As a company develops and moves through its maturity cycles, founders are not always the best people to lead, run and develop the business. Entrepreneurs who are capable of creating a successful start-up are not necessarily capable of successfully leading the firm as it grows. It has been discussed in previous literature that as a company develops, its founders require assistance to lead and run the business, and it is crucial for leadership changes to reflect the best interests and success of the company.
In order to grow a business, diverse management skills and expertise are required. It is critical for the founders to accept professional assistance and guidance. When the firm reaches a size where it requires more complex business practices, the profile and expertise of the founders may not be enough to attract investors. Even though founders are usually creative and highly effective in translating exciting ideas into real business models, they may not have the business acumen to bring the company to the next level.
In fact, a report from Harvard Business Review revealed that in less than 50% of cases, the founders continued to run their business after three years, but that number dropped to only 25% in charge by the time the company went public.
In order for a founder to transition to sharing leadership of their company, they need to overcome their strong emotional connection to the purpose and culture of the company.
The link between the founder and the company’s culture is strong in founder-led organisations, compared to a more established corporate structure. The founder who has built the management philosophy and the company’s culture will find it challenging to cope with a CEO that may come with new ideas and seek to implement constructive change.
Acceptance and mindfulness are crucial when the organisation reaches an inflection point where the transition from a start-up with limited bureaucracy and simple processes to a sustainable business becomes a reality.
At this point, when the team realises the changes in policies, decision making, prioritisation, hierarchy, and the start-up culture, they may start to question the direction, and chaos may arise. Only a true leader, who has developed considerable self-awareness and wisdom will recognise that the time for transition from start-up to a professionally-managed organisation has arrived, and is crucial for the success of the firm, as this move is beyond the founder’s level of expertise and capabilities.
One of the most significant and trusted professional advisors that can significantly contribute to the firm’s growth are the members of the boards of private equity firms that invest in private founder-led companies. These members have significant insights for growth and the professional background to determine the best strategies and plans to adopt – and the right time for leadership decisions and company structure changes. Their advice and expertise are highly valued, given the complexity and challenging aspects of the company’s transition into a larger, more successful company.
The success of the company also depends on the board members’ ability to recognise the founder’s involvement and their psychological influence, and to look at ways to manage differing opinions.
We cannot overstate how well-timed leadership transition is critical for the company’s survival. However, psychological factors, such as a thirst for power, that often emerge can pose a significant impediment. This usually results in a founder’s refusal to do a candid self-assessment, a strategic misstep that can eventually derail or even close the door on the development of the company.
At this point, board members can play a significant role by being very supportive in facilitating the transition and establishing healthy relationships between the founder and their advisors or new CEO, if this is the case. The board members know that the ongoing involvement of the founder can be very valuable as a source of continuity of the business for the employees and the private equity firms. Moreover, they appreciate the founder’s deep knowledge of the business. These positive elements should not be ignored by the board in charge of monitoring the transition when they clearly define the role and the boundaries of the founder and the new CEO or strategic advisors.
We tend to see a mainly reactive approach towards succession than a planned and managed transition, as this transition is overly influenced by the founder’s perspective. The psychological needs and emotions of the founder should not modify the focus.
In times of growth or transition, the key is to assess the company’s culture and identify its strengths and corporate values that can support the new strategy. The transition is a journey of alignment of the organisation’s resources with the new strategy.
For founders who seek to retain complete control over the company’s interests, they should be mindful that not relinquishing their power might mean that the company’s growth is slow, it misses opportunities, or it might even reach the point where some or all of what the founder built throughout the years is destroyed.
In conclusion, as the management philosophy becomes sophisticated and complex across the business phases, the founder’s adaptability will determine the future of the organisation. We also conclude that a mindful founder should not be reluctant to seek professional advice and guidance, or maybe even accept a transition of power to be able to face all the challenges related to the growth and continuity of the business. We also note that the members of the boards of the private equity firms that invest in private, founder-led companies are a valuable resource for the founder for strategic decisions and plans that can support the growth of the company.