Why Some Founders Fail as CEOs

We tend to idolise founders who are able to take their company from the ideation stage to multibillion-dollar organisations. But, the truth is that founders like Bill Gates, Jeff Bezos, and Mark Zuckerberg are rare to find; they are, in fact,  exceptions and not what happens as the norm.

A study done by the World Management Survey revealed that companies that are led by the very people who founded them are 9.4% less productive with consistently low management scores. Both of these factors typically increase when the founder-CEO is replaced.

Another study which took into consideration 212 US startups that launched between the late 1990s and early 2000s revealed that only 50 per cent of the founders were still in control of their companies three years after launching it; 40 per cent of them were CEOs after four years of the launch; and only 25 per cent of the founders were CEOs when it was time for the company’s IPO.

There have been many cases when the founder’s desire for control overtook their motivation for profit, and as a result, they couldn’t get any investor to come on board. This let to  almost 80 per cent of the founders out of the 212 US startups to be forced out of their position, instead of leaving willingly.

But why do most founders fail at being CEOs even when they have winning ideas? Let’s find out.

The Attitude towards Investors is Part of the Problem

Founders often consider their companies as their own child because of their attachment to it. Due to this reason, it is very difficult for them to give up control. In fact, most of the founders are shocked when investors ask them to relinquish control, at least to some extent.

When we view things from the investors’ perspective, it is only natural for them to ask founders to leave the CEO position in order to make way for an experienced CEO who can seamlessly handle the day-to-day business processes.

Most investors aren’t keen on investing in companies that are heavily dependent on a single individual. They want to invest in startups that can function just as well with the founders, which is why many investors insist on hiring an external CEO before they confirm their funding.

Taking Managerial Decisions is not Easy

One of the biggest reasons why most people want to start their own company from the ground up is because they want the freedom to run their business exactly the way they want. But since most of them are not good at management, it can often lead to poor managerial decisions on their part. As a result, they may let their emotions get the best of them and take emotionally driven business decisions instead of making rational ones.

Some CEOs may even partake in nepotism and hire people they are most comfortable working with instead of hiring candidates who are actually qualified for the position.

Every business involves stress, especially in the initial stages when you aren’t even sure if it’s going to survive. As the CEO and leader, it is important to regulate emotions and keep up the morale of the rest of the team, which can often be difficult for founders because they are too attached to their company.

Lack of Strategy

The strategy for starting a company is very different from the strategy you need to scale it. For CEOs to get the support of investors and the board, they need to have the ability to develop and explain their business strategy that can actually scale up.

For instance, Facebook didn’t generate any revenue in its founding years. But 22-year-old Zuckerberg had a strategy for the company in his mind that the board and investors agreed with.

The board believed in his vision so much that they turned down any offers to sell the company during its early days. Zuckerberg’s strategy ultimately proved to be correct when Facebook introduced its advertising plan and the company brought more money than anyone could have anticipated.

Final Words

Coming up with an idea that can actually attract customers and generate revenue is an immensely difficult task. Once founders get there, they do not want to renounce their position. They sometimes forget the fact that the company is bigger than one individual and must continue to grow around, and sometimes over them.

Founders need to remember that the rules change when investors come on board. If they want to scale their startup successfully into a big enterprise, they must be able to do what’s right for the company and its employees. A true founder is one who is able to identify when their value to the company would be better served if they put their ego aside and allowed the company to grow, scale, and thrive – even if that means bidding adieu to the coveted CEO position.

Article originally posted by entrepreneur.

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