Replacing a founder-CEO is no small matter. The founder-CEO is the core around which a startup grows. Replacing that “core” is a highly divisive and hotly debated topic in startup and VC circles. Ideally, the founder-CEO takes the startup to its exit — but history shows that most founder-CEOs are replaced, voluntarily or involuntarily, within the first 3-5 years.
Some CEO transitions are smoother than others, but all are disruptive to a company. The goal is to minimize the disruption — a responsibility shared by all stakeholders, including founders, board members and management. But the person who shoulders most of the responsibility is the new CEO. I was acutely aware of this when I took over my current role as CEO. I knew that a smooth transition was critical in helping the company capitalize on past successes and move to the next growth phase.
Naturally, the biggest unknown for anybody in my position was the founder I was replacing and whether our synergy or lack thereof would impede the efforts toward a smooth transition. When I was first considering the position at goBalto, one of my mentors, who is an experienced VC in Silicon Valley, warned me that, “nine times out 10, either the new CEO or the founder would be gone after one year.” That was sobering.
Fortunately, my experience has not been one of “those” founder-CEO shakeups. Several factors contributed to my drama-free transition. For starters, goBalto’s founder, with the support of the board, voluntarily chose to be replaced as CEO. After successfully leading the company through its initial funding and various growth stages, the founder-CEO saw the advantages of bringing in a new CEO.
Trust your gut instinct as you’re getting to know the founder.
Secondly, unlike so many controversial management changes, neither I nor the founder was “forced” to leave the company. On the contrary, there’s genuine mutual respect between us. Plus, it was clear to me from the get-go that the founder would continue to add value as a company leader. Over two years later, I’m happy to say I wasn’t wrong.
Unfortunately, most CEO transitions aren’t so smooth. And when the transition gets rocky, the effect can really hurt the company: employees leave, customer confidence plummets, market uncertainty surfaces and company productivity declines. So for incoming CEOs, I’ll share some advice from my uncommonly positive experience with an incumbent founder-CEO in the hope that you can steer the ship toward a similar outcome.
Look For Synergy
Don’t underestimate the importance of synergy between you and the founder(s). Put plainly, you have to like the people with whom you work, and the relationship between the CEO and the founder is no different — especially if the aim is to keep the founder on board at the company.
Trust your gut instinct as you’re getting to know the founder. If you sense tension or disharmony in preliminary conversations, keep your eye on that to see if it persists. If it does, it’s highly likely the collaboration won’t work out.
In addition to a mutual affinity, do you and the founder share a vision of the company’s road to success — or at least have harmonizing approaches to reaching a shared vision? If your visions are diametrically opposed or you get the feeling it’s going to be an uphill battle to agree on a shared vision, it’s not going to work and one of you has to go.
Determine The Meaningful Roles Early On
Synergy is only one factor in determining whether a founder should remain at the company. Even if a founder has a great prior track record, s/he may not be a great fit after the changing of the guard. And as an incoming CEO, the last thing you want to do is create a glorified role for your predecessor.
In fact, nobody in the company should have a glorified position, whether new or existing. So once you’ve determined the unnecessary or otherwise ineffective roles, including that of the founder, act early rather than later. If at all possible, avoid multiple rounds of layoffs, because that’s a morale killer. Get the “bad news” out of the way, then move on to the task of company-building.
If you determine there’s real value in having the founder remain a member of the leadership team, establish a meaningful role for that person. What are his/her areas of talent? Where can you best leverage the person’s expertise in a way that demonstrably moves the needle? Is the founder excited about the prospect of this new role? If yes, move forward, make it official and establish expectations and success metrics, just as you would for any employee.
Evangelize Your Vision — Often
If there’s synergy between you and the founder and a meaningful role for the founder, great. If not, make that hard decision. Either way, you need to address the other big priority: evangelizing your vision as the new CEO and getting the company behind it. It’s execution time.
