Why we don't discuss CEO succession

It makes so much sense, and yet we don't talk about it nearly often enough as a tech community.

May 19, 2024

Have you ever felt that something makes sense to you but not to others yet?

I feel this way about CEO succession in startups, having spent the last few years researching, reflecting and writing on the topic. In so many cases it makes sense to consider changing the founder CEO of a startup, but the widely held assumption is that the founder CEO should stay at the helm until either a glorious success or a complete failure.

Why does it make sense to consider CEO succession?

So, why does it make sense and why is not happening as often as it should?

There are several possible drivers contributing to the decision to step down as a CEO (or for the board to remove the CEO):

They are failing at their job — the most obvious, but never the first one.
Their skills are good, but not great
Their health or relationships are under serious strain
The company can’t afford them
They are disengaged
They don’t want to step into the CEO role

Often, the founder CEO or the board don’t act and don’t discuss the topic until it’s clear the CEO is failing at their job. However, long before it happens, the founder may be feeling under serious strain, feeling burnt out or disengaged, not knowing how to work more sustainably.

Or, maybe their skills are adequate but not as good as what the company needs to thrive. Or, maybe they’re the stereotypical “founder, not CEO” who can start things but hates running them. Being a founder and being a CEO are two quite different jobs.

Or, maybe, they’re under financial stress, with their primary relationship suffering as the result, but they don’t know how to raise it at the board level.

So during all this time, which may well be measured in years, both the CEO and their board may be quietly hoping that things will get better. Sometimes they do, and sometimes they don’t and the CEO starts clearly failing at their job.

To me, this looks like a missed opportunity. As I keep repeating in my book, Startup CEO Succession, it’s okay to stay and it’s okay to leave, but sitting on the fence for years doesn’t serve anyone: not the founder, not the investors and not anyone else.

We need to talk about money

A particular topic that needs to be discussed more in the context of the transition is money. So many founders I know are paper-rich and cash-poor, working very hard to build future unicorns, but not knowing how to buy a house. “Saving for a deposit” is a joke today in London. If you don’t have access to intergenerational wealth, good luck saving faster than real estate prices are growing.

Clearly outlined aspirations at the board level about financial milestones for the founder on their path to unicornship could take away a lot of anxiety for many entrepreneurs (e.g. you raise Series A = you have a deposit for a house, Series B = no mortgage anymore — or whatever makes sense to that particular founder, their board and their company).

Likewise, the board and the founder CEO should discuss what the founder is paid if they need to leave. As I argue in my book, it’s a pragmatic conversation to maximise the chances of a great CEO succession. A founder CEO who hesitates to leave because of financial pressure is doing a disservice to the business by not looking for a new, great leader.

Imagine the world in which an investor would sit down with a portfolio CEO to ask: “What can I do to help you reach your financial goals?” And even if the answer is “not much”, this conversation alone can be transformative for the investor-founder relationship.

Why aren’t we talking about CEO succession?

Ideally, the board and the founder CEO have an open and ongoing conversation about if, when, how and why it might make sense to bring in a scale-up CEO.

Just like couples who aren’t afraid to discuss when and why they might decide to separate are likely stronger than those who pretend that divorce is what happens to other people, the boards that are mature enough to have this conversation before it becomes difficult may well be building a stronger foundation for company success.

Yet, this isn’t happening often. Why?

From my experience of talking to other founders and investors, the main barrier seems to be fear. Investors are afraid to give the impression that they are pushing the entrepreneur out of the business. Founders are afraid to give the impression that they aren’t fully committed.

Yet, this fear is misguided. The interests of both founders and investors are aligned around company success. The level of skill and commitment of the CEO is one of the critical issues that any board should pay close attention to. Yet, because the topic seems so scary, it’s often not discussed until it becomes an obvious problem.

How can we start the conversation?

So, what to do?

First, the earlier this conversation is approached, the easier it’s going to be. It could be a wonderful, although not easy, opportunity to build deeper trust before or during fundraising. I know from personal experience it’s easier said than done.

Second, as a tech community, we need to talk publicly about CEO succession in startups to normalise the topic. Almost all founders I know, including myself, face fears of failure when they contemplate stepping down. Yet, taking the business from an idea to the point when it makes sense to bring in a new CEO is a sign of success, not failure.

Third, investors and founders should not be afraid to discuss, privately, the financial situation of the founder CEO. Yes, I know, in Britain we don’t like to talk about money, but I’m convinced that everyone would be better off if we did. Founder CEOs are under a lot of pressure as they are: having open, honest conversations about financial milestones for the founder as the business grows would likely help them be a better CEO.

On this essay in particular, I’d love to hear your comments. Leave one below or hit “reply” and send me a private email. What I wrote makes sense to me, but I know not everyone fully agrees — I’d love to understand in detail what I might need to learn here.