Founders Need To Know When To Step Aside

Gary C. Bizzo  |

iStockphoto, Fizkes

I've watched many startups begin, grow and disappear. I've seen brilliant minds start an innovative corporation only to bring it to its knees in short order. It seems like the running of the company can often be too much for the Founder and CEO.

Too often, Founders feel that they are the genesis of the innovation and they are the only ones able to take the company to the vision they see in their mind. This is somewhat foolhardy for many reasons.

It is fair to say that not everyone with an innovative idea and some smarts makes a good leader or CEO. I've seen innovative geniuses who would rather have an office in the basement with a phone line and a computer and be left alone than try to run their company. The problem lies in the individuals who feel they must run the operation.

One of the tenets of financing a startup is that it must have good management as a starting point. You can have a brilliant idea but, without leadership at the right place at the right time, the company is doomed. It is impossible for one CEO to be an expert in financing, innovation, the engineering of the concept, human resource management and everything else that goes into a corporation. I've seen it all but Founders continue to try to be the "jack of all trades."

There's a plethora of business case studies showing that the Founder of a company is a very poor choice to be the CEO as the company grows. Founders have the technical knowledge and the drive, but they likely don’t have the business acumen to keep growth going.

Unfortunately, the CEO usually has hit some variation of the Peter Principle. The Peter Principle, developed by Dr. Laurence Peter in 1968, posits that people are promoted within an organization until they reach their level of incompetence. It refers to the management trainees in a company who, over the course of a few years, keep getting promoted until they hit a level, or a position, where they are underqualified and overwhelmed.

The innovator who is elevated to CEO from the get-go is generally in an untenable position unless there is some serious leadership experience on the resume and could already have reached the Peter Principle.

Founders with foresight will realize that, while they are fine as the initial startup organizer, taking the company to the next level is beyond their expertise. A visionary Founder will step aside and hire a qualified, tested on the battle ground, type of CEO to lead the company to and through its next stage of development. It's a tough decision but usually required for the company to get more financing, gain traction in the marketplace or grow. Now that the company is being run by a qualified individual, the Founder can remain as a Director or even become Chairman.

So, the question arises, why even have them around at all? I have seen Founders relegated to the big office next to the new CEO. They don't do anything but are still in the picture. Why have the Founder around at all, especially if there is a new "best and brightest" in the captain's chair?

Often the Founder is the security blanket for the investors. They want to know that the mind behind the innovation is within earshot of any technical glitches to the product. They want to know that the employees and suppliers will feel comfortable knowing little has changed in the business. Finally, the Board has been selected by the Founder so they are in a comfortable position as well.

The thing is, a lot has changed with the appointment of a new CEO. Aside from the technical innovation the Founder has brought to the company that has probably been modified and strengthened by the engineers and CTO that the Founder had in place from the beginning, does the company really need him anymore?

The huge problem for most Founders is accepting the appointment of the new CEO in the first place. This means that it's been determined that the Founder doesn't have the capacity to lead the corporation further, a tough thing to accept!

There are a couple of things to keep in mind about the Founder at this point. Does the Founder have a personality that might not take well to playing second fiddle to the new CEO? How many of us can stand by and not join in on a conversation about market direction, sales strategy or other high level decisions? Many if not most Founders I know would not last in that scenario, and if one word could describe them, it's temperamental.

It's very tough for a new CEO to deal with a Founder who has been ousted but, as a large shareholder, still has a lot of say in the company. Battles for power, personal conflicts and influence are typical results, and with the Founder not exiting the business anytime soon the result is a long line of CEOs that may come and go.

It's also not an automatically positive move by the Board to banish the Founder if there is conflict. Remember the fiasco with Papa John's Pizza and Founder John Schnatter? Sure, the reasons are particular to the situation, and Schnatter didn't help his own cause, but the Board acrimoniously tried to take him out as a Director before accepting his resignation as Chairman. The resultant negative publicity was ongoing and still is newsworthy.

The conflict, perceived or otherwise, between a Founder and CEO doesn't work. Trust plays a vital role in the relationship between a Founder and his CEO, and it will determine the future growth and well-being of the corporation. Without trust, there will always be contention over control, and you will see another CEO bite the dust. Unless the Founder is bought out, this is the inevitable result.

When you look at the overall picture it makes sense to bring in the best people, when needed, for the benefit of the startup. For a successful business to work you need all staff on the same page, and that means the CEO and Founder.

It takes a lot of psychology and a special type of person to accept what's good for the company and let go of personal feelings. If you look at a historical perspective, Paul Allen, one of the Founders of Microsoft, was never the CEO and Warren Buffet, CEO of Berkshire Hathaway, was not the Founder. They made it work!

Gary Bizzo is CEO of Syphon Nanotech Inc., Bizzo Management Group Inc., and Bizzo Integrated Marketing Corp. in Vancouver. London-based Richtopia placed Bizzo on the Top 100 Global Influencers in the World for 2018. He is an Adjunct Professor of Integrated Marketing & Communications as well as Consumer Behavior at the New York Institute of Technology, MBA School of Management (Vancouver Campus).

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Equities Contributor: Gary Bizzo

Source: Equities News

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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