Startup Evolution: How and When to Transition from Founder-CEO to New Leadership

New Kauffman Foundation white paper suggests maturing startups may grow best when founder steps aside

KANSAS CITY, Mo. (Nov. 11, 2015) — Startup founders often harbor dreams of leading their companies from launch to long-term success. But that ambition typically is neither realistic nor best for the company, according to a white paper released today by the Ewing Marion Kauffman Foundation.

In “CEO Evolution: Knowing When and How to Transition a Startup from Founder Leadership to Growth Leadership,” Kauffman Senior Fellow Suren Dutia calls on research and his own experiences replacing a founder-CEO and serving as an investor, advisor and board member to many startups. Dutia suggests that few founder-CEOs have the skills and experience needed to ensure company growth and shareholder value beyond a startup’s early stages. While a founder’s vision and passion are vital for getting a new venture off the ground, companies require different leadership capabilities as they grow.

“As startups mature, founder-CEOs need to ask themselves hard questions about whether someone else might be better equipped to take the company into the next stage of growth,” said Dutia. “Founder-CEOs who are able to conduct this personal skills analysis and let go of their leadership roles when needed give their companies the greatest chance at long-term success.”

After the decision has been made to put a new CEO in place, the founder-CEO and the company’s board members should jointly plan the hiring process and the change to new leadership. The white paper recommends seven steps for ensuring a successful transition:

  • Determine what skills and experience are needed to scale the company. The right CEO has experience scaling and managing a company that has reached its strategic objectives, and his or her skills will complement those of the current team.
  • Select the CEO for leadership, interpersonal skills and a knack for creating a supportive culture of collaboration. The new CEO should have a proven ability to execute the business model and create value.
  • Evaluate whether any team members are hindering growth. As a company grows, its leadership team’s skills also must evolve. If certain team members have become resistant to change, the founder CEO and board members must decide whether or not these individuals should remain with the company.
  • Foster close connections between the founder, the new CEO and the team. Loosely structured teams may have served the company’s early needs, but growth requires a cohesive team that works across multiple functions.
  • Transfer knowledge. Relevant company knowledge – much of which likely resides with the founder-CEO – should be captured and shared with the new CEO. 
  • Minimize the handover period. Ideally, the formal transition to the new CEO should last about two weeks.
  • Define the transition’s strategic significance and keep communication channels open. A successful transition relies on transparency and real engagement so that the internal team understands the new CEO’s strategy for taking the company to the next level.

Because founder-CEOs have been intimately and emotionally involved with their startups’ creation, letting go of the reins is not easy, Dutia recognizes. More often than not, however, as the company begins to grow, its continued success hinges on bringing on a CEO whose skills and experience give the company its best chance to be a long-term winner.