Hiring Into — and Demoting Into? — Executive Positions

Our recent CompStudy webcast included a chart (originally conceived by Mike DiPierro) that showed a breakdown of founders versus non-founders in each executive position. For instance, in the 240 IT start-ups in this year’s survey, how many have founder-CEOs and how many have non-founding CEOs? Likewise for the other C-level positions and the next level down in the organization.

The chart below shows the mix of founders (dark blue) versus non-founders (white) within C-level positions, separated by whether the company had raised 1 or fewer rounds of financing, 2-3 rounds, or 4 or more rounds. (The bars don’t add up to 100% because some companies did not yet have a person in that position.)


The chart below shows the mix of founders (again, dark blue) versus non-founders (white) for the heads of engineering, sales, marketing, and business development.

One thing these charts show is when start-ups tend to hire their first person in each position. For instance, only 23% of our start-ups that have raised 0 or 1 round of financing have CFOs (with 21% having non-founder CFOs and 2% having founder-CFOs), but that jumps to 64% (57% non-founders plus 7% founders) for start-ups that have raised 2 or 3 rounds. There’s a similar jump for the head of sales: 33% of the start-ups that have raised 0 or 1 round of financing have a head of sales, rising to 57% of start-ups that have raised 2-3 rounds, and to 80% for 4 rounds or more.

A second pattern within these charts is how the mix of founders versus non-founders changes as start-ups mature. For many positions, there is a steady decrease in the percentage of founders holding each position. Most centrally, with CEOs, founders are CEO in 69% of start-ups that have raised 0 or 1 round of financing, 54% when the start-up has raised 2-3 rounds, and 32% when the start-up has raised 4 or more rounds. This is a simple portrayal of the pattern of founder-CEO succession (with more here and here). A dominant reason for this second pattern is founders leaving the start-up and being replaced by non-founding hires.

However, the charts suggest an additional dynamic: that founders are being moved – or, “redeployed” downwards – to lower-level positions, possibly as organizational growth outstrips their skills. The most striking pattern related to this is the increasing percentage of founders in some positions as the start-up matures. For instance, as shown above, 31% of start-ups that have raised 0 or 1 round of financing have CTOs who are founders, but this jumps to 39% when the start-up has raised 2-3 rounds, and a likely explanation for this increase is that many of those 2nd-round CTOs were CEOs in the first round. (A parallel pattern seems to exist for heads of engineering.)

Two other positions show at least a 5-point increase in the percentage of founders when we compare “round 0-1″ start-ups with “rounds 2-3″ start-ups. The first is CFO, which goes from having 2% founder-CFOs when 0 or 1 round raised, to 7% having founder-CFOs when 2 or 3 rounds have been raised. The second is business development, which goes from having 6% founders when 0 or 1 round, to 13% when 2 or 3 rounds, to 15% when 4 or more rounds.

These charts would seem to suggest that common post-CEO positions for replaced founder-CEOs are CTO, CFO, and business development. Is this consistent with your experiences?

Besides founder-redeployment, what other explanations do you have for this pattern in the charts?

What other patterns do you see in the charts?

14 Comments
  1. I’ve always been mystified why so few founders are heads of sales or heads of marketing. While they might not know “how to build it” they are in the best position to know what the market wants and how to sell it.As usual, great data!

  2. Interesting to hear that the data echo your instinct/experiences, Furqan.One possible explanation comes from my succession research: Founder-CEOs with sales backgrounds are more likely to remain CEO for longer (i.e., as their companies finish product development and have to ramp up the sales efforts, sales-background founders may be more suited to continue leading the company during its next stage of development, compared to tech-background founder-CEOs) so there should be less CEO-to-VP-Sales movement than CEO-to-CTO movement at that point. Make sense?

  3. I saw that (CEO->CTO transition) and it makes sense and is consistent with what I have seen, i.e. tech-founder-CEO transitioning to CTO role. What I inferred (at my own risk) is that this was coorelated to the fact that there are more tech-founder-CEO types than sales-founder-CEO types. Put another way, there could be more of a transition to the CTO role because there are more “tech founders” than “sales founders.” Does the data bare that out?

  4. Great question, Furqan. My data should indeed be able to shed light on the proportion of founder-CEOs with sales backgrounds vs. tech backgrounds. I’ll start collecting a list of further analyses to do and to post to the blog, and will have that one at the top of the list.Anyone have any other suggestions for analyses or data charts they’d like to see?

  5. I would love to understand the market’s dislike for founders receiving some form of compensation while holding the roles of CEO, CFO, COO and CTO. Isn’t it true that most founders who have yet to obtain 1st round financing are at a disadvantage in staffing their organizations since most boot strapped funds are utilized to create and market the product rather than build a large support staff?

  6. If I understand the first part of your query, ddutton, I think you might be referring to the “Founder Discount,” for which there are both voluntary and involuntary factors. You can find more details and some data < HREF="http://founderresearch.blogspot.com/2005/09/executive-compensation-and-founder.html" REL="nofollow">here<>, an academic paper about it < HREF="http://www.people.hbs.edu/nwasserman/Founder_Discount-AMJ2006,vol49,pp960-976.pdf" REL="nofollow">here<>, and an interview about it < HREF="http://founderresearch.blogspot.com/2006/02/founder-discounts-in-working-knowledge.html" REL="nofollow">here<>.Regarding your second point, if you’re referring to the disadvantage faced by bootstrapping start-ups (which would have less money to pay hires) versus start-ups that have raised outside money and might be able to pay new hires more, that can indeed be one of the challenges of bootstrapping.

  7. I found this blog very useful for my research in my college and I took some figures from your post if you don’t mind. Thnaks.

  8. Hi Noam! I reviewed the past two years of survey data for CEO backgrounds. The dominant functional backgrounds are Sales and Marketing (60% of CEOs listed) and General Mgmt (60%). Business Development and Tech backgrounds are not far behind (50%, 46%). So if founding CEOs are redeployed into their own organization, it would make sense that they return to their original training.The only oddity (echoing Furqan) I would say is the lack of sales oriented CEOs returning to head the sales function. Your explanation is a good one, though. Is the salesman-turned-founding-CEO destined to remain at the helm longer?

  9. I really don’t mean to be offensive but after reading your latest blog, 12/10/07, it is hard to believe that you are a full professor at Harvard. True, you do present all kinds of nice graphs and numbers and statistics but your method of presentation needs improvement. Had you employed the basics of writing - thesis - support - conclusion - I think you would have done a better job. We venture forth in hopes of providing replacements superior to ourselves,d

  10. Thanks for the feedback, Robert. My blogging style is indeed quite different from the “classical” one I use in my academic papers, which is again very different from the style I use in case writing. (Do you not tailor your approach to your target audience and your goals in communicating?) Over the last couple of years of blogging, I’ve found this style to be a more effective one at generating interaction/input than does a classical academic approach. However, I’d love to hear from others if they prefer a more academic style!

  11. Hi,
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  12. this kind of blog always useful for blog readers, it helps people during research. your post is one of the same for blog readers.

  13. One thing these charts show is when start-ups tend to hire their first person in each position.
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