When Do Founders Make Good CEOs?

June 21, 2006

I attended the recent TieCON East conference in Boston (pretty good event).  One of the panels at the conference was titled “When Do Founders Make Good CEOs?”.  The panel was moderated by Jack Derby, a local entrepreneurial coach and advisor.  There were both VCs and entrepreneurs on the panel.  Jim Savage, from Longworth Venture Partners (who I have met on a couple of occasions and is a great guy), was on the panel.  Jim is one of those VCs with an entrepreneurial background.  This is quite evident when you meet him. 

I’m going to take some of the basics of what I learned from the panel and combine them with my own thoughts. 

When Do Founders Make Good CEOs?
  1. Desire To Scale:  Founders make good CEOs when they have a desire to scale along with the business.  The types of activities that the founder was involved in when the company started are likely very different from the ones she will likely be involved in as the company grows.  Some founders like this, some don’t. 

  1. Skills and Talents:  Do they have the skills and characteristics that make a good CEO?  Let’s face it, some people are better than others at growing a company successfully – others aren’t.  CEOs need to have a combination of skills including the ability to define and articulate a vision, build and motivate the team to execute it and stay constantly in touch with the market dynamics to adjust accordingly.  Very few people have this combination of skills.  So, even founders that want to be CEO and go through that learning experience, it’s possible that they don’t have the attributes that makes them likely to succeed.

  1. Aligned Focus:  Is the “core competency” of the company aligned with that of the CEO?  Businesses can either be focused on operational excellence, customer intimacy or product innovation.  Generally, technical founders will excel as CEOs when the company continues to focus on product-based innovation.  Sales-and-marketing based founders will likely excel if the company is focused on customer intimacy as it’s core competency.

  1. Investor Confidence:  Are the investors comfortable with the founder as CEO?  As it turns out, though just about all VCs “bet on the team” as one of the primary criteria, they find that the founder(s) may or may not be the ones that should be growing the company and helping reach that all-critical “exit” (liquidity event).  As such, VCs can (and do) decide that the founder needs to step aside and allow “professional management” to step-in.  There is likely some debate as to whether this is a good or bad thing, but one thing that is true is that VCs are incented to make the right decision for themselves and protect their investment.  Issues occur when this does not align with the founder’s desires.  [Note to self:  Good topic for a future article discussing the relationship between founders and their investors].

  1. Relevant Experience:  Has the founder been CEO before?  In my experience, those individuals that have successfully grown companies before are more likely to do so again.  This should come as no surprise.  Being a good CEO requires a relatively rare combination of things, and the fact that the founder has done this successfully before demonstrates that they have some (or all) of these ingredients.  Though it is often dangerous to extrapolate from a data set of one or two, I’ve found that in this particular case, it’s a relatively strong indicator.  If you have someone that has been CEO and grown a company successfully even once before, they are much more likely (all other things being equal) to do so again.

It’s important for founders (particularly those raising capital) to understand what it takes to make a good CEO and whether they have the talent and desire to do so.  This is particularly important when talking to potential investors.  One great signal of maturity and strength is when founders can be honest with their VCs and be clear as to their desires and intentions.  VCs generally respond favorable to founders that show a willingness to accept reality and make decisions based on the best interests of the company.  

Summary of My Point:  If you’re a startup founder, ask yourself what role you want to play in the company as it goes through its various stages of growth.  You’ll save yourself and others around you a lot of frustration if you have a general sense of whether or not you want to be CEO – and you make this clear during the early discussions.

Written by Dharmesh Shah

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