Companies outgrowing founders


Every entrepreneurial venture passes through two phases. Phases I is the development of the concept and getting the company off the ground. Phase II is when the company stabilizes and starts to grow. The irony is that the founders steer the company through some of the roughest times in the initial years may not always be the right people to take the company forward.

Recent corporate history is littered with names of people who were fabulous as founders but when they stayed on beyond a point, their companies bled. Scott McNealy, for instance, ended up hurting Sun Microsystems, the company he had created and led for 22 years. Among other things, he staunchly resisted layoffs of to pare down the mammoth workforce and took much too long to embrace lower-cost technologies to cut losses.

There are others too, who got ousted from their positions of power before they could inflict further damage. A case in point is Raymond Noorda, the founder of Linux distributing company Novell. He was forced to leave the company he had founded.

But why do some companies ‘outgrow’ their founders?

In the growth stage, organization building becomes important. So suddenly, the CEO needs to know how to manage finances, understand team dynamics, handle sales and marketing and even look into routine administrative tasks. But not everyone has those capabilities – or the interest.

Look at a typical IT or biotech company. Chances are the founders would be techies or scientists with domain expertise. They may not have the general management skills an organization requires.

Creating versus nurturing

One breed of entrepreneurs likes to create the company and see it through its lifespan. The second one reveals in creation alone and becomes restless in static situation. Says Noam Wasserman, assistant professor in the Entrepreneurial Management Unit at Harvard Business School (HBS), “These people often become ‘serial entrepreneurs’ who get things going, then move on to the next early-stage venture before they get mired in the organization building tasks that they don’t find exciting�.

The other thing to watch for is the ‘burn factor’. If after working hard for the first three-four years of a company, the founder loses momentum, he needs to step aside.

If the goal is to grow a large, valuable company, then at the point where the founder is dealing with a lot of important decisions he feels unqualified to make, it’s time to find someone else who is better equipped to do that and continue building the company.

But if the goal was to be the person leading the company through all stages of development, then the person will be more inclined to stay CEO, though Wasserman cautions that this could be at the cost of creating a less valuable company.

It’s also a good idea to have reliable outside mentors who can provide guidance about whether that point has been reached. The best case is where the change is prepared for over time, so that it doesn’t come abruptly and is more disruptive than necessary.

It is always better if the founder understands that transition might be an eventuality. It is important to think the end-game through even before one starts. That would help to lessen the pain of either holding on or letting go.