Wednesday, June 1, 2011

Why do Founding CEO's Get Fired?

A friend asked me to repost this old piece about Founding CEO's.  I am obliging because I have made the acquaintance of a slew of new young CEO's who might benefit from it.
They start out with a great idea.  They don’t sleep.  They invest everything they have in the idea.  They have no other life. They build the idea into a great opportunity.  They entice investors to fund the idea. They invite their most trusted friends to join them. They cultivate customers.  They share the potential of the idea.  They nurture the idea into a budding brand.  They start to generate revenue based on their idea.  They can see the break-even moment.  They know how they will invest the profits in new ideas.  They can smell the IPO or the world dominance of their idea. 
And then one afternoon, after an executive session of their Board, they are told that it is time to bring in “experienced, professional management.” 
And suddenly the “Founder and CEO” has only “Founder” on their business card.
And they wonder WTF?
They did so much so right…what could they possibly have done wrong?
It is hard to ride the wave of success if you are a Founding CEO.  Not many do so.  And those that do stay upright have a lot of help.   
Those that end up in the surf of superfluous staff positions, in their own companies, usually have wiped-out based on one or more of the following reasons.  Easy to avoid…but hard to see when you are trying to ride the wave.

1.    Not hiring well enough. Hiring their sister in-law, college roommate and two favorite lab partners is fine at the very beginning, but not upgrading the team is a fatal flaw.  It is a serious red flag to investors that the Founding CEO has limitations if they cannot or will not attract real talent to the enterprise.

2.    Not trusting those they hire.  Bringing in the much-needed talent and then not using it is another red flag.  If a Founding CEO is still making every decision and never schedules their team present to the Board, watch out.  The Board will figure out that the Founder CEO has security issues or control needs that will eventually be a gate-to-growth.

3.    Not expanding their skills beyond pitching their idea.  It was their primary skill set for so long that it is hard to determine when it has become obsolete.  But, if the only thing the Founder CEO can do is pitch their initial idea it is another gate.  It may take a while for the Board to realize that the Founder CEO is a one-note-samba, but they will.
4.    Not managing the basics.  Compared to the heady first phase of a company, it can be boring in the second stage of growth when on a day-to-day basis you have to show up and manage cash, stick to product schedules, understand costs, hire and train people, find customers, serve customers and communicate with the Board.  But it must be done.  A Founder CEO who does not master these basics will not hold on to the CEO part of their title for long.

5.    Not stretching their comfort zone.  Don’t confuse culture with comfort.  Founder CEO’s who define the culture of their company, as the method by which they are most comfortable doing business, will fail to build a sustainable model.  Comfort and success have very little in common.  If the Founding CEO is not outside of their comfort-zone every day they are not competing for their own job.

6.    Not outsourcing.  Thinking you can do it all, invent it better than everyone else and subscribing to the “not invented here” mentality, is hubris that wastes money and time.  Building partnerships is one of the most commonly requested skills in the specifications for the “experienced, professional management” that replaces Founding CEO’s.

7.    Not managing the BOD.  If you do not talk to them, they will talk about you.  And they will talk about you without all the facts. The investors can intimidate founding CEO’s.  Being intimidated is a serious mistake. You are accountable to the BOD, but you have to ask as much of your BOD as they ask of you.  No board meeting should end without the CEO placing that quarter’s demands on the BOD.  And a good CEO follows up all quarter, working with the BOD members and encouraging them to invest more than money.  A good relationship with the BOD offers many currencies to a company.  A good BOD can offer introductions, talent, partnerships, competitive insight, financial modeling, operational advice etc.  And a good CEO takes advantage of the offerings and builds the BOD’s investment in time, attention and loyalty.  It is hard to vote to fire a guy who regularly solicits and follows your advice.
All of these are avoidable pit-falls and it is easy to see who is going to wipe out and end up a Founder without portfolio in their own company.  
It is the Founder who never asks for help.

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