Archive for the ‘founder-CEO succession’ Category

Avoiding The BlackBerry Blues: Know When To Fire Yourself

by: Noam Wasserman for Forbes.com Many founders ride their companies up the value ladder, and then down it. Last week saw the latest example of this phenomenon, as the next dramatic chapter was written in the evolution of Research-in-Motion (RIM), the once world-beating maker of the Blackberry smartphone. Once again, a founder overstayed his welcome and paid a price. A founder’s early passion, confidence, and attachment to a vision are often the magical ingredients that fuel the launch of a startup rocket ship. Visionary founders are usually the most central, irreplaceable players in a startup. Seen as the guardians of the corporate culture and the ones with deep ties to early employees and customers, such founders enjoy being the generals leading the troops. However, these early strengths can become Achilles’ heels if a founder is not aware of the downsides of passion and attachment. The downsides include things that the founder can’t do and things that the founder won’t do. On the “can’t” side, founders fail to realize that success breeds a new class of challenges; challenges that require skills they do not have, such as scaling a larger organization or managing functions in which they haven’t worked. On the “won’t” side, they stick with their initial ideas for too long, ignoring clear signals that it is time to pivot. They stick with their early employees and executives, even when those people are not up to the new challenges and demands. To Read More

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“Founders’ Dilemmas” Course: Founder-CEO Succession Cases

In prior posts about my “Founders’ Dilemmas” MBA course, I provided an overview of the course, details about the Introductory case and the cases in the “When to Found” module, details about four cases in the “Building the Team” module, and descriptions of the core new-venture hiring cases. This post covers the course’s founder-CEO succession cases. The first case (“Founder-CEO Succession at Wily Technology“) examines the antecedents of succession: What are the events and conditions that lead to the founder’s being replaced as CEO? Should the replaced founder be involved in the search for the successor, and how? Should the founder remain deeply involved in the venture after the successor takes over? The second case (“Les is More, Times Four“) examines the challenges of taking over as the first non-founding CEO when the replaced founder is still working as an executive in the venture and serving on the board. The third case (“The Tale of the Lynx,” a three-part case series that covers pre-founding through exit) explores in part the concept of a “bridge CEO,” and looks at the coalitions that can form between investors and the other (i.e., non-CEO) founders during the founder-CEO succession process. For each case, this post provides the official case description, a list of the case’s core issues, and a link to its full HBS Publishing entry. As mentioned before, case studies are often valuable for helping founders, employees, and investors understand the difficult issues they are facing or will be facing in the future (or even help them gain insights into their past experiences!), so if you want to see any of the full cases, you can get them from the HBS Publishing site via the HBSP links below. FOUNDER-CEO SUCCESSION:What causes it, Best practices and mistakes, Hiring the successor-CEO, Taking charge as the […]

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New Article in Harvard Business Review: “The Founder’s Dilemma”

The new (February 2008) issue of Harvard Business Review has an article that delves into issues familiar to (and possibly of interest to) participants in this blog. Its title is “The Founder’s Dilemma.” Below is the article summary from the HBR site. For the full article, see here at HBR or here at HBS Publishing. If you want more details on the cases mentioned in the article, most are listed here. For details on the data that underlie the more systematic research described in the article, see A Note on My Research Approach and Data and a variety of research-specific posts within this blog. The Founder’s Dilemma Noam Wasserman Why do people start businesses? For the money and the chance to control their own companies, certainly. But new research from Harvard Business School professor Noam Wasserman shows that those goals are often incompatible. The author’s studies indicate that a founder who gives up more equity to attract cofounders, new hires, and investors builds a more valuable company than one who parts with less equity. More often than not, however, those superior returns come from replacing the founder with a professional CEO more experienced with the needs of a growing company. This fundamental tension requires founders to make “rich” versus “king” trade-offs to maximize either their wealth or their control over the company. Founders seeking to remain in control would do well to restrict themselves to businesses where large amounts of capital aren’t required and where they already have the skills and contacts they need. They may also want to wait until late in their careers, after they have developed broader management skills, before setting up shop. Entrepreneurs who focus on wealth can make the leap sooner because they won’t mind taking money from investors or depending on executives to manage […]

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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, […]

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Yahoo’s New Founder-CEO

  Note: Harvard Business Online asked me to provide some reflections on the CEO succession developments at Yahoo this week. Below is an expanded version of what they just posted to their site. When a board replaces a founder-CEO with a “professional CEO,” the founder-CEO is often “demoted to Chairman” as a way to keep the founder involved with the company. The company issues a press release stating that, “[The replaced CEO] will assume the position of non-executive Chairman and serve as an advisor and important resource for the company’s senior management team, while also working closely with the Board,” and quotes the replaced CEO as saying, “This is the time for new executive leadership, with different skills and strengths, to step in and drive the company to realize its full potential — it is the right thing to do, and the right time is now.” This week, Internet giant Yahoo went through the standard scenario, but in reverse: The board replaced the professional CEO with a founder. Specifically, founder Jerry Yang was promoted from “Chief Yahoo” to CEO. (Yang had been serving as interim chief technology officer ever since long-time CTO Farzad Nazem resigned recently.) He replaces Terry Semel, Yahoo’s CEO since 2001, supposedly because the company needs its CEO to have “different skills and strengths.” (The two long quotes in the first paragraph above are actual quotes from Yahoo’s press release about the change.) My research and case writing on founders and CEO succession prompted two key questions about the move by Yahoo’s board to replace Semel with Yang. The first is about the board’s stated desire to find a new CEO whose skills are a better match for the needs of the company. Does Yang have the skills necessary to turn Yahoo around? The deck is certainly […]

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Interview about Founder-CEO Succession