Evangelizing the vision starts early on, well before you even define and announce the vision. To clarify, as an incoming CEO, you need to talk to all the right people — from board members to key employees — as you’re formulating the company vision.
You may already have an abiding philosophy or a general construct that you hope to establish, but it’s not going to fly unless you can customize those concepts to the existing culture. Moreover, if you ask the right questions and listen carefully, you will likely learn many new things that improve upon your initial vision.
For me, these opportunities happened through one-on-one conversations with company leaders and star performers. I “tested” my ideas, learned new insights and adapted my vision accordingly.
This is part of the evangelizing process, because you’re demonstrating openness to hearing and including feedback from key employees in your ultimate company vision. Effectively, part of gaining mindshare is about collaboration — even if you adapt none of the contributed ideas, people will appreciate the opportunity to be heard.
Evangelizing the vision starts well before you even define and announce the vision.
The other big component of instilling the new company vision is frequent communication. As the adage goes, “repetition is the mother of all learning.” Once you’ve established your vision of success, communicate it often to the company. Articulate it at all-company meetings, reference it during smaller meetings, mention it over lunch meetings. The more the vision becomes a part of everyday work conversation, the more it becomes a reality for every employee.
To throw in another adage, “a picture is worth a thousand words.” It’s helpful and more memorable if you have a visual concept to deliver alongside your vision (a mnemonic is a good alternative or addition). You don’t have to be Picasso — my visual was a simple roadmap depicting the path to a sustainable company.
Lastly, especially in the initial communications of your vision, share relevant details from your previous experiences — it’s personable and instructive. Regale your new team with an inspiring anecdote or two about your last company. Get real with a story about disappointment or failure and the lessons you learned. Tie it all back to the company and the vision. Rinse. Repeat.
Acknowledge The All-Stars
As I mentioned earlier, one of the biggest risks of any management transition is employee churn. Realistically, you may not keep (or even want to keep) every employee, but you most definitely want to retain the all-stars. These are people who are the backbone of the company across various departments and disciplines. So one of your first tasks as an incoming CEO is to identify these people. Ask your executive team and examine the inner workings of every team. You’re a seasoned leader; these people will be obvious to you.
Then you want to engage these all-stars. They’re part of your evangelizing efforts, and they should continue to be your sounding board, even if they’re not direct reports. Involve them in the interview process as you inevitably recruit new employees. Whether or not your hiring process requires unanimity, these all-stars should have a voice in new hires and the evolving DNA of the company.
Maintain Open Communication Channels
This is an obvious one, yet nonetheless bears mentioning: Build and maintain open communications with everyone. We’ve all witnessed new leaders arrive with promises of “open-door policies;” but either due to insincerity or busy schedules, these promises don’t materialize into actions. Or, the open-door becomes a policy only for a privileged few. As the CEO, new or not, you need to be aware of the important issues on employees’ minds and encourage them to communicate these issues to you.
Some CEO transitions are smoother than others, but all are disruptive to a company.
To be clear, you’re not encouraging communications about trivial matters like changing the lunch menu; you’re inviting all employees to talk to you about matters that impact the company’s overall success. You need to be approachable — not just at the beginning of your tenure, but throughout. Sometimes, some of the most useful feedback comes from the most unlikely sources, and people you don’t get to interact with on a regular basis.
Stay Focused On The Transition Plan
As Noam Wasserman of Harvard Business School points out in his research, less than half of founder-CEOs still run their companies after three years, and fewer than 25 percent are still at the helm when the company reaches IPO.
In other words, most startups undergo CEO transitions. But don’t be among the number of companies that suffer through a disruptive management change. Smooth transitions are very possible, as exemplified by successful companies like LinkedIn and eBay. If you’re an incoming CEO, have a game plan for the incumbent CEO (if applicable), evangelizing your vision and employee communications.
Establish trust and build a genuine partnership with key stakeholders. The transition will be disruptive; your task is to keep the disruptiveness at a minimum. It’s not an easy journey, but hey, you were tapped as CEO because you have the mettle to handle difficult problems.