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There is a belief in the business world that founders can’t scale. Put another way, a company’s growth curve will eventually outstrip the capabilities of its founder’s ability to remain CEO. And the statistics seem to bear this theory out: Only 50% of founders remain CEOs after being in business for three years, 40% after four, and a sadly low 25% of founders actually make it through their company’s IPO as CEO.
Why is this? And what makes founders like Mark Zuckerberg or Larry Ellison—CEOs who remained at the helm through their initial public offerings and way beyond—different than the rest?
The answer to this riddle lies at the heart of what being a successful entrepreneur is all about: adaptability. The founders who remain CEOs the longest are the best at evolving and growing with the needs of their business.
In order to achieve scale, startup businesses often go through many stages, from ideation all the way through predictability, while their value increases over time and while risk is reduced. This sounds neat, organized, and linear. In reality, it’s much messier, with overlap between many of these stages and skills, as well as iteration along the way.
The best early-stage founders, for example, are born innovators who excel at generating ideas and testing them.
As product-market fit comes into play, the role evolves into being that of an entrepreneur engaging customers and partners to gain proof.
Entrepreneurial skills can apply throughout, though as the company’s business model evolves, and repeatability of revenue and systems becomes a premium, CEOs need to think and act more like builders.
Foundational blocks of distinct value need to shape and support the business for growth. Eventually, as the business creates opportunities to scale, a CEO should begin to adopt the mindset of an operator. Operators often formalize systems to ensure everyone understands their measures for success and provide predictable access to resources to scale predictably.
And finally, as the company begins to truly break through to a point where it is earning stable profits and growth, the best CEOs function as enablers where their focus is more on empowering their organization to consistently beat expectations.
This is a very large range of skills that may need to be developed at a rapid pace in high-growth situations. Furthermore, it isn’t as simple as it sounds, because in reality, these skills are often needed in combination.
Yet, many of these skills are also at odds. For example, being an innovator and finding ways to make breakthroughs requires a willingness to break with routine, whereas operators need to build routine into processes that can be relied upon.
So, it can be tough for founders to scale as CEOs, and to evolve along with the needs of the position without feeling like they are giving up their very identity.
But founders clearly do not need to change their role in order to scale. It’s not realistic to know everyone in the company intimately, or to have your fingerprints on every decision made. Evolving to a point where you will often feel removed from the day-to-day action at the front lines of the business is hard. All founders have to develop their own unique approach to it, but regardless it’s a tough transition for many innovators and entrepreneurs to make.
Yet, in many instances, the role of a founder is supremely important to ongoing value creation. So, it should not be looked at as a transition out, but rather a transition up. Title should be irrelevant!
Stephan Schambach is the founder of Demandware, now a multi-billion dollar valued commerce leader that, last year alone, handled approximately 150 million registered shoppers and processed over 80 million orders, covering more than a quarter of a billion items sold, and billions more dollars in transactions. Stephan co-founded and built the company from the ground up into a leading commerce provider in the retail industry, and has steered Demandware with great vision. Today, he continues to add tremendous perspective as an active board member, and has a strong executive team managing the business day-to-day and taking the company to the next level.
Jon Hirschtick founded SolidWorks in 1993, with the goal of building 3D CAD software that was easy to use, affordable, and available on the Windows desktop. Today, the company has sold billions of dollars’ worth of CAD/CAM software, and continues as a part of Dassault Systems, a company that acquired SolidWorks in 1997. Several years after the acquisition, Jon transitioned out of the CEO role and promoted his long-term partner in building SolidWorks, and a great business leader, John McEleney, as CEO after achieving a run rate of $100 million in revenue in 2001. In 2011, Jon Hirschtick decided to leave SolidWorks to begin the next phase of his career, founding another equally high-potential company, OnShape. Not surprisingly, he brought John McEleney with him as a partner from day one. This is a story of thoughtful partnership that has endured, and is repeating success.
Just because it’s tough, doesn’t mean that every founder will fail to scale up, especially if they are willing to acknowledge the harsh truths about what is actually holding back their personal development. By its acquisition in 2016, under CEO Gail Goodman’s leadership, the online marketing company for small businesses Constant Contact had grown to some $285 million in annual revenue since it was founded in 1998.
Gail was at the helm of her company for almost seventeen years, up until its acquisition, which is no small feat. During a Startup Secrets session, we asked her what her secret was to scaling herself at the rate that her business was growing. She shared this key piece of advice: “You have to face yourself. You have to be unbelievably ruthless about what’s working and what’s not working. As CEO, you will have to change hundreds of times to face the different challenges in the different stages your business will go through.”
The rub is that many founders share a common characteristic that is invaluable in a company’s early days: drive. However, “being relentless in your perserverence can eventually become an obstacle to change,” says Gail.
Gail played a key role in product management when Constant Contact was in its early days. She was good at, and comfortable in, that role. Only, as the company grew, she continued to be involved in the day-to-day product decisions. It wasn’t until one of her employees, the head of engineering, took her out to lunch and confronted her with the truth, that she needed to let other people step up, that she realized she had been neglecting other critical areas the company needed her to focus on. “The single biggest investment you can make as CEO is where you spend your time,” she says, “and spending time where I was comfortable was a mistake.”
The point of these stories is that while it’s rare to see innovators evolve into operators at scale, it is clearly possible to do, as Stephan and Gail show us. It means you need to be excited about the challenge of constantly changing and evolving. At the same time, there are plenty of examples of founders who have no interest in running a later-stage company, and there’s nothing wrong with that either.
Investors often care to see founders stay engaged in building the company, no matter their role or title. However, in the end, there’s no one-size-fits-all strategy out there. What matters is the choice YOU, as founder, want to make over time.