How Founder-Led Companies Can Get Succession Right the First Time

By Liza Stokes and MaryJeanne Scott

How do you replace a visionary?

That’s the question when hiring a successor to the CEO of a founder-led company. Stepping into the role held by a leader whose passion and vision turned an idea into a multimillion-dollar business presents unique challenges. Founder-led companies typically have a deeply embedded organizational culture that’s been integral to their success, enabling them to thrive and scale in a competitive market.

However, getting to the next level of growth often requires a leader willing to shake things up—introducing new ways of working, professionalizing and creating structure, building a culture of accountability within the organization, assessing teams, and identifying opportunities with new talent—while preserving the culture that helped propel the company to where it is now.

Too often, a founder-led organization selects a new leader who isn’t the right fit, or the organization isn’t properly structured to enable a smooth transition. Consequently, the incoming CEO, though highly skilled, struggles to lead, resulting in turnover, business disruption, and delayed value creation.

Organizations can avoid this expensive mistake by taking the time to hire the right CEO the first time—recruiting for the specific set of hard and soft skills needed to successfully take the helm of a founder-led company—and by doing the prep work that enables the new leader to be effective beginning on day one.

Defining the Founder’s Future

The transition should begin before the first CEO candidate is interviewed—with determining the founder’s role. Are they ready to retire or interested in staying on? If they wish to stay, how involved will they be? If the founder plans to play a role in the business, it must be meaningful and substantive. The founder, stakeholders, and company employees will know if the founder was given a title just for optics.

Above all, the role must be well defined. When recruiting a new CEO, founder involvement can be a delicate subject. If the candidate foresees needing to make difficult or unpopular changes to drive the business forward, they may view the founder’s involvement as a roadblock. It is imperative to think through the founder’s role to ensure minimal overlap with that of the new CEO. Defining this relationship too loosely will dissuade top talent from considering the position and potentially hinder the success of whoever ultimately claims the seat.

Hiring for People Skills

In addition to hiring for the capabilities required to be a great CEO anywhere—razor sharp business acumen, strategic vision, skill in data-driven decision-making, and an unrelenting pursuit of excellence—a founder-led organization should seek candidates with exceptional people skills.

While emotional intelligence is, of course, essential for any executive, the need is heightened for those taking the helm of a founder-led organization. Change is unsettling, even more so in a company whose history has been dominated by one leader. Given that the new leader’s mandate is to build the future, which inevitably means change, a candidate’s personality, affect, and communication style must be closely evaluated.

Likewise, while always important, culture fit has even greater significance in an organization where culture has been shaped by and inextricably identified with the founder. Under new leadership, that culture can be quickly diminished. Founder-led organizations must seek a CEO who can protect and preserve the best of the existing culture while ushering in a new era of growth and professionalism.

This new era demands a CEO who embraces and models a mindset of leading through people. Founders can often employ a top-down leadership style that is highly effective when building a business from the ground up, filling the critical role of keeper of invaluable institutional knowledge, but taking the business to the next level requires a different approach. In a recent study of founder CEOs, 58% admitted they found it difficult to delegate decision-making. The next phase of growth will rely on team members empowered to own their role and make the critical decisions needed to drive the organization forward. Leading through people means assessing the team in place and recognizing how to effectively leverage their innate talent. This can unlock tremendous potential as team members are invigorated by the chance to take on new challenges.

At the same time, if the team does not have the necessary capabilities, the incoming CEO must look externally to hire the best people possible to lead the organization forward. This might also involve painful but overdue decisions to let go of underperforming employees.

None of this is easy. But by carefully considering the qualities needed in a new CEO, defining the founder's future involvement, and ensuring clarity in the recruitment process, founder-led organizations can avoid the costly pitfall of turnover and set up the business to achieve unprecedented growth.