The odds are very high that a founder CEO will be replaced.
Be careful, be ready.
I’ve seen it happen often. It occurs like this: The board of directors calls you, the founder CEO, to a special in-person board meeting where you’ll hear: “It’s time for you to step aside. You are going to be replaced.”
Your Replacement Event Triggers Everyone’s Emotions
Being fired is extremely painful emotionally. That’s especially at the top, with the founder CEO. Your emotions will trigger physical pains, some that can be life-threatening.
And the shock, the negative impact, the fears of what will happen next will be felt by more people than yourself. It will be felt inside everyone in your company, as well as customers and suppliers and investors.
When the media gets wind of the layoff and the social media is flooded with the negative news, the social pressure rises to red hot levels.
No one is immune. I’ve worked with men who are mentally as tough as steel and watched them agonize when and after they were replaced as CEO. No one was an exception among those I’ve experienced
I know what that’s like, I’ve been replaced. In one startup as founder CEO, a series of bad people encounters compounded the central problem: the genius could not deliver the software storage technology that he was confident of finishing in a few months. Touting a game changer possibility, we had secured an investment from the venture capital division of a revered high technology corporation. They endured months of missed deadlines along with my declarations that we’d get back on schedule. Soon everything related to first product launch was put on hold. Then a layoff was done. Finally, with cash burning to near zero, the board wisely said they had had enough and replaced me with an employee from the corporation. Shortly thereafter, the design for our technology was transferred to the investing corporation, and the startup was shut down. I did not protest the process. I’d seen enough such situations in prior years to know my time had come. I left quietly, with another startup lesson learned in the school of hard knocks.
I also have been there to watch when several other founder CEOs had to depart. It’s to be expected in the startup world where around eighty five percent of the new enterprises go out of business. Before they collapse, the shareholders will put someone else than you in charge to try to repair the damage before it’s too late.
There are many reasons founder CEOs get replaced. All startups get into trouble, research produces lists that are endless about what happened and why. Not every reason for trouble is the fault of the founder’s poor decisions or inability to manage a wildly expanding organization. For example, take a look at these that I’ve experienced and been close to:
- The market turned out to be too small (I learned that the startup’s new super high-speed semiconductors were too fast for the other surrounding chips on the computer board).
- Another example: A flood of too many competitors raced for the same new market (recall the many online pet food startups in the dotcom rush of the 1990s. Perhaps there are too many food delivery startups by 2020.).
- I experienced an amazing brain create an amazing computer chip for high speed video processing that should have enabled the startup to become a Nvidia, but he and his engineers were unable to manage the complex company it required.
- The market for autonomous car systems may turn out to be slower to grow than optimists touted.
- Chinese government stopped allowing importation of digital games from the country of the startup.
- The angel investor replaced CEO with son-in-law.
- Founder wanted to replace CEO with a person from the same race.
- CEO changed his religion, became a threat to the key investor.
- The board became fearful that the CEO would steal secrets and send them to people in his home country.
- Drug and alcohol problems.
- Hit on angel’s daughter.
No matter what the reason, when the startup gets into trouble, if its leader appears unable to fix the company’s problems before the company goes into bankruptcy, then that person will get notified that it’s time to step down as CEO.
Founder Replaced Response
When it’s your time to go, you can make it a positive outcome for everyone.
- Accept the decision. Lawsuits are neither certain nor likely to end in your favor.
- Join the replacement process. Facilitate the steps to find a person you and the board think can do wonders with the startup in its current mess.
- Grow personally and professionally. You can learn many things about yourself, both for application at home and on the next job. I found people who documented those lessons were later no longer suffering from mental issues and nightmares.
To help you further, take a look at what Maynard Webb, author of “Dear Founder”, advises founder CEOs to ponder when the time comes to be replaced. Thinking now can help you prepare if the dread replacement time happens to you:[i]
- Is this a surprise?
- Assess the situation: Fight? – where will that lead to?
- What are the implications for you and your team?
- Will the shareholders end up better in the long run? Remember: you own a lot of shares.
- Try to ease the situation.
- Take time to learn from what has happened.
- Be proud you had the courage to start something from scratch.
- Seek an engaging role for you in the startup.
- Don’t be bitter.
- Recall the comeback stories: Jobs and Apple, Page and Google, Dorsey and Twitter.
“Be prepared” is a good moto to keep in mind in a startup. That applies also to the day a founder CEO learns he will be replaced.
I wish you The Best on your Adventure!