80. Fire the Founder? 🔥 Take the initiative and replace yourself as CEO

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Most successful startups will eventually outgrow their founding CEO. This does not have to be a bad situation for the founder. If you handle it correctly, you can have a good experience and an even better long-term outcome. In this article, I will share how I dealt with this when it happened to me.

“TL;DR – I took the initiative, and it worked out very well. 😎”

In 1995 I left work on my Ph.D. in astrophysics to launch Anonymizer as a solo founder. You might think astrophysics was not the obvious or ideal training for a startup CEO, and you would be right.

I had no experience in management, sales, marketing, or business. I was an academic raised by a couple of academics. So, I used that skill and systematically studied business and startups. That and a mountain of hard work took us quite far, but eventually, the company needed more leadership and experience than I could provide.

Around that time, the dot com bubble burst, leading to weaker sales and vanishing investors. Through it all, I was still generally making things up as we went along.

During a quarterly board meeting, some members suggested that the company needed a more experienced CEO. Someone with significant business experience who has run companies before and has done the things I was still studying and learning at a conceptual level. They made a compelling case that it would make a massive difference to the business.

If you find yourself in this conversation, stop and take a deep breath. Things can get hot and emotional. The stakes are high. These people are asking you to relinquish control of the baby you gave blood, sweat, and tears to over the last few years.

Let go of your ego and focus on what is best for the company. Your eventual success depends on the company’s success. Are you the best person to be CEO? Is that the best use of your time? Most founding CEOs have critical skills as individual contributors in the business, but as it grows, that stops being part of the CEO job description. If you love building products, creating content, or the like, you don’t want to be CEO.

Their job is to manage other managers and talk to investors. They work with the board to set strategy but should delegate all that hands-on stuff. Let someone who enjoys and excels at that take the position.

When you finally respond to the board, talk from the perspective of what will be best for the business, not your personal wants or needs. Don’t be defensive.

If you believe you are still the right person to be CEO, make that case strongly, clearly, and unemotionally.

In my case, I agreed that I was over my head and not the right person to be CEO.

I might have been able to address my shortcomings by finding a fantastic COO who could take care of most aspects of the business while I kept the CEO title. However, I realized I needed to focus on the technology side of the business. Also, we would be raising more capital eventually, and a more mature face for the company would help that process. I was still quite young and looked it.

I did worry about being pushed out of the company. Fortunately, I had a controlling interest, so I could prevent that if needed. Even without that, you can largely eliminate this risk by making the right hire and not making yourself a liability.

Realizing that, I grabbed the initiative. I didn’t want the board to pick someone and force them down my throat.

First, I needed to create a set of requirements and a job description for the new CEO. I leveraged the board and my advisors to produce that document. This helped in two ways. First, I had never recruited a senior executive, so their input was critical. Second, it allowed me to steer the process and get everyone aligned behind my approach.

However, we did not have the cash to pay for an external executive search. I contacted my network, including the board, for candidates meeting our requirements. Several people offered leads, some gave suggestions, and one came through like a champion.

That person was my commercial real estate agent. He represented most of the tech companies in San Diego and was familiar with everyone in all their C-Suites. Within a couple of days, I had several stellar resumes from him. This goes to show that you need to cast a wide net because you never know who has the answer to your problems.

All the candidates looked strong, so once again, I went back to my board and advisors for input. We quickly narrowed it down to the top couple of candidates which I brought in for interviews.

However, interviews are notoriously poor predictors of performance, so the top candidate, Bill, and I decided to do a mutual test drive. We spend the next few months working side by side in the business. I leaned on him for decisions as though he were already CEO. In turn, he could see inside the company, warts and all. Nobody wants to jump into a plane to discover the engines are out and it is plummeting to the ground.

We learned how we would work together and handle disagreements and conflicts. He could see that I was comfortable deferring to him, and he respected my expertise and deep understanding of the business. We had strong mutual respect.

Either of us might have discovered things that could have terminated the relationship. This was a mutual test, not one of us evaluating the other. In part, we needed to understand how our relationship would work. We knew that we would spend more time with each other over the next few years than with our families. We also understood that we would have to navigate very tense situations where we might be in conflict. That comes up a lot in startups.

Fortunately, we were a good fit and are still friends years after selling the business.

I decided to change my title to President, but we later agreed that Chief Scientist would be more effective. Customers love talking to the Chief Scientist. I also remained chair of the board of directors.

Eventually, I even gave up the chairperson role. The company pivoted to focus on selling to government customers. At the beginning of the pivot, we recruited a retired admiral to join the board. When we realized we needed someone in a prominent position to make our national security customers comfortable, we promoted him to chair.

Day to day, very little changed. Bill and I still worked side by side to run the company and present our strategies to the board. The only change was now the admiral called the meetings to order, and his face was on the website and marketing materials.

I supported all these changes because I understood that having the company kick ass would deliver my personal best outcome.

Companies don’t just outgrow CEOs. They frequently need to replace many of the co-founders or early hires. Your first CFO is probably just keeping the books, which is fine when you are a three-person company. It’s unlikely that you were able to bring in the kind of person you need when you are doing many millions of dollars of business and conducting significant funding round. That requires an entirely different type of skillset and level of experience.

You can often see this coming. A very young company I advised was searching for a CTO to complete their first product. I knew the perfect person. However, I also knew they would not be a good fit a few years later. This guy was an early-stage specialist. He could crank out quality products fast using existing components, duct tape, and baling wire (metaphorically). But, he was not the person you wanted managing a team, and he did not take well to being managed by others.

As I expected, he delivered wonderfully for a couple of years, then became a problem for the company, and eventually had to move on. If you know that is the likely path, you can plan for the inevitable transition.

If you have the skills and experience to both, found the company and run it as a large enterprise, congratulations! However, if the company grows to need different leadership, don’t wait to be forced out or for someone else to pick that new CEO. Ignore your ego and take control of the process. Find someone who can be your partner in taking the company to the next level and beyond.

Until next time, Ciao!