As the startup goes through several stages of growth and transitions and establishes a stronger position in the market, it may require new leadership. Hard as it is, in many cases, the founder, who takes up the responsibilities of the CEO, actually stops the business from increasing its market value, according to research compiled a few years ago.
However, for many founders, facing the hard truth that it is time for them to step aside may be more challenging than it seems at first sight. In this article, we will explain why it is required to find someone for the position of CEO to lead the business before it is too late and how to make it most efficient.
Ways to find a good CEO
There are two ways of finding a good CEO for a startup: either become one (if you are a founder already) or hire someone from the outside. And while there are exceptions to every rule, many VC experts and data analysts will say that the latter is a more preferred option.
There are, of course, particular examples of founders staying at the CEO’s positions for decades, leading the companies to success and growth. Take Jeff Bezos, who founded Amazon in his garage in 1994 and became a CEO, later to step down from that position only in 2021.
Being honest is crucial – if the founder thinks that only they can take the position, it is worth asking oneself if they have time for it (on top of those 60 hours per week) or if they can upskill or reskill themselves. It is one thing to create a business, but it is different to deal with streamlined operations, from managing personnel to expanding to new markets.
Not stepping down at the right moment may cost the startup a lot (metaphorically and literally). When Andrew Mason was fired from Groupon in 2013, the shares of his company shot up more than 10%. Like Mason, over the past years, some company’s founders were ousted due to the missteps they had made.
Take another example – Uber, whose investors demanded that its founder, Travis Kalanick, step down as CEO in 2017 following a scandal that revealed sexual harassment and discrimination issues. When the development of a startup goes off the rails and the public turns on the company, the venture investors need to find a CEO who will take the company back to its path to growth and success.
How do you know that you need a CEO
However, even with the less dramatic development of events, the shelf-life of a founder-CEO may be shorter than one can imagine. According to Bradley E. Hendricks and Travis Howell, the authors of “The Founders Premium Revisited,” “the leadership styles and capabilities must change as a firm evolves and becomes more complex.” The study looks into the connection between financial performance and founder-CEO management of two thousand public companies. They conclude that, in many cases, the presence of a founder-CEO is beneficial for the company in the early stages.
As they say in their study, “As firms grow, their leaders must shift focus away from creating a product or market opportunity and focus more on lowering costs, streamlining operations, and keeping shareholders happy.” As a result, the person in charge of the company may require skills that differ from those needed to create a new venture. “Because of this, some work suggests that the value that founders provide to their firms might decrease over time as their managerial capabilities become less suited to the growing and interdependent challenges at hand”, suggest the authors of the research.
In reality, it may be emotionally challenging for many founders to step aside voluntarily once their organization has reached a certain level of maturity. Even if they accept the fact that the company now needs someone with different leadership capabilities, not everybody can quickly leave the place to someone else.
What is a perfect CEO in a startup?
The history provides examples, though, of founders hiring CEOs themselves, which has led to astonishing results. Like in 1998, when Steve Jobs invited Tim Cook to work for Apple as senior vice president of worldwide operations (he later took over the CEO position). In reality, it is the responsibility of the board to look for a perfect candidate to be the CEO of a startup.
Choose someone who shares your values and vision
First, the right person should possess a skill set that will align with the idea of the startup and have the experience of managing the company through the stages of further growth. At SKL.vc, for example, we bring experienced CEOs who share the values of the business. Our founder himself has top-management experience and expertise in venture business and IT, but mentors and experts also possess proven records from leading corporations.
Be aware of the size of responsibility – focus on scaling skills
A perfect CEO must not only understand the market where the company operates but also be able to scale the business and take the role of structuring the company. “You need to figure out sales. You hire a guy who’s been closing $10B for some big company. He’s so good, he managed 10,000 salespeople. You have ten salespeople. That’s not going to work”, explains Ali Ghodsi, a co-founder and CEO of Databricks, in a podcast with a16z cofounder Ben Horowitz. “Make sure that they’ve seen the scale you’re at, and they’ve done that phase.”
Make sure they fit in the corporate culture of the startup
A new CEO must support effective teamwork. Possessing massive experience from a big company is invaluable. However, many executives act arrogantly, noticing Ghodsi. “Companies don’t like someone coming from outside and saying, “This is amateur hour. We’re going to do things quite differently because I come from this huge company, and I’m going to show you how we did it over there.”
“When executives come in, and they are good, sometimes they’ll want to bring in a small piece of culture that is just incompatible. I think that that can be very insidious if you’re not careful”, says Ben Horowitz in his podcast. “There are certain things you believe in as a company that you’ve drilled into everybody. If you bring in an executive who doesn’t want to do it and you don’t make them assimilate, then you destroy that whole piece of things”.
Hiring (and firing) a CEO for a startup may be a challenging task. In the end, the flourishing of the business will rely on who takes this position and how soon the founder and investors will realize the need to get a professional for this role.
About the Author
Artem Sokolov is a global investor and entrepreneur. He is the founder and partner of the startup studio SKL.vc.
![iStock-2151090098 [Converted]](http://www.europeanbusinessreview.com/wp-content/uploads/2024/09/iStock-2151090098-Converted-218x150.png "Deconstructing the Myth of Entrepreneurship")
