Nike, Cyberposium, and Jim Estill: 3 Takes on Founder-CEO Succession

With our required MBA course in Entrepreneurial Management under way, I have less time to post research results and related items here. However, here are three quick items I recently accumulated related to the “After the Firing” side of my founder-CEO succession research.

Nike’s Post-Succession Woes

I recently got a call from Daniel Roth, a senior editor at Fortune magazine who is doing a story on Nike’s post-succession problems. In short, a little over a year ago, Phil Knight, the founder of Nike, brought in Bill Perez, the very successful CEO of consumer-goods company S.C. Johnson, to take over as CEO of Nike. A year later, Knight fired Perez.

One of my observations that I discussed with Daniel is that post-succession problems can come from 2 very different directions: When the company isn’t ready for the founder to let go, or when the founder isn’t ready to let go of the company.

Nike’s story illustrates both sides of this, and how the situation can go from one side to the other relatively quickly. In March 2005, Daniel wrote a story entitled “Can Nike Still Do It Without Phil Knight?” That headline captures really nicely the first “company isn’t ready for the founder to let go” side of what I discussed with Daniel.

Tellingly, Daniel’s March 2005 story ended as follows:

The baton may be passed, but Knight, as chairman, is still going to be there, strolling around, dropping in on people and projects when he feels like it, and most important, staying in their minds, reminding them that if they have problems, all they need to do is triple their speed.

Now, less than a year later, the sub-header on Business Week’s recent story on the latest development is, “Founder Phil Knight is a case study of the charismatic leader who can’t let go.” This is a great example of the second “when the founder isn’t ready to let go” side of what I discussed with Daniel (and the risks I described in the New Business story, regarding the challenges for successor CEOs when the founder stays active in the company), showing how things have flipped since Fortune’s March 2005 headline.

Cyberposium: Kapoor and Dalton on Firing Founders

At HBS’s annual Cyberposium event, there was a Q&A session with some VCs. One audience member asked them about the rationale behind VCs replacing a founder-CEO with a “professional” CEO, despite the fact that some of the best CEOs in the IT industry were founders of their companies.

Both Raj Kapoor, a co-founder and CEO of Snapfish and now a VC at Mayfield, and Sean Dalton, a General Partner at Highland Capital, had interesting views on founder-CEO succession. An excerpt from each of their comments:

  • “VCs have very few buttons they can push in a company — one of them is whether to hire or fire a CEO,” said Kapoor. “With so much information coming to them about a company, and so few outlets for them to act on that information, it makes it more likely that they will press that button at the wrong time.”
  • “I love first-time CEOs,” said Dalton. “They actually want to learn. I look at how hungry they are and how relevant they are. Look for the Desh Deshpandes,” referring to the founder of Cascade Communications and Sycamore Networks. “That’s going to create your career.”

Going the Distance

Last week, Rick Spence of the “Canadian Entrepreneur” blog picked up on the HBS New Business story on my founder-CEO succession research, did a detailed summary of my findings, and injected his own opinion that, “[M]ost entrepreneurs aren’t the right people to manage large, complex businesses. We all have our limits.” He then posed a blog-question to Jim Estill, the founder-CEO of a $1B Canadian distributor of technology products, asking him, “[W]hy do you think you’ve been an exception?”

Mr. Estill posted the following reply-comment:

I like to learn and see a great need to do so. I have always had a vision of running a large company and worked hard to be prepared to run one.

I think the best CEOs are ones that know themselves well. This way they surround themselves with capable people to fill areas they need help in.

I think CEOs that do well long term put their company first – ahead of themselves if need be.

When a CEO stops learning or developing, it is time for them to move on.

On the one hand, it’s hard to argue with what Mr. Estill says (in a “Mom and Apple Pie” sense :->). On the other hand, I have seen plenty of founder-CEOs who have believed and done everything he says, but still couldn’t “go the distance,” so I’m still in search of what really separates those who can from those who cannot.

