When and How Founders Should Hire a Professional CEO

Written by Bernard Lunn / August 26, 2009 5:30 AM / 8 Comments

This post is part of our ReadWriteStart channel, which is a resource and guide for first-time entrepreneurs and startups. The channel is sponsored by Microsoft BizSpark. To sign up for BizSpark, click here.

This is one post/chapter in a serialized book called Startup 101. For the introduction and table of contents, please click here.

There are two schools of thought about founders as CEOs. One school says that founders rarely make good CEOs: the skill sets are simply different. The founders may make more money in the end, but they need to hire professional CEOs. The poster children for this school are Sergey Brin and Larry Page as Google's founders, with Eric Schmidt as CEO. The other school says that no one has as much passion, drive, and deep market and technological understanding as the founder, and so they are best off remaining as CEO. The poster children for this school are Bill Gates and Larry Ellison. As a founder, which school of thought do you belong to? If you have a point of view, how do you make sure your point of view prevails? Above all, make sure you at least have a point of view.

Three Classic Scenarios

Two equal founders + one new CEO
This is what happened at both Yahoo and Google. (Yes, the Google story is different in most other ways, and no need to rehash Yahoo's later mistakes.) This seemed to work for them. The two founders made good money and avoided a lot of work they did not understand or enjoy. It also avoids the issue of which founder should become the boss.
Triumphant return
This has one blazing success story: the return of Steve Jobs to Apple. But other ones did not work out so well: Jerry Yang at Yahoo comes to mind.
One partner who emerges as CEO
Bill Gates emerged as the leader of Microsoft, not Paul Allen.

Which Scenario Do You Want to Play Out?

Some founders have no doubt. They fall clearly into one camp or another. They say either...

"No way in hell is anyone else running my business. Back off. Outta my way!"

Or...

"Who wants to do all that boring stuff anyway. Let me do the creative stuff. and let someone else make money for me."

If you don't have such clarity, you will need people whom you trust and who know you well to give you an honest assessment. And you will need to do some soul-searching.

Your decision will depend on many factors, mostly personal ones. You could hire for any skill-set you are missing. You might want to re-read the early chapter "Are You Really an Entrepreneur."

It's Different When the Game Changes

Markets can change. Let's say you are a techie, and your venture was set up as a consumer website but then morphed into a B2B venture, for which sales skills are paramount. Or vice versa.

In such circumstances, you may be smart to say, "I need someone else at the helm."

Don't Let Investors Make This Decision

This is your decision. Some investors have a very firm view on this. Some fall into one school of thought or the other. However, some are agnostic, letting circumstances guide their view. Knowing their view before you sign the term sheet would be good, to make sure you both see the world in the same way.

If the VC has a strong view that founders never make good CEOs, and the founder thinks, "No way is anyone else running my business," then get ready for one big bruising fight!

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Comments

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I'm all for hiring "professionals" who are more assertive on the phone if the math and business skills are already there as was the case with Microsoft. But what he hired was someone with little knowledge who could barely follow orders and then began to threaten him with physical violence, and then forced his hands off the steering wheel— and brought in more of the same to back him up. I am all for the hired help, but not if they stifle the original vision of the company, and stress it's President. Would you want a car wash attendant to tell you how to drive your car? Without the vision of it's original founder, there would *BE* no company. It goes without saying that if "executive" decisions are made by goons, the company's productivity will tank, and this will result in further stress on the employees and consumers as these behaviors impact the market. It may begin as a matter of work ethic, but it ends as a cultural and human rights issue. If the goons want to work in Asian sweatshops, they can go right ahead, but there could be consequences from the consumer base if this drags the entire economy down to that level.

Posted by: Christina | August 26, 2009 6:10 AM

I think the members of the board in a public company should be required to vote in the best interest of stock holders and elect an operational leader based on that criteria, and provide written reasons in plain language regarding their votes on every issue. When Home Depot stock lost half it's value and the Chairman of the Board left the firm with a half a billion dollars in compensation, current laws in this country allow that kind of behavior just like Enron and many others. In the case of Home Depot, board members voted each other pay raises just like Congress voted themselves lifetime health coverage for them and their entire family at taxpayers expense. The leadership in a public company should be decided on how well they can provide a return on the investment by the stockholders, whether they were a founder or a new manager.

