…I’ve been to the mountaintop and I’ve seen the Promised Land. And I might not get there with you… Martin Luther King
The startup founder who gets fired just as his/her company is growing into large company could be a cliché – if it wasn’t so true – and painful.
Let’s take a look at why.
Full disclosure: I’ve worn all the hats in this post. I’ve been the founder who got fired, I’ve been on the board as my friends got fired and I’ve been the board member who fired the founders.
Scalable Startups at Adolescence
In our previous post we posited that Scalable Startups are designed to become large companies. Yet at their early stages, they are not small versions of larger established companies. They are different in every possible way – people, culture, goals, etc. Scalable startups go through an transitional form, as unique as a startup or large company, before they can grow into a large company
When Startups reach the Transition stage, it’s time to look inward and decide whether the current CEO and executive staff are capable of scaling to a large company.
To get to this Transition stage, the company needed passionate visionaries who can articulate a compelling vision, agile enough to learn and discover in real time, resilient enough to deal with countless failures, and responsive enough to capitalize on what they learned in order to secure early customers. The good news is this team found a business model, product/market fit and a repeatable sales model.
What lies ahead, however, is a different set of challenges: finding the new set of mainstream customers on the other side of the chasm and managing the sales growth curve. These new challenges require a different set of management and leadership skills. Critical for this transition are a CEO and executive staff who are clear-eyed pragmatists, capable of crafting and articulating a coherent mission for the company and distributing authority down to departments that are all driving toward the same goal.
What’s Next
By now, the board has a good sense of the skill set of the CEO and executive team as entrepreneurs. What makes the current evaluation hard is that is based not on an assessment of what they have done, but on a forecast of what they are capable of becoming. This is the irony of successful entrepreneurial executives: their very success may predicate their own demise.
The table below helps elucidate some of the characteristics of entrepreneurial executives by stage of the company. One of the most striking attributes of founders is their individual contribution to the company, be it in sales or product development. As technical or business visionaries, they are leaders by the dint of their personal achievements. As the company grows, however, it needs less of an iconoclastic superstar and more of a leader who is mission- and goal-driven.
Planning is another key distinction. The Scalable Startup stage called for opportunistic and agile leadership. As the company gets bigger, it needs leaders who can keep a larger team focused on a single-minded mission. In this mission-centric Transition stage, hierarchy is added, but responsibility and decision making become more widely distributed as the span of control gets broader than one individual can manage. Keeping this larger organization agile and responsive is a hallmark of mission-oriented management.
I Don’t Get It – I Built This Company – I Deserve to Run It
This shift from Customer and Agile Development teams to mission-centric organization may be beyond the scope and/or understanding of a first-time CEO and team. Some never make the transition from visionary autocrats to leaders. Others understand the need for a transition and adapt accordingly. It’s up to the board to decide which group the current executive team falls into.
This assessment involves a careful consideration of the risks and rewards of abandoning the founders. Looking at the abrupt change in skills needed in the transition from Customer Development to a mission-centric organization to process-driven growth and execution, it’s tempting for a board to say: Maybe it’s time to get more experienced executives. If the founders and early executives leave, that’s OK; we don’t need them anymore. The learning and discovery phase is over. Founders are too individualistic and cantankerous, and the company would be much easier to run and calmer without them. All of this is often true. It’s particularly true in a company in an existing market, where the gap between early customers and the mainstream market is nonexistent, and execution and process are paramount. A founding CEO who wants to chase new markets rather than reap the rewards of the existing one is the bane of investors, and an unwitting candidate for unemployment.
Don’t Fire the Founders
Nevertheless, the jury is still out on whether more startups fail in the long run from getting the founders completely out of the company or from keeping founders in place too long. In some startups (technology startups especially), product life cycles are painfully short. Regardless of whether a company is in a new market, an existing market, or a resegmented market, the one certainty is that within three years the company will be faced with a competitive challenge. The challenge may come from small competitors grown bigger, from large companies that now find the market big enough to enter, or from an underlying shift in core technology. Facing these new competitive threats requires all the resourceful, creative, and entrepreneurial skills the company needed as a startup.
Time after time, startups that have grown into adolescence stumble and succumb to voracious competitors large and small because they have lost the corporate DNA for innovation and learning and discovery. The reason? The new management team brought in to build the company into a profitable business could not see the value of founders who kept talking about the next new thing and could not adapt to a process-driven organization. So they tossed them out and paid the price later.
Take the Money and Let Someone Else Sort it Out
In an overheated economic climate, where investors could get their investments liquid early via a public offering, merger or acquisition, none of this was their concern. Investors could take a short-term view of the company and reap their profit by selling their stake in the company long before the next crisis of innovation occurred. However, in an economy where startups need to build for lasting value, boards and investors may want to consider the consequences of losing the founder instead of finding a productive home to hibernate the creative talent for the competitive storm that is bound to come.
Instead of viewing the management choices in a startup as binary—entrepreneur-driven on Monday, dressed up in suits and processes on Tuesday—the Transition stage and mission-oriented leadership offers a middle path that can extend the life of the initial management team, focus the company on its immediate objectives, and build sufficient momentum to cross the chasm. We’ll cover the details in a future post.
Lessons Learned
- Founder/Investor struggles about leadership are not about past successes – they’re about who’s best to lead future growth
- Founder success in the Startup stage is not a predictor for success in the next stages
- Few founders make great large company execs
- The exceptions, Gates, Jobs, Ellison, etc. are founders who grew into large company executives while retaining founder instincts