When you think about replacing a CEO, what springs to mind? The drastic action of a desperate board struggling to right a listing company? Buying an entire company just so you can get Ring’s ex-founder as your new CEO?
When I spoke with Troy Bannister about why he replaced himself as CEO of Particle Health, I became curious about how people go through such a process.
CEOs are replaced for all sorts of reasons: because they’ve found a new challenge, because the company has outgrown them, or because the board has lost confidence in the CEO.
And it’s not uncommon, either, as Crunchbase reported last year. In 2015, only one-third of startups that reached IPO had their founders as CEOs. Perhaps one of the biggest success stories of a founder walking away from their startup to watch it go on and achieve marvelous things is Marc Randolph at Netflix. But there’s Slack and Pipe and Fairphone and OnlyFans and Tubi, which all have new CEOs this year. Oh, and we heard Twitter has a new CEO as well.
As daunting as it might seem to step back as CEO and let go of the thing that you love, it’s often the right thing to do. It’s also something for which there isn’t necessarily that much guidance. DeeDee DeMan at Bench International, a life sciences and healthcare executive search firm, has been eagerly reaching for the bait when CEO-fishing season opens for more than 50 years. She joked that your CEO search ought to be more like “Finding Nemo” than “No Country for Old Men.”
Building a startup from the first flickers of an idea into a company with a product and staff and a payroll is an indisputably brutal process. For some founders, the self-inflicted stress is no longer tolerable. Others realize that they can’t take the company any further with their skill set.
“In the majority of cases, there comes a time that you need to have a professionally credentialed CEO to take the company to the next level,” DeMan said. “And that’s completely dependent upon the acceptance and the mentality of the founding CEO. They understand that their wealth of information is more a tradable asset as a domain expert, but that they still need the CEO on board to drive it. A professional CEO can [put] the rigor into the business to make it a ‘real’ business.”
It can be a sensitive point: Realizing you’re no longer the right person to drive the train can feel like failure. But equally, it takes enormous strength to recognize when it is time to move on, and that doing so is best for you and best for your business. You don’t want to be the bottleneck, either through fatigue or misaligned skills, that prevents your company from reaching its full potential.
Are you ready to let go?
Even if you are ready to let go of your startup on an intellectual level, recognizing that it’s better for you, your loved ones, your colleagues, and your business is extremely challenging. It’s not even the difference between knowing it and saying it out loud, which is the first step to making any big decision. It’s the difference between saying it out loud, setting the wheels in motion, and then letting it follow its own path without your direction or suggestion. You cannot keep looking back over your shoulder and wondering whether you made the right decisions. You have to trust in the process and find your next focal point.
Remember that it’s better to leave when your company is in a good place and not in need of remedial management. You’ll feel better about it, and your board will have a much easier time finding the right CEO to step into your shoes. There’s an old piece of relationship advice that you shouldn’t have a baby to save a marriage. Similarly, you shouldn’t replace a CEO to save a failing company. You need to be making those decisions before it gets to that point. Timing is everything.
All on the same page?
Walking away on your own terms might afford you some say in what happens next. But if your board decides that it’s time for you to go, then you’ll not be given that grace. Whether you’re a founder with some voice in the transition process or a co-founder who is remaining in post and therefore involved in finding a new CEO, where do you go from here?
Some boards have a new CEO in mind, but many choose to use an executive search firm to help replace the top seat in the company. You need the right CEO.
To find the right CEO, you and all of your other board members need to be singing from the same hymn sheet. You need to have a clear vision for the company, a solid mission, and a strong set of values to which everyone, from the incoming CEO to an intern, adheres.
A first-class recruiter will have one-on-ones with all of the CEO-hunting stakeholders to establish precisely what it is that you need in a CEO, and whether this is someone who is meant to be scaling your product or taking you to IPO. Don’t forget, in doing their due diligence, recruiters will uncover lots about you, your fellow board members, and the state of your company. If there are tensions, they’ll find them. If there are disagreements, they’ll know about them. And if there’s something deeper about the culture or health of your company that might not be ideal, they’ll uncover that, too.
How long does it take?
DeMan says that she and her team aim to have a replacement CEO available for a board within 90 days of being instructed. As rigorous as the process absolutely must be, the shorter it is the better it is for the company. There’s less insecurity and less instability.
“If I can take care of my half in 90 days, it depends on your half,” DeMan said. That means that a board and the senior executives are often extraordinarily busy people. So to make sure everything runs smoothly, the stakeholders need to open up their calendars and make the CEO hunt a priority.
Of course, there are often additional legal and fiduciary steps that show up in a CEO replacement, especially at later-stage companies. Shareholders may need to vote, references will need to check out, and background checks can take time. Still, a three-month turnaround is possible.
Making the right choice
When you hire someone to find your next CEO, not only do you need to give them all the resources they need in order to recruit the right person to the post as soon as possible, but you also need to let them do their job.
The job can vary a lot, too. Some CEO searches start with an extremely targeted list of three or four potential hires. Other searches can have an absolutely enormous top-of-funnel, and DeMan has experienced searches that had lists of hundreds of potentials before they were narrowed down.
If you’re working with a recruiter, they’ll perform their own due diligence and prework, and it’s up to the board to trust that they will do so with skill and discretion. Discretion is very much the name of the game here: You don’t want your company to be embarrassed and neither do you want to jeopardize the prospects of any potential candidates.
Finally, you get to choose your CEO. Ideally, the first candidate who’s introduced to you will be the right one. But things happen. And there needs to be a Plan B, a Plan C and a Plan D. That’s not to say these people are second or third best — you don’t want a second-rate person running your company — they just weren’t first in line.
This is about having options in case things go awry. And having found your Nemo, you can welcome them to your reef.
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