Posted by: Harvey | August 26, 2009 6:31 AM

In my opinion, you must at least have a passionate founder at the beginning.

If you're a founder wanting to continue as CEO, do not waste your time(and their time) talking with VCs who have a strong view that founders don't make good CEOs.

You won't be able to change their minds, and you'll never get the 6-9 months back you spent trying.

Posted by: JohnAtkinson | August 26, 2009 7:02 AM

I met all kind of situations. From the one exposed i`ll choose `Two equal founders + one new CEO` situation, because an `outsider` can be more objective. The founders may not have the required skills and are also `sentimentality` involved. But they must stay close :)

Posted by: Marusha | August 26, 2009 7:37 AM

In response to the comments that followed, I have three points to make:

1) It is no longer fashionable for any CEO to comport him/herself in a manner that is perceived as sociopath, as was popularized in the 1990's by Hollywood film producers. To hide one's emotions, or to act in direct contrast to those of others who are have vested interests in maintaining the emotional intelligence of their market presence in order to maintain the longevity of their corporate ventures, is counterproductive at best. (Or have you been asleep for the past 9 months…).

2)Passion for an area of learning and development, otherwise known as interest, is vital to the maintenance of performance from one's staff and management officials. It will no longer be downplayed as a secondary characteristic, as it is also a key aspect to emotional intelligence, which is the very foundation of knowledge and success in any business venture.

3) The general public ***ARE*** the the investors. I realize some like to attack those of us with natural public relations aptitudes in a feeble attempt to spin us as "panderers to the unwashed masses", but the reality of the market is that a 'public' company's stock is often owned primarily by unionized blue-collar workers, such as nurses and public school teachers, and other government-affiliated employees. If we are going to be elitist, then at least we ought to define elite so we are speaking the same language. If 'the public' *is* the elite, then any point refuting the impact these goon behaviors have on 'the public' is moot. Elitism is no longer a valid excuse when there is no cultural basis for it, and the standard has been squandered to the point where there are no longer any defining boundaries between the classes on which to draw those lines.

Conclusion: The original founder **IS** the corporation, and there's no legitimate argument to counter this assertion— only more lame attempts at usurping the intellectual property and monies from their rightful owners.

Posted by: Christina | August 26, 2009 9:20 AM

I'm sorry, what is this article actually saying? There's no useful information in here whatsoever. It's just a bunch of questions and vague, directionless suggestions.

If you want us to take articles like this seriously, get them written by someone who has been there and done that - not someone who did ten minutes of research on Google and whipped up 300 words.

This series looks like a great concept, but this article is just not very informative.

Posted by: david | August 26, 2009 3:20 PM

A very interesting topic. As someone who has recently made the move of stepping back from the CEO seat after three years and letting a professional CEO to manage my company (www.Meijob.com) I can say to all those that have doubts - this is by far one of the best (albeit very tough) decisions we have ever made. The change is visible almost immediately.
Of course, this is a per case situation and may not be suitable to anyone, but if it's only ego that holds you back, be wise, do a favor to yourself and your company, and let it be managed by someone that has better management capabilities and experience.

Posted by: Guy | August 27, 2009 11:36 PM

How can it be possible to paint in broad brush stokes to say one way is better than the other? It just feels like the means is obscuring the end. If the founders have the vision, emotional intelligence, and operational competency to scale the business, and are consistently delivering value to the shareholders and the business, then which board in their right mind would turn them away? If the company is stagnating, and it appears to be suffering from tunnel vision, or are having scale issues certainly it would make sense to hire some outside help, who would also have to pass the vision/EQ/operational aptitude/shareholder value test.

I reject these black or white notions that one way is better than the other.

Posted by: roarks | August 28, 2009 4:50 PM