November 20, 2009
As I have written many times before, answering the vexing question of when founders should remain or be replaced as CEO is probably both the most important and most difficult part of the job for both founders and the VCs who back them.
While the personalities and egos of both founders and VCs often complicate things, even without that, the reality is that determining the “right” answer is really damn hard. Sure, there are lots of instances where a founder is the perfect person to launch a startup but by his/her own admission clearly lacks some of the competencies necessary to grow it into a successful business. Even still, the notion of bringing in a CEO can be troublesome. Will a new CEO be entrepreneurial enough to fit into what is still a very early stage company? When an entrepreneur ask whether it isn’t risky bringing in a new CEO, the only answer is “yes,” it absolutely is a risk that, despite extensive interviews and referencing, even the best boards make mistakes in hiring startup CEOs. So when is it right to go ahead and take that risk, and when does it make more sense instead to surround a founding team with talent other than a new CEO?
This very question is playing itself out in no fewer than 3 of my portfolio companies right now, with 3 different answers emerging. I am going to share 2 of these outcomes here.
In one scenario, a very young first time founder/CEO appreciates that the company has a ton to gain by the addition of some senior talent on his team, and that what today feels like a really good trajectory could be a really great trajectory with some seasoned help. But he also worries that hiring the wrong guy would be disastrous if that guy is the CEO. Things are going well — why take that risk? Instead, the founder and the board are leaning toward hiring a strong #2, a President or COO or something like that. Facebook and Twitter did, why can’t we?
In the other scenario, a more experienced founder is doing a brilliant job establishing the company/product vision and establishing both himself and the company as a real thought leader in the space. Not surprisingly, focus and disciplined execution is not this founder’s strong suit, and the company soemtimes suffers from continually having a new strategy and positioning. The founder and I have been going back and forth on this for months. Here is where we’ve landed: for the next 6 – 12 months, the most important objective for the company is validating its solution and vision in the marketplace. Although full of “buzz,” the market is still early and super dynamic. Continued innovation and evangelism will be key, and success will look more like a handful of critical partnerships and acceptance of the company as the market leader, than it will a scaled business. So, we’ve concluded, the best management configuration is to keep the founder as CEO with strong sales and business development execs around him, and a couple board member/advisor types with great operational chops who can help the founder keep his feet on the ground and the company on track to where they need to go.
Stay tuned, we’ll see how things work out.