Start-ups are proliferating in major cities worldwide. The chances of success often depend on their ability to scale and sell. The skills that the founder possesses of creativity and passion are not always useful when it comes to this. There is a choice: as a founder, should I hire a CEO that has already been there and done that, or should I keep the business entirely within my own hands?
As with most complex dillemas, there is no simple straightforward answer, although there are both benefits and downsides to both options, it seems that most of the available evidence points are in favour of the replacement option. It is however important to know at what point in its development process your business would benefit from new leadership.
Even though studies have shown that around 80% of founding CEOs do not want to give up leadership of their company, less than half of founders retain their CEO title after three years, most of the time taking up another position within their company, demonstrating the need for change despite the founders’ initial reluctance to give up his CEO position.
One of the main reasons why most founders might opt to hire a CEO is what Suren Dutia, Senior Fellow at the Ewing Marion Kauffman Foundation, defined as the founder’s bias where founders often tend to overestimate the intrinsic value of their companies. Research conducted by Purdue University and included in Mr. Dutia’s article demonstrates this: when asked to give a percentage regarding their business’ chances of success, the respondents on average determined it at 81%, whereas when asked what the chances of other business operating in a similar sector, they on average responded 58%.
Another compelling argument in favour of the hiring of a CEO for your start-up is delivered by Tom Savage founder of 3 businesses in 5 countries over 17 years. After those 17 years, he realized, he is an intrapreneur, not a CEO. The core of his rationale is that founders are essentially entrepreneurs in their nature, they like to create, not to manage. Unfortunately, being a CEO entails high levels of managing and leading but very little creating. Hiring a CEO would allow the founder to allocate his time not to management but to innovation, the thing that he does best. Moreover, giving up the CEO role as a founder doesn’t necessarily mean that you will be completely moving away from your company. According to research, your company will be better off if you retain some kind of role within it.
Of course, even Mr. Savage is ready to admit that there are exceptions to this rule, for example, Amazon was founded by Jeff Bezos and is to this day still being run by him. The same goes for Zuckerberg’s Facebook. Unfortunately, these seem to be rarities, very often the above-mentioned considerations take precedence over the founder’s desire to hold on to the business.
There are of course obstacles to hiring a CEO. The first of them, as mentioned above, possibly being the reluctance of the founder to give up control of their business, or to employ someone that is likely to end up highlighting flaws and weak points and the obvious worry that you will give away control of the company to someone who will drive into a wall.
Therefore, when hiring a CEO, everyone can agree on one thing: you must be very careful who you hire and why you are hiring. Tom Savage argues that there is a strong case to be made for businesses to use executive recruitment firms to do the hiring for them. These firms will likely have better knowledge and experience in recruiting CEOs for newly founded start-ups and will know which qualities and assets the right candidate for the role will possess.
Thus, if you are a CEO of a newly founded business and you feel like you are tiring of the ever-growing managerial responsibilities, don’t have the motivation/capacity to obtain more funding, then all the available evidence points towards the need for new leadership.
Russam’s advice to the founder is to work with your strengths and know your limitations. Look to hire a CEO when you have the funds to support them to build the business. Your candidates will be smart and experienced and will scrutinise every part of your business before committing to you. Be completely honest with them. Think about the style of leadership that your company needs and that fits into your vision for the future. If you feel uncomfortable with anything during the hiring process share it with your consultant. A good consultant will be insightful and support you. They are likely to have a good knowledge of candidate concerns too. As a founder you want to see that your new CEO has passion for your business and because they ask challenging questions it does not mean they are doubting the quality of your product or service. Be prepared to view your start up from fresh eyes. This will enable you to find new possibilities and opportunities. Look for evidence of success but also be forgiving. Failure may be a positive attribute if it results in becoming wiser. Be realistic on remuneration of equity/shares too. Just because you have been living frugally for years as you got started – there will be less inclination for the CEO to want to do this.
On our recent visits to Israel the Start Up Nation we met serial entrepreneurs who typically sell rather than scale. Timing is everything for them. They work with all stakeholders and advisors to act to get the best returns on investments without becoming overly attached to business proposition. The founders typically go on to build other companies. Uri Levine is a great example he left Waze after it was sold to Google in 2013 and he has founded several start-ups including Engie, Zeek, FairFly, Fefudit, Live Care and Moovit. Funding has more pace and is given with less process and risk averse behaviour which plays a bit part in the culture of entrepreneurialism.
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by Cathy Kay and Oliver Doyle: Commercial Practice