Entrepreneurs face a choice, at every step, between making money and managing their ventures. Founders are usually convinced that only they can lead their start-ups to success. At the start, the enterprise is only an idea in the mind of its founder, who possesses all the insights about the opportunity; about the innovative product, service, or business model that will capitalize on that opportunity; and about who the potential customers are.
The founder hires people to build the business according to that vision and develops close relationships with those first employees. The founder creates the organizational culture, which is an extension of his or her style, personality, and preferences.
From the get-go, employees, customers, and business partners identify start-ups with their founders, who take great pride in their founder-cum-CEO status. Their attachment is evident in the relatively low salaries they pay themselves.
That was so even after taking into account the value of the equity each person held. Many entrepreneurs are overconfident about their prospects and naive about the problems they will face. They invite family members and friends, angel investors, or venture capital firms to invest in their companies. In doing so, they pay a heavy price: They often have to give up total control over the enterprise.
Once the founder is no longer in control of the board, his or her job as CEO is at risk. But, paradoxically, the need for a change at the top becomes even greater when a founder has delivered results. Let me explain why. The first major task in any new venture is the development of its product or service. They think investors should have no cause for complaint and should continue to back their leadership. At that point, leaders face a different set of business challenges.
The founder has to build a company capable of marketing and selling large volumes of the product and of providing customers with after-sales service. The organization has to become more structured, and the CEO has to create formal processes, develop specialized roles, and, yes, institute a managerial hierarchy.
A technology-oriented founder-CEO, for instance, may be the best person to lead a start-up during its early days, but as the company grows, it will need someone with different skills. Indeed, in analyzing the boards of privately held ventures, I found that outside investors control the board more often where the CEO is a founder, where the CEO has a background in science or technology rather than in marketing or sales, and where the CEO has on average 13 years of experience.
Thus, the faster that founder-CEOs lead their companies to the point where they need outside funds and new management skills, the quicker they will lose management control. Success makes founders less qualified to lead the company and changes the power structure so they are more vulnerable.
Investors wield the most influence over entrepreneurs just before they invest in their companies, often using that moment to force founders to step down.
In other Seven news, the company named former Onebox. One Silicon Valley? In such cases, investors allow founder-CEOs to lead their enterprises longer, since the founder will have to come back for more capital, but at some point outsiders will gain control of the board. Whether gradual or sudden, the transition is often stormy. In , for instance, when a California-based internet telephony company finished developing the first generation of its system, an outside investor pushed for the appointment of a new CEO.
The founder refused to accept the need for a change, and it took five pressure-filled months of persuasion before he would step down. Used to being the heart and soul of their ventures, founders find it hard to accept lesser roles, and their resistance triggers traumatic leadership transitions within young companies. On the one hand, they have to raise resources in order to capitalize on the opportunities before them.
The technical guy is the CTO. The money is guy is the CEO. The people guy is Head of Marketing. All that does is make things confusing for everyone else — including your potential investors — so, please, just stick to the common ones. If someone has come along a little later in the game, but still early — as in, pre-first employee — then you treat the same any other co-founder! Your employees may feel put out by the fact that this newcomer is getting a higher title and potentially a higher level of respect than they are, when they were asked to take on more risk by coming on earlier.
Some conflict is inevitable, of course. Startup founders are only humans and will usually have at least slightly different goals, tactics, and skills than their co-founders. But Meghdad Abbaszadegan, whose walked away from his own startup, Feel Free, after it fell apart due to co-founder conflict, has worked out three things all founders can do to protect their startup. My co-founder and I formed several verbal agreements at the beginning of our partnership.
When Feel Free faced more difficult decisions, those verbal agreements fell short. Facebook, one of the most successful startups of our age, struggled through an ugly legal battle after the Winklevoss twins claimed CEO Mark Zuckerberg made a verbal agreement to give them equity in the company. A simple one-page co-founder agreement that clearly indicates responsibilities while outlining company structure and operations can do a lot to ease tensions down the road.
We had a designer on our team who created all of our branding. We had promised him equity in the company, but we never had a formal founders agreement in place that his work would belong to Feel Free. When our co-founder conflict sparked, he decided to not sign his work to the company to protect himself. In retrospect, I wish my co-founder and I had put our verbal agreements — with each other and our employees — into writing so we could have avoided any conflict in the first place.
Startups is the world's largest startup platform, helping over 1 million startup companies find customers , funding , mentors , and world-class education. Neil Blumenthal, Co-Founder of Warby Parker, shares secrets of building company culture and why startups should think about branding from the get-go.
Already a member? Sign in. Created with Sketch. Getting this straight in the beginning can avoid lawsuits such as those Facebook founder Mark Zuckerberg fought over who started what. Founders often try to divide the company pie by the number of founders, despite unequal effort. He suggests weighting the value of different contributions, determining how much the idea, business plan, expertise, responsibilities, risks and commitment mean to company success. Who Is Considered a Founder of an Organization?
By Chron Contributor Updated November 02, Related Articles. One can be very confident yet very humble. At the same time, low humility and high ego does not necessarily spell doom. Many successful entrepreneurs, such as Agile Visionaries, have big egos. Our job as a seed stage investor is to look for brilliant entrepreneurs when their success is not yet obvious. As their partners, we hope to look beyond the most obvious signals and spend time with each founder to understand his or her unique journey and support them the best that we can.
Each founder is unique, as is his or her journey. We still have much to learn, so please help provide feedback and contribute to our future research. Sign up below: Thank you! The technical founder requirement is a venture trope. Founders should instead focus on recruiting complementary skillsets that match the product being built and the market being disrupted.
It does not matter how old you are; founders of all ages can be successful. Small day to day tasks add up and either paint a picture of a successful, fast-learning, results-oriented founder or a struggling process-oriented one. One can be very confident yet very humble low ego. Humble Operators is one of our highest performing archetypes. Investors often over-index on confident storytellers, missing the importance of agility and scrappiness in execution.
Confidence is an asset for founders in fundraising, recruiting and sales, but overconfidence becomes a liability when it prevents founders from truly empathizing with customers.
Most successful founders work hard and have grit, but not all founders who work hard and have grit are successful. The difference between success and failure for hardworking founders often hinges on founder-market fit.
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