This is one post/chapter in a serialized book called Startup 101. For the introduction and table of contents, please click here.
There are two schools of thought about founders as CEOs. One school says that founders rarely make good CEOs: the skill sets are simply different. The founders may make more money in the end, but they need to hire professional CEOs. The poster children for this school are Sergey Brin and Larry Page as Google’s founders, with Eric Schmidt as CEO. The other school says that no one has as much passion, drive, and deep market and technological understanding as the founder, and so they are best off remaining as CEO. The poster children for this school are Bill Gates and Larry Ellison. As a founder, which school of thought do you belong to? If you have a point of view, how do you make sure your point of view prevails? Above all, make sure you at least have a point of view.
Three Classic Scenarios
- Two equal founders + one new CEO
This is what happened at both Yahoo and Google. (Yes, the Google story is different in most other ways, and no need to rehash Yahoo’s later mistakes.) This seemed to work for them. The two founders made good money and avoided a lot of work they did not understand or enjoy. It also avoids the issue of which founder should become the boss.
- Triumphant return
This has one blazing success story: the return of Steve Jobs to Apple. But other ones did not work out so well: Jerry Yang at Yahoo comes to mind.
- One partner who emerges as CEO
Bill Gates emerged as the leader of Microsoft, not Paul Allen.
Which Scenario Do You Want to Play Out?
Some founders have no doubt. They fall clearly into one camp or another. They say either…
“No way in hell is anyone else running my business. Back off. Outta my way!”
“Who wants to do all that boring stuff anyway. Let me do the creative stuff. and let someone else make money for me.”
If you don’t have such clarity, you will need people whom you trust and who know you well to give you an honest assessment. And you will need to do some soul-searching.
Your decision will depend on many factors, mostly personal ones. You could hire for any skill-set you are missing. You might want to re-read the early chapter “Are You Really an Entrepreneur.”
It’s Different When the Game Changes
Markets can change. Let’s say you are a techie, and your venture was set up as a consumer website but then morphed into a B2B venture, for which sales skills are paramount. Or vice versa.
In such circumstances, you may be smart to say, “I need someone else at the helm.”
Don’t Let Investors Make This Decision
This is your decision. Some investors have a very firm view on this. Some fall into one school of thought or the other. However, some are agnostic, letting circumstances guide their view. Knowing their view before you sign the term sheet would be good, to make sure you both see the world in the same way.
If the VC has a strong view that founders never make good CEOs, and the founder thinks, “No way is anyone else running my business,” then get ready for one big bruising fight!