Success as a Founder ≠ Tenure

I Know, I was Replaced



Les Trachtman
02/25/2019

You worked hard and beat the odds: Your company is growing fast. So how could your board possibly have any motivation to replace you?

If you’re like most founders, it’s clear what failure looks like; and I’m sure you don’t find it the least bit inviting. But have you stopped to consider that your expectations about what success means might actually be different from that of your board members? 

Success ≠ Tenure

It turns out that your organization’s success doesn’t guarantee your tenure as a founder. In fact, it may have just the opposite effect.

Research has found that the faster your organization grows, the more likely it is you will be replaced.[i] It may be hard to believe, but it’s true. Your success can be the direct cause of your demise as the CEO of your own company!

As a founder, once you take on outside capital, you risk that someone else can decide your fate. The more you dilute your ownership the greater the risk.

Statistics show that more than half of all founders who’ve attracted outside capital are ousted by their C round of capital raise.[ii] The faster you grow, the quicker you reach that round. 

Despite the statistics, your board doesn’t really want to fire you. In fact, even if your performance warrants your removal, they’ll probably wait for quite a while to be convinced themselves that it’s really necessary. No board member ever lamented that he or she had acted too quickly to replace a founder. Replacing a founder is a traumatic event for the organization and an experienced board is appropriately reluctant.

Despite your board’s disinclination, you should be keenly aware that your eventual replacement is still bound to occur. Even with this knowledge that the odds aren’t in your favor, when it happens, almost every founder is devastated.

But Why the Need for a Replacement?

Excluding a situation involving the founder’s bad behavior (something that feels more widespread during the past few years), the most common reason for replacing you is that your company has outgrown your skills.

Fast growth means that the requirements of your job are changing rapidly. Before you know it, your role has morphed into something that may not match your experience or what you’re good at. It may even become a role you don’t like doing at all.

It’s at this stage that your board may identify a mismatch between the company’s needs and your ability to satisfy those needs.

Objectively, the skills that caused you to be a great founder may now be holding you back from succeeding as the CEO of a larger growing company.

It’s difficult for most founders to understand, but most of the skills you employed during your entrepreneurial climb are now of little value; Replicating those same behaviors now will be a prescription for failure. Continuing on the same path will be your downfall.

What You, a Lobster and a Snake Have in Common

There is an important lesson to be learned from our reptilian and crustacean brethren.

Success for a snake (or as I recently learned for a lobster as well) is found in survival and growth, Growth causes the animal to push out against its own skin or shell, and in order to grow, each has to shed that enclosure – that layer of protection that’s all that separates the animal from its enemies and environment.

Not that the snake (or the lobster) intelligently decides to shed its epidermis; nature induces the behavior, but the lesson is clear. Without that molt, a process that makes the animal temporarily much more vulnerable to the elements, the animal wouldn’t have the opportunity to grow.

The same is true for a founder. Every founder needs to make himself/ herself vulnerable in order to grow, in order to shed his/her “skin” to allow for growth.

We’ve all heard the expression: “if it ain’t broke, don't fix it.” In the case of a founder of a growing company, every process, person and system should be continually evaluated to ensure it’s still relevant for the current stage, even if it’s still working.

Change Things that Work

What worked for you when your organization was small will likely not work at scale. Most founders start out as individual contributors then evolve into micromanagers; only a small percentage goes beyond that.

Control Freak comes to mind when we think of some very successful founders. While sweating all the details can be the thing that spurs initial success, it also will be just the thing that will inhibit growth.

Founders are involved in too many things to enable that behavior to scale. Finding specialists that can take on some of these jobs (completing them even 80% as well as you), is a prescription for a healthy, growing organization.

People repeat the things that generated positive reinforcement in the past. Relationships that have developed over time, especially ones based upon loyalty, are hard to sever, leaving most founders ineffective as their companies and markets demand more and different approaches.

Sometimes the founder’s only job has been with the company they founded. While that may make them subject matter experts, it also means they’ve been exposed to precious few other approaches or practices that might just be required to succeed today.

We all like to act in ways that generate positive reinforcement. That’s part of what makes it so hard to change. When our prior behaviors work, we tend to replay them over and over again. The harder it was to develop that initial behavior, the more difficult it will be to shed it. This builds habits that become hard to break.

Change Your Habits

A great example of how difficult it is to change an engrained behavior resonates in the “Backward Brain Bicycle.”

Destin Sandlin, an aerospace engineer who hosts a video series called Smarter Every Day, rigged up a bicycle with a special gear between the handlebars and the front wheel so that turning the handlebars to the right would make the front wheel turn left, and vice versa.

