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Making the transition from founder to CEO

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This article also appeared in Finweek Magazine in their 12-Sept-2013 issue

Do good founders make good CEOs? Often not. There are vast differences between leading a company as a founder and leading as its CEO. What does it take to close the gap and are founders cut out to be CEOs?

Firstly, what traits make a founder successful? A founder has a vision and a powerful passion for their offering. They can motivate customers, staff and funders to believe in their idea’s potential. A founder believes so wholeheartedly in their vision that they will push through uncertainty and failure to see their idea succeed. And this dogged determination is vital in the early stages of the business. Why? Because the fledgling concept is still proving itself, and you’ll come up against lots of naysayers who will tell you that your offering is doomed to fail. A founder’s commitment is critical to see the company through this minefield of doubt to becoming a proven model.

But the skills vital to a founder’s success don’t necessarily translate into a successful CEO.

What skills do CEOs need? Here are some of the most critical ones, according to Michael Kaiser-Nyman, founder of Impact Dialing, and Les McKeown, President and CEO of Predictable Success, a leading adviser on accelerated business growth:

  1. CEOs must be good with people. An effective CEO needs to attract talent, investors and customers and forge partnerships. They must also be masterful at hiring, firing, delegating, assessing performance and negotiating business politics. A dash of charisma and people skills can go a long way toward the smooth running of the business.
  2. They must take a long-term, bigger picture view. It is vital that CEOs keep track of company activities and see the bigger picture. They need to be able to look ahead to where the company is going, pre-empting potential problems and recognising opportunities. It is important that CEOs be more risk-averse than founders. Why? Because their focus needs to be on running a profitable organisation, and they have to be comfortable diverging from the initial vision in order to become profitable. Founders often battle with these kinds of compromises — or seeing past their original vision.
  3. CEOs need the right combination of skills. If you’re a technical founder of an internet startup and aren’t comfortable with the people side of running a company, it is best to find a co-founder as CEO. Your time is better spent concentrating on the changing product or service needs and implementation. By contrast, if you’re a non-technical founder, you can probably assume the role of CEO while finding a technical co-founder. The key takeaway? Find someone who is strong in the areas where you are weak, so that you complement each other and form a strong team together.
  4. Effective CEOs understand the need for systems and processes. What is the main reason that entrepreneurs start their own business? For autonomy–the freedom to do what they want, how and when they want. Because of this need for autonomy, many founders see the rules, systems and processes applying to everyone else in the company but not to them. One of the biggest challenges a founder faces in the transition to CEO of their now-larger, growing business is to suppress this impulse to exempt themselves from needed processes. There are many outlets that give them autonomy and independence: it could mean walking into meetings late and hijacking the agenda, or shifting strategic direction on a whim without consultation, or giving yourself perks that you shouldn’t. It is critical to recognize that what got you here won’t get you there: the original, somewhat self-centred, independent way of managing won’t work for the next phase of organisational growth.
  5. CEOs can embed their vision into the organisation. De-personalizing the company’s vision is a challenge which cuts deep into the heart of the founder’s sense of identity. Up until this point, the founder usually embodies the business’ vision – indeed, they are the company. They battle to separate themselves from the business. Getting past this is key. Why? Because, according to local entrepreneurship guru Pavlo Phitidis, the company must be able to function without the founder, in order to succeed and grow into an asset of value that can one day be sold.
    Moving from a founder to a CEO-style of management means separating the founder from the business: recognizing that the business is now a “being” in its own right. With the help of their newly empowered senior management team, the founder must create a vision for the business that can stand alone from, and be independent of, the CEO as an individual. Think of Howard Schultz at Starbucks, Michael Dell of Dell, Ted Waitt at Gateway and Steve Jobs of Apple: all left their business at one point, only to learn that they had failed to institutionalize a vision for the company. All of them came back to de-personalize their business’ vision.

In startups, founders often take on the dual role of founder and CEO, at least at the beginning. However, inevitably the time will come when you need to decide if being both the founder and the CEO is helping or hampering your business’ growth.

Every founder reaches a turning point in their company’s development when they start to feel stretched by the challenges of their growing business. In this increasingly complex environment, leaders can no longer rely on pure gut feel to make important decisions. And just because you’ve been successful in the past with decisions made on gut instinct, doesn’t mean this will keep you successful in the future.

At this fork in the company’s journey, the founder has two critical choices to make:

  1. either press the pause button on growth, holding the business at a manageably simple level, or
  2. radically alter the way they manage.

Why is this choice so important to the company’s future? Because taking the first route will keep it a small lifestyle business, while the second route will put the business on the road to growth and scale.

Some founders have got it right, like Willem Roos of Outsurance, Adrian Gore of Discovery, and Robbie Brozin at Nando’s. But many founders don’t make the transition to CEO well. A number of famous founding CEOs have stepped down or been fired. These include Apple’s co-founder Steve Jobs (whose subsequent comeback is the stuff of business legends), Rodney James and Glenn Orsmond the co-founders of defunct South African budget airline 1time, David Neeleman of Jet Blue Airlines, Jerry Yang the co-founder and former CEO of Yahoo, and Mike Lazaridis of RIM (the makers of Blackberry). A recent well-known example is Wayne Mason, Groupon’s founder who was let go in Feb-2013. In his farewell memo at https://www.jottit.com/v5wux/ to Groupon staff, he was refreshingly honest about his own shortcomings as CEO:

“After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention. From controversial metrics in our S1 to our material weakness to two quarters of missing our own expectations and a stock price that’s hovering around one quarter of our listing price, the events of the last year and a half speak for themselves. As CEO, I am accountable.

