Why Great Founders May Struggle in the CEO Role

In an analysis conducted by Havard Business Review on 212 startups in the United States, it was revealed that a significant number of founders had relinquished management control of their companies long before their companies underwent public offering via an IPO. By the third year of their company's existence, 50% of founders were no longer serving as Chief Executive Officers (CEOs); by the fourth year, this figure dropped to just 40%, and it decreased to less than 25% when the company issued shares to the public. In another study involving 2,000 companies, it was observed that around the sixth year, founders generated more value when they no longer held the CEO position.

Why is this the case?

1) The necessary evolution of Founder roles at different company development stages.

Some studies indicate that in the early stages, founders play the role of "Inventor" – individuals who conceive business ideas and drive the initial development of the enterprise. They are propelled by passion, creativity, and a desire to bring novelty to the world. However, as business operations mature, companies require the integration of diverse resources, prompting founders to transition into the role of "Driver". This change necessitates goal-setting abilities, establishment of processes, and leadership to guide teams towards common objectives.

Delving deeper into the company's lifecycle, founders need to embody the qualities of "Builder" to create a foundation for sustainable growth, nurture company culture, and develop leadership teams. To succeed at this stage, founders must excel at delegating responsibilities, empowering others, and communicating purposes and directions throughout the organization.

As companies expand, the role of founders gradually shifts towards that of "Guide". At this stage, founders serve as strategic advisors, fostering innovation while enabling leadership teams to take charge of company operations. This change benefits the company by leveraging the founders' wisdom and experience while empowering the next generation of leaders to achieve greater milestones for the company.

Overall, the evolution of founders' roles from "inventors" to "drivers", and subsequently to "builders" and "guides", reflects the changing needs of companies at different stages of development. Recognizing and adapting to these roles is crucial for the founders' development and the overall success of the company. While the founder's role differs from that of the CEO, it is essential for driving innovation, setting vision, and establishing the company's unique identity.

2) The role of the CEO and the role of the founder are for entirely different animals.

Founders focus on generating innovative ideas and driving the innovation process, while the CEO's focus is on building and executing the management strategy for the company's day-to-day operations. This requires possessing a robust set of management skills and strategic thinking to shape the company's direction, efficiently manage personnel, make flexible decisions, and ensure sustainable growth. Consequently, the founder's role often shifts from leadership to providing guidance, strategic consultation, and fostering innovation, especially at the stage of business expansion. This creates a clear distinction between the roles of CEO and Founder in managing and developing the company over time.

The founder's role is crucial in driving innovation in the early stages and establishing the company's core identity, while the CEO's responsibility lies in managing daily operations, fostering a positive company culture, and effectively implementing strategies for sustainable growth.

Great founders may struggle to become good CEOs because they may not be genuinely interested in the day-to-day leadership and management tasks of an organization. They may be more passionate about the market, innovation, and creating success rather than the practical leadership of an organization.

Therefore, while great founders bring invaluable qualities to the early stages of a company, their strengths and concerns may not effectively translated into the role of a CEO. The separate skill set and mindset required for effective CEO leadership demand a different approach, emphasizing strategic planning, operational management, and the ability to guide the company through various stages of development. Recognizing these differences is necessary for the long-term success and sustainability of the company.

3) Founders serving as CEOs may negatively impact talent retention and development.

Great founders with forward-thinking vision and a passion for innovation, when simultaneously holding the CEO position, may tend to micromanage and deeply involve themselves in daily company operations to "guarantee" alignment with their original vision. While juggling both roles, founders may face difficulties in delegating tasks or trusting others to make critical decisions. However, this unintentionally may impede the creativity and development of talented individuals within the organization, sometimes leading to a demotivated workforce, decreased productivity, and high turnover rates.

Conversely, founders who reluctantly delegate tasks and trust others to make important decisions may hinder the development of emerging leaders within the organization. It is essential for founders to recognize the need to step back and transition into a mentor role, providing strategic guidance and enabling the next generation of leaders to assume more responsibilities. By promoting a culture of empowerment and trust, skilled founders can positively impact talent retention and development within the organization, ensuring a strong leadership team and sustainable long-term growth.

4) Great founders may face challenges in adapting to the organization's changing needs.

As business landscape evolves, organizations must adapt to maintain competitiveness, leading to changes in strategy, structure, and processes to sustain long-term growth. Transitioning from the founder's initial approach to a more structured and process-driven framework is crucial for the continuous success of the company. Additionally, superior profits may result from replacing the founder with a more experienced and professionally seasoned CEO who is better aligned with the needs of a growing company. Organizational changes may include:

New strategies

These may involve product diversification, market expansion, or enhancing customer experience through digital transformation. Achieving these goals requires effective implementation steps such as competitive analysis, market research, and efficient customer feedback to drive sustainable growth. Moreover, in today's competitive and volatile landscape, adept founders also need to be willing to seek new perspectives and embrace innovation to stay ahead, sometimes through breakthrough approaches in strategy, not simply relying on past experiences and founders' personal market intuition as in the past.

New structures

This may involve establishing clear reporting hierarchies, defining roles and responsibilities, as well as creating specialized departments and cross-functional teams to promote innovation and collaboration. Implementing and assessing performance using key performance indicators (KPIs) and/or objectives and key results (OKRs) to track the efficacy of new structures, along with making requisite adaptations, including setting goals and implementing department-specific structure/system indices and performance metrics, are vital stages in the process.

New operational processes

This may include optimizing supply chain management, refining production processes, and leveraging technology to automate workflows to manage daily operations and ensure long-term sustainability. This work requires an understanding of the daily operational realities of the organization. In addition, the implementation and optimization of processes through day-in-day-out activities require close supervision and adjustment from the application stage.

Hence, although founders frequently harbor vision and profound zeal, their undertaking of the CEO position does not invariably guarantee the sustainable growth of the enterprise. This is because founders commonly prioritize creativity and innovation over the intricate management aptitudes requisite for overseeing a sizable organization. Moreover, excessive fixation on the initial concept may impede adaptability to the volatile business milieu, thereby diminishing the company's enduring competitiveness. Therefore, it appears imperative to seek leaders possessing robust management and strategic proficiencies to safeguard the company's long-term advancement.

Certainly, it would be advantageous if founders could cultivate the requisite qualities for the CEO position. Nevertheless, the absence of a creative and seasoned advisor in the domain would be felt within the company. Consequently, determining the role that founders should assume in the organizational framework as the company progresses to a higher echelon necessitates meticulous consideration of their capabilities, individual growth potential, and the company's sustainable future.