In the eight-minute video, you see how this single modification makes bike riding impossible. Even though Sandlin told himself over and over to steer right to go left, he could not get his hands to cooperate with the new instructions and kept falling off the bicycle.

All the ingrained behaviors from a lifetime of bike riding were simply too strong to overcome through sheer willpower. Even though he knew the bicycle would go left when he steered right, it took him eight months to understand how to ride the bike well enough to master the new habit.

The Backwards Brain Bicycle offers one other lesson:[iii] Once Sandlin had finally trained himself to ride the Backwards Bicycle, the change in Sandlin’s brain was still extremely fragile. It took all his focus and concentration to maintain his balance on the Backwards Bicycle. The slightest distraction—the ring of his cell phone, for instance—would send Sandlin’s mind back to his old habitual way of steering and send Sandlin’s body tumbling off the Backwards Bicycle.

Stress, deadlines, and distractions are bound to have the same effect on your new habits of delegation, always threatening to throw you back into the familiar habit of handling all the details yourself, starving your true priorities of your time and attention.

Question Every Process

The things you did to succeed when you were small worked great… then. But those processes are very likely not scalable to where you are now heading. It’s up to you, or your leadership team, to question everything and test whether processes are appropriate for what’s to come.  If they work today, it doesn’t mean they’re right for what’s next.

Ask yourself: Is there a way to do this better?

Do you or your executives know where to look for better practices and how to evaluate their capabilities during the next run up to ten or one hundred million in revenue? Have you or any of them ever done this before? Can you risk your success on a team full of rookies?

Is Your Leadership Team up for the Task?

That loyal team that fought side by side with you in the trenches when the going was the toughest is probably not your optimal executives during this next cycle of growth.

Not that any of them are bad,  but unless each has grown his/her skill set, or had substantial experience that makes him/her ready for the next very different challenges, they’re going to hold you back. You’ll need all the competent help you can get to ensure you aren’t induced to jump back in.

Almost all founding teams come complete with a family member, old friend or three. You need to rethink whether that relationship will get in the way of a hiring the objectively best candidate for the job. It’s hard to part with close relationships. However, a common gene pool or a social relationship is a poor foundation for proper executive recruitment.

What About YOU?

Are you up for the task? The role of a CEO of a company at scale is quite different than being a founder of a startup. It’s probably not nearly as fun for you,  and it may not be something you’re capable of or prepared to do.

One of the first things we find with founders trying to scale their organizations is their fear that others will make mistakes or not prove to be as good as the founder is at the task. It’s like a parent holding tight to his youngster’s bicycle as they head down the street for the first time. Unless you’re willing to let go, your “baby” will not learn to balance on their own. The bumps and bruises that come with the territory are a small price to pay for the ensuing self-sufficiency.

How you can Beat the Odds

Start with great people. While it’s useful to attract nearby loyal constituents in the early days of your venture, realize that the more your relationship relies on friendship (or worse, family), the harder it will be to split. Realize that early and steel yourself for what may come.

Surround yourself with people who’ve been there and have done what you’re about to do.  Find a mentor (or two), join a peer group that will hold you accountable for growing your capabilities, and read or listen to podcasts by people who’ve braved this same path ahead of you.

Most of all don’t let hubris overtake you.

Succeeding as a founder is a heady thing. When your employees begin to tell you how smart and good looking you are, but won’t let you know when you have mustard on your cheek, take heed.

Be wary when your face ends upon on the cover of a popular business magazine. When you start to fall in love with the smell of your own exhaust, it may be too late; You’ll die from asphyxiation. Founders who thrive to continually reinvent themselves avoid letting good become their enemy.

Don’t stop asking why, or why not?  When you get complacent with the “way we do things here” you’ll be doomed to relive the past. This type of behavior won’t keep up with the future. Keep asking why the things you’re doing are being done the way they are.  Ask why they couldn’t be done better, faster or bigger.

And then after all of that, keep your eyes wide open.

Founders believe they’re invincible, especially when their ventures are doing well. But this paradox is real.

While you might push the envelope and extend that fateful day, realize that the odds are likely to catch up to you too, no matter how good you are.  So, negotiate a nice exit package with your board prior to needing one.

 


Les Trachtman is the author of Don’t F**K It Up, How Founders and Their Successors Can Avoid the Clichés that Inhibit Growth.           

 Notes and References

[i] Wasserman, Noam, Founder-CEO Succession and the Paradox of Entrepreneurial Success, Harvard Business School, South Hall 310, Boston, Massachusetts 02163 nwasserman@hbs.edu

[ii] Ewens, Michale and Marx, Matt, Founder Replacement and Startup Performance, California Institute of Technology and Massachusetts Institute of Technology.

[iii] Smarter Every Day, https://www.youtube.com/watch?v=MFzDaBzBlL0

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