Founder transition

There are a number of good posts about founder transition in light of the recent changes at Friendster and Plaxo. If you are an entrepreneur, I suggest reading Ross Mayfield’s words of wisdom on this topic. What makes it so interesting is that Ross is a founder, was replaced at a prior company, and is back again as CEO of another company, Socialtext. As Ross says,

Not a day goes by where I don’t brace myself for this change. As a CEO and Founder of an early stage company, I know new stages will come. I constantly question myself if I’m the best person for the job, because the company is more than just me. Its a source of livelihood, investor return and customer bliss — all of which improve over time. I am really darn good at this stage of the company and have proven it in the past. I hope to test my capabilities at latter stages, but also recognize that the day may come where regardless of my ability to lead, manage and deliver — environmental forces may call for the new.

As a VC, we always like to have an open and honest discussion pre-investment about what the entrepreneur expects from us, and what we expect from the founding team. When discussing the idea of transition and building the right team, we learn alot about the founders and what drives them. This does not necessarily mean we will replace the founder with a new CEO, but it is a great way to understand what motivates the founder and how committed they are to creating a successful company, not a one-man show. Some simply want to be CEO come hell or high water-we take a pass on those opportunities. Some tell us what we want to hear, but their body language tells us otherwise-they tense up and there is no positive feeling behind their words. Others like Ross tell us what we want to hear and internalize it. They know the drill and want to be given the opportunity to run the show and prove that they can do the job but at the same time understand that change may happen. These are the founders in which we like to invest.

Published by Ed Sim

founder boldstart ventures, over 20 years experience seeding and leading first rounds in enterprise startups, @boldstartvc, googlization of IT, SaaS 3.0, security, smart data; cherish family time + enjoy lacrosse + hockey

2 comments on “Founder transition”

  1. What Entrepreneurs oftend don’t understand is that while the founder is often the one who “Gets it” they are not always the best qualified to run the company.
    Some Idea’s are so revolutionary that the founder can thrive even if they don’t have great business sense, but others are just something clever that they thought of first.
    The CEO should manage the company and set the directive, that doesn’t mean that the founder should get ousted, just that they may not be as qualified to manage, or to lead.
    As a Team building instructor and Corporate coach I have seen quite a few companies that are run by their founder that are strugling not because business isn’t booming but because the leadership isn’t there. This is especially true in Family companies where Dad is the CEO, and Son is the Vice President, and Sister is the CFO. None of the 3 is qualified for the job, but they have it because they are family.

  2. Kudos to you for setting the expectations up front with the founding team. Other VCs are not as direct – suggesting to the founding team that the new CEO is not a threat but in fact a “partner” of the founders. Unfortunately in at least one siutation that I’ve been involved with, the idea of partnership was interpreted as “consensus among founders and the newly hired CEO” resulting in conflicts on authority and roles and responsibilities. Investors owe it to their founding team to tell it like it is not just when and if the time for a transition arrives – but well in advance – on their way into their intitial investment.

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