UPDATE (2/25/06): See the comments for more extensive thoughts from Jim Estill. Rick Spence follows up with an entertaining look at the game of blog ping-pong that led to the online dialogue about this issue.

  1. This discussion could easily fill a book. The first challenge is defining success. In my opinion, success is measured long term so this makes measurement tough. Often we are quick to judge failure (and success) so the CEO never gets a chance to prove themselves long term.Part of what I have also seen is CEO/founders who do not continue to set higher and higher goals. My goal in University was to run a $100 million company, at some point (like when I was at $50M), it changed to $200M, then eventually $1 Billion. Now that I run a Billion $ company, my goal is to run $10B company.

  2. <>Jim Estill posted other, more detailed, thoughts < HREF="" REL="nofollow">at his own blog<>. I’d love to get more people involved in the dialogue about succession (and, more broadly, about how to simultaneously achieve both < HREF="" REL="nofollow">King and Rich goals<>), so I’ll reproduce his comments below….<>There are interesting discussions at Rick Spence’s and Noam Wasserman’s blogs on successful transitioning from founder to CEO (or small to big company)Naturally it makes me think. What do I need to do to successfully transition? I have been actively asking this question and studying for the past year and a half when I did make a fair leap in business size (EMJ was about $375 Million and now SYNNEX is over a $ Billion). I have not been studying the question though of what traits make for successful transitioning, rather I have been very specific on what I needed to do to be successful.A partial list of what I needed to do was:1 – As always, I need to think bigger. It used to be a $1,000,000 line would move the needle. Now, I really need to think bigger.2 – Since I am a time person, I knew I needed to refine my time systems to handle increased volume. I continually tune my systems but this was one of the biggest one time leaps in re-tuning I had to do.3 – I needed to get other people to make decisions. Organizations fail if every decision needs to be done by one person. This involves the discipline to not make some decisions that I know others should and can make even if I could do it easily. 4 – I needed to seriously consider where I might add the greatest value and leave areas where the value I could add was low. This involves trying to assess the areas that are competently handled and letting those areas work without interference. The decisions might go all the way from making a change to coaching people to completely letting others handle it. The key is to try to figure out what areas need what.5 – I needed to figure out and address the needs of all my bosses – the customers, the vendors, the staff, head office, etc. Much of this involves trying to understand their needs. It is also about communication.6 – I needed to understand a new culture. Choose what I liked and choose what areas to polish. SYNNEX is way more detailed on cost accounting than EMJ was so I needed to dig deep into that. EMJ was more vision based so I needed to start some of that at SYNNEX.7 – To grow, I needed to give things up. This can be tough. Things might not get done exactly the way I want. I need to fight battles that are cultural (like doing stupid business) but not fight things that might just be different than the way i would have done them. 8 – Larger companies need more replicability. They need to be able to scale what they do. This means good processes that can be repeated. This can be tough on entrepreneurial spirit. But again, if the idea is big enough, then I take the cahllenge to come up with a process.I am still learning and will think further on the issue.

  3. Hi Noam -Jim Estill’s item #6 reflects something out of my research – the change of cultures when the company switches from entrepreneurial culture logic to professional management culture logic. It could reflect a change in culture from founding and growing a firm to managing finances to meet stakeholder expectations. Jim’s item #5 possibly reflects the shift in stakeholders that occurs after the firm goes public. Prior to the IPO, the stakeholders are possibly fewer and the firm owners are fewer. After the IPO, the ownership significantly increases the investor stakeholders and the management must pay attention to that group and its demands. Perhaps a Founder who is better able to let go (Jim’s item #4) of the need for control may be better able to run the firm after the IPO. Is there any research on entrepreneurs that includes Locus of Control?

  4. i have had the privilege of working with numerous family run businesses during the phase from founder run to professional management team… and while the dollars at risk are usually smaller some issues are vey similar to those Jim Estill is exploring and Martin Martens refershere are 2 sites that discuss this issue: fmu/1996-06/aaec-310.html about the above urls… some day i hope to understand how to do links on a blog!

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