Three trade-offs for CEOs in transition

Founder CEOs considering stepping down must navigate these three trade-offs. Each deserves attention.

In my conversations with founder CEOs considering or going through the process of stepping down, I notice three trade-offs that make it difficult. There is no right or wrong answer here, but nearly every founder considering whether to replace themselves with a new CEO needs to navigate each one. Here they are:

1. Immediate vs Pre-planned Exit

2. Maintaining Control vs Letting Go

3. Staying a Founder CEO vs Exploring a New Career

Let’s look at each in turn.

Immediate vs Pre-planned exit

There are, broadly, two ways for a founder CEO to approach a CEO succession. One is to get other stakeholders, usually investors, involved early on in the preparation process. The other is to keep the cards very close to your chest for as long as possible, telling the board about the CEO transition late in the process.

I usually advise being more open. This is what I’ve done myself when I was considering stepping down as CEO of Makers. I got the board involved very early on and we went on the journey together, from making a decision to choosing how to ensure a successful transition. In my case, this is one of the key reasons our succession went as well as it did. I discuss it with my successor Claudia Harris in this podcast episode:

E12 — Choosing To Do What You Love with Claudia Harris

But this isn’t always the best approach. In some cases, investors take a very aggressive position the moment they hear the CEO is considering stepping down. One founder I know tried to be open and constructive with his board, but the next thing that happened was a call from the VC’s lawyer. His investors chose to try to force him out of the business instead.

It ended well for him. However, in situations whether there are reasons to believe that investors won’t be very receptive or understanding, a more aggressive approach from the founder CEO might be warranted.

Maintaining control vs Letting go

Another trade-off is the degree of control the founder CEO wants to have over their startup. This comes in two forms.

One is the decision to step down. Even if the CEO doesn’t have board control anymore, they still exercise significant power over the direction of the business as long as they are CEO. The moment they step down, they are choosing to cede control to someone else who will take the company in a different direction and instill a new set of values.

For some, as was the case for me, it’s an easy choice. For others, it’s agonising to consider that the business that they spent many years building with dozens or hundreds of people they personally hired will be led by someone else, who may or may not know what they are doing. Some liken it to watching your child being raised by different parents.

Another form in which this tradeoff manifests is the decision to stay involved after the founder CEO steps down. The ex-CEO may leave the business or stay involved in some capacity (C-level executive or a board director).

The danger here is that if the founder stays involved but keeps influencing the business as if they were still a CEO, it will be a lose-lose situation for everyone. The new CEO will be undermined and the ex-CEO will be frustrated.

A good example of a founder CEO who stayed deeply involved without undermining a new CEO is Adam, the guest in the second episode of my podcast.

E02 — Getting Out of the Way with Adam Fudakowski

Staying a founder CEO vs Exploring a new career

Finally, any founder CEO who steps down, voluntarily or not, makes a decision whether to stay a founder CEO by starting another business.

It’s often the most obvious choice. After all, getting a job after stepping down as a founder CEO isn’t always straightforward, as I explore in my book. However, the founder has skills, the network and the experience to found another company.

Yet despite it being an obvious choice, it’s not always the right one. This is why I usually advise founders take time off without committing to anything professionally after stepping down.

If you can afford it, take time off to rest and reflect on your career options. The moment after you step down as a founder CEO allows you to take your career into a new direction should you choose to.

Too often, I see founder CEOs assuming that if they have always been a founder CEO (or in the last decade), that’s what they must be doing next. Not always so.

Some final thoughts

I often reflect on what is it exactly that I do as a coach with a focus on CEO succession? After all, isn’t it a straightforward process, like leaving any other job? Is there anything special about CEO transitions in startups?

I think there is: high stakes and high complexity.

First, the stakes are high. Quite often, a founder CEO considering leaving their job has most of their wealth and identity invested in the startup they spent years building. How this process is approached will have consequences for years to come, both in terms of the enterprise value created or destroyed and in terms of how the founder CEO thinks about themselves.

Second, the CEO to ex-CEO transition often brings up a lot of complexity to the surface, from negotiating the legal aspects to confronting deep fears, as I reflected on in my last week’s essay about a mid-life crisis.

You Can't Schedule A Surprise

Okay, enough links to my older posts :) I hope this was useful!