When Should a Founder Step Away as CEO?

In every successful entrepreneur’s professional life, there comes a time to pack it in and head for the exits. Deciding when it’s time to make the founder CEO transition is the really tricky part. And when to do so can vary widely depending upon the circumstances. Several common scenarios set the stage for this transition. And a few that don’t.

Let’s examine a few scenarios that meet the “time to move on” criteria….

No longer a startup — and you’re a startup type of guy/gal

This one may be recognized somewhat easily. That’s because, as the company changes from a startup to a more mature enterprise, the actual “work” of the CEO often changes dramatically with it. Many CEOs recognize that they are much better suited, and enjoy far more, the role of a startup CEO than one leading a more formal and bureaucratic enterprise. Problems occur when the CEO fits the “startup CEO” mold but doesn’t realize it. Sometimes, they love the company so much that their identity is totally intertwined with it. Other times, they grow to enjoy the trappings of a larger-company CEO.

But if you’re not suited to manage in this environment, for the good of your baby, you need to yield to someone who is. I don’t mean to imply that no one who starts a software or hardware company has the skills, or can’t grow into the role of managing a larger, more mature enterprise. Certainly, some folks fit into this category. However, I’ve seen too many CEOs who didn’t. But thought they did, and did great damage by sticking around too long.

Founder CEO transition: It’s time to retire

Here is a situation that’s also pretty obvious as long as you’ve planned for it. So when you’re ready to retire, you retire. Right? Pretty straightforward. However, one of the problems in this area occurs when the founder/CEO has kept a tight rein on the company’s management. So much so that he or she truly is an irreplaceable piece. Founders are often so integral to initial success that it’s very natural to believe you are the only one who can be trusted to do certain things well enough.

Take that idea to the extreme over a long time period, and a company won’t have the people and processes in place needed to carry on successfully, once they are gone. So, to leave a healthy, functioning company when you do retire, set the stage for that day quite far in advance. Let go well before you actually need to, while you’re still there to coach and make corrections as needed.

Founder CEO transition: You’ve just had enough

You have the skills, etc., and it’s far from time to retire. But starting and growing a business is SO all-consuming. In some cases, it can practically suck the life right out of you. At some point, some segment of founders can become exhausted or bored with the business. When this is true, it’s time to refresh yourself. Move on to a different activity. Once you realize this, the path is pretty clear. The only caution I’d put forth here is that you shouldn’t act rashly. Because once you’ve done it, it may be hard to undo it. Give this decision some time before finalizing it. Be especially cautious if you tend to be a decisive, fast-moving decision maker. This is a life-altering decision. Make sure that it’s not just a vacation you need, but rather a complete life/business change.

You’re not the best person to run a company – and realize it

This is probably the most important one of all, and can come into play at any time. It is usually due to a lack of certain skills or the appropriate temperament. But it could be for a variety of other reasons. This includes everything from complications due to life situations to a general lack of interest. In any event, once you realize this, it’s time to get out as expeditiously as possible. To objectively reach this conclusion when it’s warranted is critical to the success of your company.

Unfortunately, the ego often gets in the way and doesn’t allow it. This circumstance may come at the very beginning of a startup, or well into the tenure of a mature company. It helps to have trusted advisors around you who will tell you the truth. But most of all, it requires a level of self-reflection that not all of us possess. I’ve seen the inability of many CEOs to see the truth cause great, and sometimes irreparable, harm to the very company they care so deeply about.

And a few scenarios that aren’t as clear-cut…….

An Investor tells you he wants his own CEO

One of my pet peeves is the VC or angel investor who wants to replace the CEO, just because. He/she only feels comfortable working with people with whom they have worked/made money previously. Now you might say, “It’s their money they’re risking, they can do what they want”. Maybe so. But  I’ve seen the people brought in under these circumstances wreck good companies that were executing or capable of executing very well. In my opinion, these investors should start a company themselves if they need that granular level of control. (I know investors may THINK they are starting a company they’ve invested in, but they haven’t).

Don’t get me wrong; there are many situations where the CEO needs to go. Some are spelled out above. The investor may be acting as a trusted advisor and in the best interest of the company. I’m talking strictly about the situation of wanting to replace the CEO due to a lack of familiarity with the current CEO, or “I always bring in my own CEO”. Unfortunately, this happens more often than it should. If faced with a situation like this and after an objective analysis (including outside advice), you believe you’re the best person to run the company at this time,  move on to the next potential investor before funding. Unless they are the last investor on earth! Then you may need to reconsider!

You still want to make all the decisions, but don’t want the daily grind of being CEO

Feeling this way is a real warning sign; it might be time to move on. Life may be saying it’s time to do something different. Or, maybe you just really need a quick break, some time to reflect and refresh. Either of these is fine. But trying to have it both ways can be problematic.  In my experience, removing oneself from the daily operations of the business somewhat permanently, but still making decisions from a distance, can lead to real problems. The person actually running the business daily is usually the one best positioned to understand the real needs.

There is a rhythm to any business that needs to be listened to and felt. As well as all of the small details that pop up day-to-day, which add significant information important to make optimal decisions. Companies are vibrant, constantly changing entities. Wisdom ages quickly when you’re not intimately involved. In this situation, it’s good to see if you can become refreshed enough to recommit as the day-to-day CEO. If not, it may be best to step aside completely from the day-to-day decision-making. Hire a new CEO and let them truly run the company.

Someone tells you to add talent or prestige by hiring a high-profile CEO

In my opinion, this is generally a bad idea. Now, there may be other extenuating circumstances, such as those proposed above, that should lead you to step aside. But just for the opportunity to bring in a talented individual — or even worse, a big name — it usually isn’t wise. This all assumes you’re capable and interested in running the company. If this is still the case, it’s almost inevitable that clashes between you and the new CEO will occur. Because you probably haven’t really let go. In most cases, this new CEO, no matter how talented or well-known, won’t be long for the company. So think long and hard before you let go of the role prematurely, if this is the rationale.

That’s what I think about the founder CEO transition, which is likely a very controversial topic. What do you think? Please post a comment to fill us in.

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