When Ryan Petersen announced he was stepping down as the CEO of Flexport to become a partner at Founders Fund, he probably wasn’t expecting to return to the shipping logistics startup just months later following a succession snafu.
Succession is hard, and even the best-laid plans don’t always work, as Flexport found out. It’s completely natural for founder-CEOs like Petersen to want to move on from their companies. Many companies also hit a point where it may make more sense for a founder-CEO to step down and make space for different, or more experienced, leadership.
But in today’s market, it’s harder than it has been in years to do an IPO, which has led to a number of first-time founders finding themselves at the helm of seemingly dormant and sprawling startups, with no end in sight. What’s worse, the past decade of easy capital availability encouraged many startups to grow faster than they should have. It also lulled many founder-CEOs into believing that the good times would last. If things don’t improve, we may start to see more exits next year — not by companies, but rather their founder-CEOs.
Some startups already have succession plans in place, but they are likely in the minority. But succession doesn’t have to be daunting even if you don’t have a plan.
Founders can take a few initial steps to set themselves and the company up for an eventual departure, even if they aren’t sure of the timeline yet. According to Lauren Illovsky, a talent partner at CapitalG, the first thing to do is make sure you are actually ready to leave.
“[Founders] need to take a hard look [at] themselves and ask if they are truly ready to step down when they say they are,” Illovsky said. “Many times, when push comes to shove, they are not.”
If a founder is ready to leave, they should start by defining what their role as founder-CEO looks like at the moment and what they think it will look like in the near future, said Margot McShane, a managing director at Russell Reynolds Associates who is focused on senior executive talent.
Lisa Caswell, a partner and leadership consultant at Spencer Stuart, added that this introspection should go beyond just a CEO’s actual tasks. CEOs should think about their own leadership strengths and weaknesses, because if a founder-CEO is particularly involved with the product roadmap or branding, they’ll want to find a replacement who has similar strengths.
She cited Oracle’s founder and current CTO, Larry Ellison, and Steve Jobs as examples of leaders with specific strengths: “Larry Ellison is still very good at product and thinking about product and engineering, while Steve Jobs was really more about the brand and what you can be doing for the world.”
Once the role and responsibilities have been detailed, founder-CEOs and their boards can start thinking about who might be a great fit for the job. If a founder-CEO needs to step down in the immediate or near future, their startup will likely find more success recruiting an external CEO. They can also ask their investors and board for help here, as they may have someone in their network worth considering.
If founders aren’t planning to leave immediately, or aren’t leaving at all but want to make a plan, Illovsky said they should make a list of both internal and external candidates who might be a good replacement. These lists don’t need to be shared, but it helps CEOs start thinking about it and laying the groundwork to forge relationships with potential candidates outside their network.
They can also start coaching any internal talent — or other members of the founding team if they are still there — who would be a good fit. “If you find an internal candidate who is extremely well-developed, and has a good external market view, they can be a great option,” McShane said. “Identify the people with potential; develop them early and often.”
The most important thing for founder-CEOs to remember, even if they feel like they don’t have a lot of time, is to not rush the process.
“This is not the time to hire by gut-feeling or say, ‘I like this person and they would be great at this,'” Illovsky said. “No, this is the time for data and rigor. They need to fall in love with your company as much as you have.”
Finally, when a founder is ready to leave, they should plan out how they will be involved with the company in the future and stick with the plan, Caswell said. If they want to step back until there is a full transition, or stay on as an adviser, they should communicate their intent with both the incoming leadership and existing employees to ensure the transition is as smooth as possible.
Even if a founder has no plans to step down, they should consider doing all this anyway.
Some founders think talking about succession early on signals to their board that they are thinking of leaving or aren’t committed. But Illovsky thinks it is the opposite: It shows your board you are mature enough to make a plan that can be pulled out in emergencies. The NYSE recommends that all of its companies have such plans in place, she added.
At the minimum, keeping track of the CEO’s current role and how it has changed, keeping tabs on internal candidates with potential to grow, and keeping a list of potential successors will only help companies a lot if they find themselves in a pinch.
“For organizations that haven’t embarked on serious discussions around succession-planning, we highly recommend you do not delay,” McShane said. “At traditional companies — those that don’t have a founder in place — that process begins the first day the new CEO comes in.”