The Founder’s Dilemma: Can a Founder Create Success as CEO?
By Jocelyne Bisson ‘24 Director of Marketing
The common trait connecting the founders of big-name companies like Apple, Twitter, Uber, and Tesla would initially seem to be success. Each of these companies has seen immense growth over the years. While their companies may be successful today, these founders can be grouped together for another reason entirely. Each was forcibly removed from their CEO position by either their own Board of Directors or Co-Founders. The founder’s dilemma reveals the struggle that many face between maintaining power or achieving the highest profit. When should a founder step away from the role of CEO, and how can investors determine when it’s time for a company’s creator to say goodbye?
The founder of any startup is the initial face of the company. Often the brain behind the idea, it takes a uniquely driven individual to take that idea and create a fully functional business. But most do not have the funds necessary to take these businesses from launch to a profitable phase, which is why angel investors enter the picture. Once investors invest, the company no longer belongs to the founder alone, and management may begin to forcibly shift. Research shows that four out of five entrepreneurs are forced to step down from the CEO position. While it seems obvious that a founder would create a startup with the end goal of highest profit, this isn’t always the case; many enter the game because they want to run and operate their own business. This may pose a problem in early funding phases, because ultimately angel investors are looking for the highest possible return in the long run. Unfortunately, a founder who successfully led a company through its first funding round may not be cut out to take that same company to its public offering. This is because every company goes through a variety of phases with each requiring different skill sets and traits in a leader. Someone with big ideas and a great story might not have the expertise necessary to take a company though some of the later growth stages and might be lacking in experience. Further, founders can be controlling, and it can be difficult for a company’s creator to give tasks or decision making to others, simply because of the vision that they’ve internally created for their idea.
Of course, every founder and startup are different, and some founders may possess the skills required to take their idea to the next level. There is always the exception to the trend, and examples of companies still led by their founders after going public include names like Fitbit, Square, and Box. Further, in recent years it has become more difficult for investors to forcibly remove founders because of different stock options allowing the founder to control a substantial share of their company even into the public offering phase. In short, while it is more common for founders to get the boot, it’s not impossible for founders to remain in control and see success.
In my personal experience, I have worked with founders who are full of great ideas and have a true vision for their businesses. No one has passion quite like a founder, and for this reason I think it is beneficial to have a founder remain involved in a company for as long as they would like. However, giving a founder the role of CEO can be detrimental because every detail means so much to them and it can be difficult for them to give up control. It takes unique character to be a founder, and it may take an even stronger willpower for that founder to take that important step back. So, while success is possible even for the late-stage founder/CEO, the best decision may be to take that difficult step, and to give management to another for the long haul.
Sources:
https://hbr.org/2008/02/the-founders-dilemma
https://www.entrepreneur.com/article/316171
https://www.entrepreneur.com/slideshow/321360
https://www.businessinsider.com/founder-ceos-should-leave-three-years-after-ipo-2021-12
https://news.crunchbase.com/news/twitter-jack-dorsey-founder-ceos-tenure-after-ipo-market-minute/
