Should founder CEOs expect to be CEO when the startup goes to initial public offering?
Most first timers say "Of course!"
Serial entrepreneurs say "Maybe."
The startup veterans have learned that a CEO for a post-IPO company ("a public corporation") has very different skills than the founder CEO.
- Founder CEO skills demand awesome abilities to change quickly while racing to become the gorilla on top of the emerging mountain of a huge new market category.
- Post-IPO corporate skills demand the ability to deliver both high (slower) growth with predictable Sales and Net Income numbers quarter after quarter.
- Risk Maximization shifts to Risk Reduction.
- Different strokes for different folks, as the adage goes.
This is one reason to beware of talking about "My company". Once you have outside investors, they will decide if you are the one to take the startup through IPO into the public corporation phase of the company's life. Yes, I know of those (few) famous startup founder CEOs who do exist as founder at IPO (reporters love to blog about them when they run out of good stories to write), but such careers are so rare that you cannot expect to realistically plan your life expecting that to happen to you. I suggest your objective should be to help convert your idea into a world-class enterprise, not planning on preserving your title as CEO.
EXAMPLE: There is an excellent article in today's Wall Street Journal with several examples of startups making changes recently in top management as they get ready to go IPO. Study it and think about your own startup's management. It will save you from shock and disappointment when you "hit the wall" with your skills and your board of directors tells you it's time for new leadership. Note also how additional vice presidents and chief operating officers are adding to layers of management and increasing the complexity of managing a fast growing organization.
I have found that management successor plans are rarely done formally. Instead, replacement of founder CEOs is assumed to be a likely possibility at some unknown time in the future. And that goes for VPs and other titles as well. I've watched boards of directors work hard to avoid making top leadership changes, far preferring to work with the known persons -- especially the founder CEO -- even as the company's growing complexity and related tough issues begin to overwhelm the founder CEO and his/her ability to continue delivering the best for the startup.
As I've blogged in the past, there is now a clear pattern of startup management changes that venture financed companies go though in three distinct phases:
- Chaos = from idea to first significant product ready for launch
- Launch = start selling the first product in ever larger quantities and start building an increasingly organized company
- IPO = convert to early profitability while modulating the growth rate and swinging into financial predictability to entice and soothe Wall Street.
All three phases call for different skills, similar to the "specialty teams" in American football (e.g. Kickoff, Offense, and Defense). That metaphor may help you see what this is all about for a startup.
BOTTOM LINE: First time founder-CEOs should not see their replacement as a failure. Replacement means your startup has grown so fast and so complex that the company needs a new specialty leader for the next phase of growth.
Serial entrepreneurs find they love one of the above mentioned phases and are bored with the next. Think a bit about which you would enjoy the most, are the most able to lead.
Often successful large public corporate executives move down in size to the pre-IPO startups as the next step in their careers. They want the new kind of challenge, as well as its risk, potential financial reward and fame. Perhaps that is better for your career right now than trying to be a founder CEO.
If you are a founder CEO or early Vice President, then you can begin to prepare psychologically for your eventual replacement. In other words, give management successor planning some thought for a bit. Then return to growing your business to greatness. That's how the serial entrepreneurs do it. They know it's part of building an unfair competitive advantage.
I wish you The Best on your Adventure!