Why do the founders have everything to gain by hiring a more experienced CEO?

ceo search board governance

Founder = CEO? For fear of being replaced, many startup creators refuse to consider bringing in someone more experienced to take on the role of CEO. Yet it is a courageous act and most often it pays off.

The scene is well known: an entrepreneur who has created his business against all odds finds himself, one morning, replaced by a more experienced (but much less inventive) CEO at the request of his shareholders, sometimes with the consent of the second founder who thinks it is wise to sacrifice comradeship on the altar of pragmatism. It is the romantic myth of the artist dispossessed of his creation! A myth that lasts a long time. No wonder then that the collective imagination consecrates the founder as the best candidate for the position of CEO: didn’t he model the company with his own hands, like Pygmalion sculpting Galatea?

At least that’s what Ben Horowitz, VC of Andresessen Horowitz, thinks, saying he prefers to invest in start-ups of which the CEO will indeed be the founder. In Why We Prefer Founding CEOs, he emphasizes 3 points: moral authority because of his status as a founder, knowledge based on his entrepreneurial experience and a total dedication to the long-term success of his startup. For him, this is what allows the founder-CEO to keep his will to innovate in the long term, and not to give in to the sirens of everyday life. The list to support his claims is long, from Amazon (Jeff Bezos) to Microsoft (Bill Gates) to Adobe (John Warnock). But are they a rule or, rather, glorious exceptions?

At KMF, we like to take preconceived ideas in reverse: for us, in most cases… startup founders have everything to gain by hiring a more experienced CEO!

The founder’s dilemma

“Startup founder, it’s a state of mind… not a profession!”

This remark by Reid Hoffman, co-founder of LinkedIn, highlights the problem: bold, enthusiastic, driven by a vision, the founder of a startup provides the essential fuel that allows the company to be born and grow. But this state of mind does not necessarily make him a natural manager or a leader. The startup-er is more of an explorer than a manager: he looks more like Christopher Columbus at the helm of the Santa Maria than Edouard Balladur on the Bercy bridge.

The worm is in the fruit: there comes a time when what makes the quality of a founder can become his defect. Without falling into counter psychology, it is no secret that certain qualities go hand in hand with certain defects, and vice versa: creative people with outstanding inventiveness often make very poor managers, and obsessive planners sometimes find it difficult to free themselves from established norms and processes. The success of the MBTI test in the startup world illustrates the awareness of this “design versus execution” duality: the test establishes ideal-typical personalities such as “inventor” or on the contrary the “supervisor”. It is difficult to move from one to the other without rigorous training.

It’s like cycling: there are runners, climbers, and sprinters. After several years, when the startup begins to experience its first phases of growth, early entrepreneurs may find themselves faced with issues that either exceed them or do not interest them. History is full of examples of Founder/CEO professional duos that have worked perfectly well! On this subject, let’s give the floor to Reid Hoffman again:

“In the era of the internet bubble, Tim Koogle (Stanford) played a major role in making Yahoo, Jerry Yang’s startup, and Dave Filo, the most expensive company in the internet world. Meanwhile, Pierre Omidyar’s startup, a certain eBay, was Meg Withman (Princeton / Harvard) who helped her to make it the second largest e-commerce company in the world (just behind Amazon).”

We admit it, it can be frightening: it is difficult not to have the impression that the wolf is being brought into the sheepfold.

However, you will see, there are many very good reasons to do so!

Know when the time has come to pass baby

The intervention of a more experienced manager can bring a breath of fresh air into the startup, without expelling the founder, who assumes the role of COO (Chief Operating Officer),

That’s exactly what Jeff Weiner (CEO) and Reid Hoffman (COO and founder) do: “I love the early stages of starting a business,” he says.

If you also like small teams, creating a product that changes the game, innovation in itself, exploration, but that today, your company is no longer that much. As the product, you have less time to devote to it and that, as a result, the pleasure is no longer really there. Worse than in the morning, you almost feel like you’re going “to work”. Well, if that’s your case, listen carefully to Reid Hoffman, who experienced exactly that.

“If your company is successful, the CEO’s job changes drastically. All of a sudden, you will have to focus on different challenges and much less exciting needs, such as establishing processes and managing an increasing number of employees,” he explains. Structuring, management, Reid Hoffman realized as LinkedIn grew that he had no passion for it:

“For example, I couldn’t bear to take care of everyone’s weekly staffing. Yes, I could do it, but with reluctance, without enthusiasm. No, what I wanted to do was to continue to solve intellectual challenges, develop strategies, not debate which employee should be promoted! ”

In other words, he realized that he wanted to “be the CEO” but… without doing the job! Is this really desirable? Isn’t it better to find someone who has as much passion for what they do as you do and who can meet these challenges? “In my experience, the CEO of a growing startup must be able to manage 1000 people and devote a considerable part of his time to meetings and purely business aspects.”

Morality? Reid Hoffman became COO of LinkedIn and was able to focus on his product, to continue the innovation effort necessary for the company’s growth. How many CEOs have lost sight of the challenges of innovation by being stifled by all the imperatives of creating a company’s structure?

3 reasons to do it (for real)

1) Because diversity and complementarity make you stronger

The complementarity of the duo between the experienced CEO and the COO-founder is essential. In the United States, there are recent examples of success: Benoit Gordon replacing Jean Micheal, the founder of the TellMePlus startup, as CEO after a major fundraising campaign. And here, the profiles complement each other, the skills add up. You have to know how to delegate to rule better.

Not to mention that the arrival of an efficient and wise profile will help to order the primordial chaos in which young startups are immersed.

This may be an inexorable movement. For Sujay Jadhav, CEO of goBalto, “history shows that most founder-CEOs are replaced, voluntarily or not, during the first 3 or 5 years”. The diversity of profiles makes it possible to avoid a sclerosing atmosphere, to break down prejudices and to contribute to the training of everyone.

2) Because it pays $$$

This “founder’s dilemma” is so well identified in the startup sphere that Noam Wasserman (Harvard Business School) has been studying for nearly 10 years. In Rich versus King, he studied 460 startups from the 2000s. He observed that:

  • The founders who gave up the position of CEO and control of the board governance┬áconsiderably increased the value of their equity: “Most of the time, the more the founder wants to keep control, the less his equity increases.”
  • More than half of the founders of startups choose to give up their place.
  • Less than a quarter of the companies that have carried out an IPO have Founders/CEO.

3) To earn XP

Startup founders value any experience, however unpleasant, as long as it allows them to gain maturity, experience and self-awareness. Hiring a new CxO (regardless of the qualifier, as long as he or she is one of the key decision-makers) is undeniably an experience that makes us grow. If he is older, has a family (and therefore does not want to be part of a meetup that lasts up to no hours) and has professional experience outside the startup (understand: big business), mutual acculturation can be a source of enrichment and express maturity for all concerned.

His experience in organizing and managing a company where human management goes beyond the issues of restocking the beer dispenser and coffee capsules will be a valuable asset to accompany the startup on the tortuous path of scale.

Culture is everything

Obviously, this is where the founder must show a flair that he is one of the only ones to have when it comes to his work: be careful to recruit candidates who are willing and able to share the culture of the startup in question. As Brian Chesky (founder and CEO of Airbnb) writes: don’t screw up the culture. And this is where the search for the ideal chief borrows much more from the exhausting marathon than from a walk on the banks of the Seine.

Better start early, before you have the Board’s knife on your throat.

Published by Dave John

Decade of work experience in leadership consulting with strong focus on talent acquisition & assessment across different industries and geographies.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: