“How can I be sure my startup won’t be ruined by a crummy CEO brought in by investors?” is a question I get all the time.
It triggers a lot of emotions. Especially in founders burned by past ideas that were sunk by bad leadership and bad investors.
So what to do when in that situation?
Here are my suggestions, they are based on lots of experience with painful meetings, tears, screams, lawsuits and disasters, as well as some amazing winners. I hope these help you make a wise decision:
= Strong VCs got there by facilitating great management teams that built enduring companies. Recent examples include Google financed by Sequoia Capital.
= Not all ideas are ruined by follow-on CEOs. Yahoo succeeded dominating the portal space with a successor to the two founders. So have other startups.
= Ruin is not just the new CEO’s fault. Conflict with the founders is a great concern of investors. It always is. Who is in charge when founders and CEO disagree on a vital strategic decision? Who is right. Sometimes both are, but cannot agree on one course of action. The conflict ruins the startup, both parties are at mutual fault.
= Solo founders are often solo people who cannot build a great management team. Some founders would be happiest in a small business they can run alone. There is nothing wrong with that. Not all quarterbacks are team builders or great coaches.
= The abundant pattern of success lies where founders are supplanted as the startup quickly grows beyond their abilities to manage it. Those are 99% of the sample. Going against the pattern is not impossible, just nearly impossible. The media loves to write about such examples (to provoke you to read the advertisements), so you think that is how the heros of startups should do it. In statistical terms, such cases are insignificant.
So what should you do if you are still keen on going on as THE CEO? Try thinking about these tips:
= Demonstrate a huge winner potential and attract the missing talent on your own. Big surges in first product success attract great people. With a hot starter product, you are on your way to finding the management you will need to succeed in spite of what you are lacking to manage the hot startup.
= Fat profits in a bootstrap give you time to find the right people. This is very hard to do, but can be done. Michael Dell did it. Your timing has to be nearly perfect: riding a fresh wave (first PCs) to fast sales, immediate profits and instant positive cash flow. That is a tall order for a startup.
= Seek naïve investors. They are rare but they are out there. But be careful, they also have money to pay for lawyers if they need to.
= Look at angels for a small seed round, people who know your space. They can do a small seed round and help you while you remain CEO. It has worked in the past in many cases.
= Be content with less and be patient for a long time. Dolby did that, became a world-class brand and eventually went public (the only way to pass on shares to his family without a huge tax burden).
= Don’t do your startup at this time, learn to manage and later do a great startup. Many have done that and succeeded well. It is how Palm became a winner.
BOTTOM LINE: I hope this has helped you think clearly about a very sensitive issue. It is very difficult to expect to be THE CEO forever. It is hard to find investors who will accept your inadequacies as a first-time CEO. Yes, it can be done. But you’ll find your attempts to do so will run against you. You’ll feel like you are swimming alone up the giant Amazon river filled with Parana fish. It is not how to build an unfair competitive advantage.