel so that turning the handlebars to the right would make the front wheel turn left, and vice versa. In the eight-minute video, you see how this single modification makes bike riding impossible. Even though Sandlin told himself over and over to steer right to go left, he could not get his hands to cooperate with the new instructions and kept falling off the bicycle. All the ingrained behaviors from a lifetime of bike riding were simply too strong to overcome through sheer willpower. Even though he knew the bicycle would go left when he steered right, it took him eight months to understand how to ride the bike well enough to master the new habit.
The Backwards Brain Bicycle offers one other lesson. Once Sandlin had finally trained himself to ride the Backwards Bicycle, the change in Sandlin’s brain was still extremely fragile. It took all his focus and concentration to maintain his balance on the Backwards Bicycle. The slightest distraction — the ring of his cell phone, for instance — would send Sandlin’s mind back to his old habitual way of steering and send Sandlin’s body tumbling off the Backwards Bicycle. Stress, deadlines, and distractions are bound to have the same effect on your new habits of delegation, always threatening to throw you back into the familiar habit of handling all the details yourself, starving your true priorities of your time and attention.
Question every process.
The things you did to succeed when you were small worked great… then. But those processes are very likely not scalable to where you are now heading. It’s up to you and your leadership team to question everything and test whether processes are appropriate for what is to come. If they work today, it doesn’t mean they are right for what comes next. Determining if there is a way to do this better? Do you or your executives even know where to look for better practices and how to evaluate their capabilities during the next run up to ten or hundred million in revenue? Have you or any of them ever done this before? Can you risk your success on a team full of rookies?
Is your leadership team up for the task?
That loyal team that fought side-by-side with you in the trenches when the going was the toughest, are probably not your optimal executives during this next cycle of growth. Not that any of them are bad. But unless each has drastically grown her skill set, or came to your venture with substantial experience that makes her ready for the next very different challenges, she is going to hold you back. You will need all the competent help you can get to ensure you are not induced to jump back in yourself, and drown in the details.
Almost all founding teams come complete with a family member or old friend. You need to rethink whether that relationship is getting in the way of a hiring the objectively best candidate for the job. It’s hard to part with close relationships. However, a common gene pool or a social relationship is a poor foundation for a proper executive recruitment.
What about you?
Are you up for the task? The role of a CEO of a company at scale is quite different than being a founder of a startup. It may not be nearly as fun for you and it may not be something you are capable of or prepared to do.
One of the first things we find with founders trying to scale their organizations is the fear that others will make mistakes or not prove to be as good as the founder herself is at the task. It’s like a parent holding tight to her youngster’s bicycle as he heads down the street for the first time. Unless you are willing to let go, your “baby” will not learn to balance himself. The bumps and bruises that come with the territory are a small price to pay for the ensuing self-sufficiency. You need to accept the painful strawberries on their knees and elbows that come with learning.
Most founders understand. But this stuff is hard.
People repeat the things that generated positive reinforcement. Sometimes the founder’s only job has been with the company they founded. While that may make them deep subject matter experts, it also means they have been exposed to precious few other approaches or practices that might just be required to now succeed.
Predictably, much value is placed on the personal relationships that have developed amongst her team over time. These become especially difficult to sever when established by years of loyalty, leaving mediocre teams in over their heads. When founders fail it is often attributed to their unwillingness to replace team members who are no longer effective.
What can you do to beat the odds?
Start with great people. While it is useful to attract nearby loyal constituents in the early days of your venture, realize that the more your relationship relies on friendship (or worse, family), the harder it will be to split. Realize that early and steel yourself for what may come.
Replace them with people who have been there and done what you are about to do. Seek out a mentor. Join a peer group that will hold you accountable for growing your capabilities. Read or listen to podcasts by people who have braved this same path ahead of you. Become a sponge for learning.
Most of all don’t let hubris overtake you. Succeeding as a founder is a heady thing. When your employees begin to tell you how smart and good looking you are, but won’t let you know when you have mustard on your cheek, take heed. Be wary when your face ends upon on the cover of a popular business magazine extoling your success. When you start to fall in love with the smell of your own exhaust it may be too late. You will die from asphyxiation. Founders who thrive continually reinvent themselves avoid lettinggoodbecome their enemy.
Don’t stop asking why or why not? When you get complacent with the “way we do things here” you will be doomed to relive the past. This type of behavior won’t keep up with the future. Keep asking why the things you are doing are being done the way they are. Get in the habit of asking questions rather than issuing proclamations.
And then after all of that, keep your eyes wide open. Founders believe they are invincible, especially when their ventures are doing well. But this success paradox is real. While you might push the envelope and extend that fateful day, realize that the odds are likely to catch up to you too, no matter how good you are. So, negotiate a nice exit package with your board prior to needing one.
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[i]Wasserman, Noam, Founder-CEO Succession and the Paradox of Entrepreneurial Success, Harvard Business School, South Hall 310, Boston, Massachusetts 02163 [email protected]
[ii]Ewens, Michale and Marx, Matt, Founder Replacement and Startup Performance, California Institute of Technology and Massachusetts Institute of Technology.
[iii]Smarter Every Day, https://www.youtube.com/watch?v=MFzDaBzBlL0