You are doing amazing things at Groupon, and you deserve the outside world to give you a second chance. I’m getting in the way of that. A fresh CEO earns you that chance.”

According to leadership and management guru Ben Horowitz, there are three key explanations as to why founders fail as CEOs of their own companies. And the explanations are these:

  1. The founder doesn’t want to become CEO:  Not every founder is excited about running a large company. It’s a no-brainer that if you don’t want to be CEO, your probability of success in this role will be very very low. The CEO skillset is exceptionally difficult to develop. So if the founder doesn’t have a strong will to become a good CEO, it is inevitable that they will fail. There is nothing shameful in being a founder who doesn’t want to be CEO. But then have the humility and self-awareness to walk away early and save yourself and the company a lot of frustration. The last thing you want is your ego and refusal to relinquish your title standing in the way of your company’s success.
  2. The board panics: Often the founder does want to be CEO, but the board sees them making mistakes, panics and lets them go prematurely.
  3. The Product CEO Paradox: According to Horowitz: “The only thing that will wreck a company faster than the product CEO being highly engaged in the product, is the product CEO disengaging from the product.” This is the Product CEO Paradox and many founders run head-first into it. But what exactly is it? Very often a founder has a ground-breaking idea and starts a company to build it. As originator of the idea, they work non-stop to bring it to life, immersing themselves in every detail of the product to make sure the implementation matches the vision. The offering succeeds and the company scales. However somewhere along this journey, their staff begin griping that the CEO is micromanaging them and trying to do everything him/herself, instead of letting the employees get on with their jobs and instead of paying more attention to the rest of the company. The board counsels the founder to “trust your people and delegate”. And then the product loses focus and its differentiators. In the meantime, it becomes painfully obvious that the CEO was only world-class at the product, so they effectively morphed themselves from a great, product-oriented CEO into a weak, generalist CEO. At this point it’s probably the right time for a replacement CEO. This is where most founders destroy themselves: either by not letting go at all, or by letting go too much. It comes down to balance. If you cannot let go a little without letting go completely, then you should probably consider a change of CEO.

Understanding the difficulties inherent in making the leap from founder to CEO, we asked successful entrepreneurs Andy Higgins of BidorBuy, Robbie Brozin of Nando’s and Allon Raiz of Raincorp, how they got it right, and to what factors do they owe their success.

Here’s what Andy Higgins had to say: “Firstly I would not necessarily say I successfully made the leap. I ended up leaving Bidorbuy in an operational role after 11 years because I found it harder and harder as the business matured.  But for what it is worth, I would say the way to do it is to surround yourself with other competent people that have experience and are better suited to a corporate environment e.g. CFO, COO etc. (including being prepared to pay them more than yourself if necessary).” To what factors does Andy attribute his success? “First and foremost: Luck. Perseverance. Hard work. The right investors. Oh and … luck.”

Allon Raiz founded Raizcorp, Africa’s only unfunded for-profit business incubator model. He is now its Chief Excitement Officer. In his words: “I am still in the transition phase. The major challenge is to find the balance between total control and abdication. The answer lies in a deliberate strategy to create a strong management team to whom you can responsibly delegate and responsibly abdicate your functions. Start with getting rid of the roles you dislike that you are bad at, then those you like and are bad at, and then finally the ones that you are good at and dislike doing. You should land up in a role or roles that you are both good at and enjoy.” When we asked Allon to what factors does he owe his success, he said: “I do not believe I am successful, I believe that I am in the process of succeeding. Success is a verb. I am in the process of succeeding because I have a fantastic partnership, a dedicated management team, and of recent, a highly experienced Chairman in the form of Alfie Naidoo ex Group COO of ABSA who comes with the experience of running a massive organisation.

In the words of Nando’s founder Robbie Brozin: “I think the transition from a startup to a corporate is a delicate balance between ensuring that the passion, systems and processes all align. As the CEO of a startup, energy, persistence, naivety and dogged determination are all elements that spring to mind. Transitioning to a more corporate environment, from my perspective, is trusting someone to do this for me. Systems, structures and process become much more critical as the business grows. But this must be implemented with an understanding of the history, culture and ethos of the founding vision. As an entrepreneur you have to continually reinvent yourself and trust the team that are implementing the next stage of the journey. At Nando’s we are privileged to have a hugely competent management team that enable me to pursue humanitarian issues , such as fighting malaria in Mozambique while still actively ensuring our culture stays alive.”
In 2011 Brozin appointed a new CEO, freeing him up to concentrate on social responsibility initiatives. In his characteristically down-to-earth manner, Brozin now refers to himself as Nando’s Chief Creativity Officer.

So what is the take-home message? If you’re the founder, you don’t need to be the CEO.  Being the CEO is most often getting your hands dirty with messy, complex, difficult, and “un-fun” stuff.  Being the founder, the visionary, the passionate idea guy (or girl) is fun.  Don’t let the headlines and your ego compel you into being the CEO when you don’t really want to.  The fact is that most entrepreneurs do not make great CEOs that can grow businesses. Like Willem Roos, Allon Raiz, Robbie Brozin and Adrian Gore, you can become great CEOs by mastering the above traits.  But the real question is not whether you can. It is whether you want to. Like Andy Higgins did, it is OK to walk away.

Author: Colette Symanowitz

Director of FraudCracker. Passionate about entrepreneurship, personal branding and networking. I also tweet under @FraudCracker

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