Are You a Founder or CEO?
I’m regularly contacted by Private Equity firms who are in the constant search for that next company to acquire. I’m on their periodic call list. A pattern has emerged that has me thinking about founder/CEOs. One particular PE firm specifically targets founder/CEOs that managed to build a profitable company yet they don’t have the skills required to maximize both growth combined with an optimum bottom line. Their industry criteria aside, the target company, in order to achieve optimum, merely requires a skilled manager as a replacement CEO who can move the company forward. They get out of the way of that new CEO and the asset value improves, and ultimately they sell for a gain. This phenomenon of Founder limitations is well known and is covered in the book, “The Founder’s Dilemmas,” written by Noam Wasserman.
Many of the founding CEOs I’ve met are true experts in their industry, and often know their products inside out, but all too often, that expertise come with serious limitations and they don’t see it. They somehow can’t make the connection that their managerial skills need to grow with their organization. They can’t make the transition from founder visionary to CEO and evolve into an outstanding manager. They almost always know their products down to the smallest detail, but they don’t know the latest in management or marketing strategies or don’t know how to grow their business for a variety of reasons. Often they are completely oblivious to their own industry trends. They blame their own employees for their low Glassdoor scores.
Typical founders were never appointed CEO by anyone, and are in the role by default merely because they started the company and declared themselves CEO when there was nobody else. It’s normal. I did it too. Where it becomes a problem is when these CEOs have little prior management experience and think they are doing a masterful job when outsiders with experience see the flaws. What I observed through my Glassdoor analysis is that most of these founders have no prior management experience in which to measure their personal performance to better assess their own progress against other companies. They assume they are the best possible choice to run their own company.
In all fairness, some of these founders know they are terrible CEOs, however they simply can’t afford the expense, or don’t believe it’s necessary. A surprisingly high number put ego ahead of everything, and will never seek help.
Vistage and other coaching programs claim that it’s because of Vistage that their companies have a higher success rate. I would argue that they attract those CEOs who are more willing to seek outside guidance and therefore of course they would become the better performers. Who knows how those same CEOs would do with the right outside guidance focused on them alone.
I recently read an article by David Rosenbaum of the Bloom Group[1] about thought leaders who suffer from the Dunning-Kruger effect. I made reference to it in my prior writing. A central point to the article is, “Ignorance more frequently begets confidence than does knowledge.” The same can be said about founders in their role as CEO who remain ignorant about their own performance and do nothing to improve their skills as leaders. They usually don’t know they are mediocre CEOs and lack the introspection to properly assess their skills and assume they are doing an outstanding job. When questioned, they typically point to prior company growth, without the awareness that growth may have occurred even faster with an experienced CEO at the helm and the prior skill requirements are now different.
In my experience, founder CEOs who surround themselves with an objective board, perform far better than those who prefer sycophantic support from friends who are always eager to tell them exactly what they want to hear. Some board members value their board seat far more than telling the founder they could stand some improvement and some coaching. I am aware of one board made up of such individuals who will never ever hold the founder accountable for a chain of disastrous decisions that make the company’s future completely uncertain.
As I did my recent Glassdoor analysis, I quickly noticed that the bad reviews had a consistent pattern around no longer qualified founder/CEOs who bumbled their way to success. I couldn’t help but wonder if these founders have any awareness of their ineffectiveness, especially those who get a large sample of negative reviews from their own employees.
There was another curious pattern from these low Glassdoor scoring founder/CEOs. I noticed that most of these Glassdoor trends pointed down over time rather than up as the company grew. They may have been great leaders when they could manage a small team, but once they reach a specific point, they begin to trend in the wrong direction, and a surprising number finally go under. Often they are under the delusion that as the business grows, the job requires less of their attention when in fact it requires more. A surprisingly large number of negative reviews stated that the founder wasn’t paying attention to the business at a time when it needed real leadership.
As a company grows, so do the demands of the role of CEO. It’s a matter of physics. The bigger the company, the more it needs solid leadership from somewhere to both sustain its leadership position and grow. Some founder/CEOs reach a point where they are comfortable, where the company is profitable to their satisfaction; they are getting lots of time off to play, and they simply don’t care if the company’s growth remains flat. These founders are usually surprised when competition catches up and goes flying by before they have time to react. Then blame someone else when the business finally goes under.
A few tips for Founders.
Be clear about your life goals. If you are burned out and don’t want to run the company day-to-day, find someone qualified to run the business, but be sure and stay out of their way.
Never run interference with those people entrusted to run the business. There is nothing worse than employees feeling like they have two bosses pulling them in two different directions.
Recognize that’s okay to be a founder-owner, rather than a CEO of a company that will fail under your leadership. It’s better to be a part of a growing company rather than running something into the ground.
Founder should listen carefully to their employees when they give you a vote of no confidence for your leadership. If you can’t resolve their complaints, find someone who can.
Seek outside guidance from other experienced managers who will tell you the truth about your own performance. Find those who have no bias one way or another.
Assemble a board made up of directors who will tell you the truth about your performance and will give you the guidance and support to improve. If you’re unwilling to make the changes they recommend, step aside and let someone else run the company.
Recognize when you’re not having fun anymore. Don’t drag down the company with you. If your company is in trouble, get help. Other successful CEOs will often provide good advice.
Don’t assume family members will make great follow-on leaders. The odds of successful passing of leadership from generation to generation are not that great.
If you can’t fix the company in short order, sell the business before it’s worthless. Don’t ride it into the ground when it could be saved in the hands of another individual or company.
Get help, even if you don’t think you need it right now. Use that help to evaluate your own performance and have an open mind for change.
[1] http://bloomgroup.com/blogs/dave-rosenbaum/how-help-thought-leaders-who-suffer-dunning-kruger-effect?platform=hootsuit