There is no question that I prefer to invest in startups where the founder is the CEO.
A few years back, Ben Horowitz wrote about why startups led by the founders are best. I completely agree. At this time, every board I’m serving on has a CEO who is also a (co) founder.
In addition to all of the many reasons Ben listed, I would also add a few.
-founders as ceo are the best at recruiting. it’s their mission and no one can tell the story like a founder.
-startups go through severe ups and downs. losing a big customer, losing a key employee, seeing their stock price fall or worse. lots of reasons why morale is beyond tricky in a startup. loyalty to the founder is a key thing that keeps the team together through good and rough times.
-founders are the soul of the company. their instincts are what brought us altogether in the first place. they drive the vision. you can feel them in the products they have been dreaming about.
There are other reasons why I prefer founder led companies.
But that actually isn’t the purpose of this post.
This post is about why founders lose their job as CEO.
It’s often not discussed too often, if ever, so I thought I’d start about why it sometimes happens. Here are a few different scenarios:
0. Sometimes a founder doesn’t want to be CEO. I’ve been on boards in the past where the founder doesn’t want the job. The founder just wants to focus on product and wants someone else to run the company.
1. Board members believe what works in one company must work in other companies. They try to transplant the same system into all companies. “our other young founders need an experienced coo” or “a coo is the worst idea”. See what I mean? Each startup is different and what works in one company may not be the best approach for another.
2. Board members believe in the silver bullet. “all our problems go away if we can get a world class operator”. As bad as it sounds as I type those words, it sounds even worse to hear it in a meeting.
3. CEO loses the confidence of the board. When the CEO makes promises and consistently doesn’t meet those promises, board confidence is at risk. The best way to deal with this is to speak openly and honestly between all members of the board with the CEO. This will help address whether the CEO is problematic or there are other issues at hand.
The worst way to deal with it is to stop making promises or to dramatically lower expectations beyond what is reasonable or useful to the company (the latter is known as putting ones own interest in front of company interest).
4. But the absolutely hardest & most painful scenario is when the team loses confidence in the founder/ceo. The management team goes to the board and basically says, “we don’t believe anymore and can’t work for this ceo”. This becomes a very dire situation and essentially the board has to decide if they go with the team or the founder/ceo.
It’s painful for many reasons. Often the founder/CEO doesn’t see it coming. The team hasn’t been willing or effective in getting their message across and had to trigger the nuclear option. And if the board chooses to support the team then they must protect them as well for the good of the company.
Scenarios 1-4 are all difficult and hard. You never want to lose the founder’s leadership. That’s why early stage investors got in business with the company in the first place.