Hope 2007 is off to a great start for everyone! In the near term, I will be posting the results of analyses that my co-author (Matt Marx) and I have done of the factors affecting the stability of founding teams. Before then, I have 2 items to post that are related to past topics covered in this blog. This one is related to founder-CEO succession, and the next one will be related to boards of directors. (For past postings and relevant papers/cases on each of these topics, see the “Topics Covered in This Blog (So Far)” post below.) Regarding founder-CEO succession, I did an interview with a reporter named Tam Harbert and thought that the questions she was asking covered the territory nicely. Below are her questions (in bold) and my responses. (Feel free to critique it or to add your own opinions, insights, and experiences by posting comments about it. If you have other questions that you wish she would have asked, go ahead and post those, too!) Q: What are the unique issues facing a company whose founder and high-profile CEO is leaving, or at least stepping down from the CEO role? There are unique issues from both the company’s perspective and from the founder’s perspective. To give you one from each: from the company’s perspective, the biggest issue is often the founder’s centrality to the company. Founders, who have been the heart and soul of the company since the beginning, and have often hired most of the key people, are often much more “central” to the company than are CEOs who arrived post-founding. From the founder’s perspective, founders are usually much more “attached” to their companies than are non-founders, so the disengagement process is often much more jarring for them than for non-founder CEOs. Q: How should […]

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Bridge CEOs, Revisited

Earlier this month, Business Week had an item entitled “The Temp in the Corner Office.” It described a “rise” (from 2 in 2004 to 9 last year) in the number of large companies using interim CEOs as a bridge between two “permanent” CEOs. (The most ironic one is Kelly Services, the big temp agency that hired Carl Camden as its own temp CEO. Here’s an example from academia that hit close to home.) The article, citing Leslie Gaines-Ross of Weber Shandwick, stated that these interim CEOs averaged 159 days on the job. This brought to mind our recent blog-dialogue on Bridge CEOs. In my initial post on it, I mentioned John Reed, who has played an interim role in several start-ups wherein he comes in for 18 months, institutes some processes and changes that the founders are not able to effect, and then leaves the company in the hands of a more permanent CEO so he can move on to his next Bridge position. In essence, John should have “Bridge CEO” as the title on his business card with a blank line to fill in the company’s name. In that post, I asked if anyone knew of similar Bridge CEOs – outsiders who recurringly come into start-ups for a set period of time and help them transition to post-founder leadership. (John himself did not know of any others.) Martin Martens pointed to Deja.com, where Guy Hoffman from Austin Ventures stepped in to act as the bridge between the founder-CEO and the “IPO stage” CEO. (Has Mr. Hoffman played similar roles in other start-ups?) In addition, in two cases we teach in our MBA course, African firm Celtel and Boston firm E-Ink also happened to use interim “hired-gun CEOs” during transition periods, but not in the same, planned way as with […]

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Doomed CEOs and Bridge CEOs

Is the first non-founding CEO of a venture “doomed to fail”? On Monday, we debuted my new case on founder-CEO succession at Wily Technology. In class, we discussed the potential problems faced by Dick Williams, Wily’s first non-founding CEO, if founder Lew Cirne were to stay in the company post-succession — e.g., if Lew were to remain unhappy with being replaced, or were to oppose any of the changes Williams wants to make. As it turns out, Lew’s eventual — very positive — attitude about the succession (after getting over his shock at having to step down as CEO and Chairman) seems to have helped make Williams’ transition into Wily much smoother for Williams, and Wily ended up being bought recently by Computer Associates for $375M. The class after “Wily,” we taught Paul Gompers’ case on Precise Software. In it, the company’s first non-founder CEO ends up at war with the founder, and in the end is replaced by the VCs. (This had echoes of our earlier case on Vermeer Technologies; in class after we taught the case, founder Charles Ferguson described how he had ended up at war with the CEO he had hired, almost as soon as that CEO had walked in the door.) At the end of our Precise class, the company’s VC commented that, “When you hire that first non-founding CEO, you really have to hire 2 CEOs, because the first one will fail and then you need someone to step in and pick up the pieces.” In the context of the Wily and Vermeer cases, his comment brought to mind some questions. Questions: Do you agree with Precise’s VC that the first non-founding CEO is doomed to fail? Why or why not? Is this only true if a powerful founder stays around (as happened at […]

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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 […]

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3 Tidbits from the “Emerging Ventures” Conference

On Wednesday, I gave a keynote address at the Emerging Ventures conference. I also chatted with several founders and venture capitalists, some at lunch Wednesday and some after my address. Three tidbits from those conversations that are relevant to this blog: Succeeding at Founder-CEO succession? – A central issue in the “After the Firing” project and in my “Wily” case (which I explored for several minutes during the address) is whether the (replaced) founder stays in the company post-succession, and if so, whether the founder’s presence will be beneficial (e.g., if the founder willingly takes another executive role) or disruptive (e.g., if the founder isn’t happy being displaced). I had a quick chat with a GP from a Boston-based VC firm about attempts to improve the chances of post-succession success. Whenever one of their founder-CEOs is replaced, his firm institutes a bonus program for the founder and for the incoming CEO. Under the program, if both of them are still working in the company a year after the succession event, then they both get paid a bonus. (The rest of the team is informed about the program.) An interesting use of compensation to try to shape the dynamics between the founder and the incoming CEO. (In what cases should it not be used?) Changes in founder attachment – A central issue in the Entrepreneurial Compensation paper is how company evolution changes the founder discount. One of the explanations for the disappearance of the founder discount over time is that founder attachment decreases, diminishing the gap between founders and non-founders. Chatting at lunch, the founder-CEO of a 5-year-old IT start-up (who did not see my keynote and thus did not know about the Entrep Comp explanation) observed that a year and a half ago, he felt himself shift from feeling like […]

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