New sets of challenges and opportunities arise once a business startup transitions to a growth-stage company. These changes will inevitably transform the organization, impacting its business operations as well as its leadership. While succession and exit plans might have seemed distant and in the future, suddenly they become front and center in discussions about the future of the business. During this time of adjustments, the founder-CEO faces two options: embrace the inevitable changes and remained engaged or be ousted by the board of directors. Both choices might present difficult adjustments for the founder-CEO, but some planning and flexibility can assist in making this transition easier.
The growing and changing needs of the organization will demand adjustments for the business to move forward. Once it becomes evident that the organization will need additional specialized leadership, the founder-CEO’s departure becomes imminent. If the founder-CEO is cognizant of his or her limitations and is willing to explore better suited options, it is likely he or she will be embraced as a key player in the succession process. Noam Wasserman points out that those CEOs who volunteered themselves to be replaced are self-aware and understand that the demands of the job are beyond their abilities (Wasserman, 2012). This level of awareness and cooperation paves the way for more stable transition.
On the opposite end of the spectrum, a situation where a CEO is forced out by the board of directors can lead to turmoil throughout the organization. While CEO replacement is likely to stem from either poor or great performance, it makes a significant difference who triggers this process. Wasserman notes that “founders who maintain some control over the succession event often end up in better positions” (Wasserman, 2012, p.302). The board of directors is tasked with guiding the course of the business; therefore, they will act accordingly and replace the founder-CEO when it becomes necessary. This confrontational approach can create resentment from remaining co-founders and early employees towards a newly appointed CEO. The situation can become even more chaotic if the ousted founder-CEO remains active within the board of directors creating control and power dynamic issues.
A transition to a growth stage also requires specialized leadership and more organizational structure. This new reality is greatly captured by Glen Solomon when he writes, “Although your startup culture might not have supported process professionalization, find a way to fuse your culture with the benefits of additional structure” (Solomon, 2013). This stage of the business is characterized by a shift from survival mode to development. Thus, the development of the business will rely on strengthening and fine tuning organizational processes and system.
The overarching theme of this stage is change. An entrepreneur’s ability to deal with all the moving pieces becomes the key to ensuring a smooth transition. Therefore, founders need to careful craft an exit and succession plan in order to better prepare themselves for this phase of the business. After all, it is important to remember that enabling a business to grow beyond the founder’s abilities effectively validates an entrepreneur’s success.
References
Solomon, G. (2013). Transitioning from a startup to growth-stage company. Fortune Site. (2013, February, 11). Retrieved October 1, 2018, from http://fortune.com/2013/02/11/transitioning-from-a-startup-to-growth-stage-company/
Wasserman, N. (2012). The founder’s dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton, New Jersey. Princeton University Press.
Hi Jose,
I think you have summarized the transition from startup to maturity well. I agree that the overarching theme is change and evolution of the business. And while a founder is often good at managing change and “pivots” in those early, survival stages of the company, he or she may not have the necessary skills to take it to the next step.
As Wasserman points out, self-aware founders know when they have stretched their skillset to the limit. Choosing to step aside or taking a new role in the company to make way for a more specialized CEO is, in my experience, the smartest thing a founder can do for the health and welfare of the business.
All the best,
-David
David,
Thanks for your response. I agree with you, an entrepreneur who is able to understand his or her limitations, pretty much has proven his/her abilities as a successful entrepreneur. I would say that the ability to see this path is definitely a virtue.
Best regards,
-JFS
Jose,
To be honest I don’t know if I complete agree that there are only two options that the founder-CEO faces “embrace the inevitable changes and remained engaged or be ousted by the board of directors. ” I think it is very important to know your skillset’s limits as David reminded you above. I think it is prudent to think for the scailing or exit that way you are able to compete for your future the best way you can. I already like reading your blog. Thank you for your thoughts this week.
V/r,
Merida
Merida,
Thank you for your response, I am enjoying reading and responding to all incoming comments! After carefully reviewing my post, I believe I made a mistake and used interchangeably the words “options,” “choices” and “outcomes.” Choices/Options and outcomes being two completely different groups and categories. This error changed the meaning of my original thought. My initial thought was that if we take a step back and look at the larger overarching role of the CEO, it it to serve at the pleasure of the board of directors. Therefore, if the board of directors decides on a certain path for the organization and the CEO disregards or disagrees with such vision, the Board can move to replace the CEO. The outcomes I was initially referring to are remain (in an engaged manner) or be ousted. Both are outcomes, not choices. These two outcomes are closely related, but completely different than the options available to a founder-CEO. Options can (and should) be guided by skill-sets, as you pointed out. Good catch, Merdia. Thank you!!