As I often say, building a successful company is not for everyone. It involves a lot of blood, sweat and tears — not to mention creativity and resilience.
Yet, the very qualities and skills that enable a founder to establish the company and drive its early success can sometimes become a hurdle as the business grows, creating bottlenecks that hinder progress. This signals it may be time for the founder to step aside.
Perhaps the most important example is Google. Larry Page and Sergey Brin — not without some convincing on John Doerr’s part — agreed to have Eric Schmidt join the company as CEO. Schmidt’s term was dubbed as one of “adult supervision,” and Google would not have become what it is now without him.
Identifying the root of the problem
Unfortunately, many companies are not as proactive, and they only start discussing this solution once they’re under fire. While our default setting is often to blame external factors, the problem’s source is usually closer to home. As the adage goes — when you point your finger, there are three fingers pointing back at you.
For founders, it can be tough to admit their role in the company’s troubles. After all, they’ve started it from scratch, and founders often identify themselves with the company like a sort of Sun King, declaring, “I am the state.” They then become convinced that actions in their own interest are synonymous with actions in the company’s interest.
A scene from “Super Pumped,” the Uber drama, comes to mind. In the show, when Eric Holder and the regulators go to Uber’s office to investigate the company, founder Travis Kalanick responds with, “We’re one and the same.”
But they were not, and never will be, the same.
How to spot the winds of change
Change is a natural part of life. And in a startup, we can identify when a stage is ending. For instance, if a founder is more focused on self-promotion than actual business development, it can indicate a lack of involvement.
In other cases, the founder may feel burned out, bored or simply out of touch with what the business now requires. Their ability to lead diminishes, and bringing in an external CEO can boost the company’s prospects.
Another sign is when a founder’s lack of business acumen blocks them from making critical decisions, and the company starts to drift aimlessly. At this stage, the best option is to bring in outside leadership and find a new role for the founder.
For many founders, the hardest part is that stepping aside can feel like failure.
We must reframe this, as it is not a failure — it’s a strategic move for the business’ sustained success. Founders who step back, while remaining involved in a strategic or advisory role, often find they can contribute more effectively.
A smooth transition: How can investors help?
The key to a successful transition is an amicable process.
Ideally, the founder should recognize the need for change in advance and work with investors and the board to find the right replacement. When managed correctly, the company can emerge stronger than ever. On the flip side, poorly managed transitions can lead to both internal and external chaos.
Investors can help by recognizing founder burnout or misalignment. A founder’s reluctance to step aside or their inability to adapt to changing circumstances can be signs. Once that’s established, they can guide the founder through the process and ensure a smooth transition. After all, the ultimate goals are survival and growth, and companies need to choose the best person to lead the team to achieve them.
Mikhail Taver is the founder and managing partner of Taver Capital Partners, a Delaware-based VC fund with more than 20 AI startups in its portfolio and five successful exits. With 20 years of experience in executive roles with financial groups and industrial companies, he has closed more than 250 M&A and private equity deals totaling $24 billion.
Illustration: Dom Guzman
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