Sometimes, the difference between a founder and a CEO can be confusing, especially during the early stages of a company. It’s common for founders to take on the CEO role when starting a company to create excitement around their vision. As a company grows and becomes more established, the founder may no longer be the best person to serve as the CEO. So, how do you differentiate between a founder and a CEO?
Several well-known founder CEOs have vacated their posts in the past ten or so years. This could be for various reasons, including their aspirations, pressure from investors, or the desire to bring in a leader with specific expertise in growth and operations.
A recent Egon Zehnder article examines the dynamics between founders and CEOs. They define the differences between the roles: “A founder is the visionary—the person who identifies a market need, builds the business idea, and takes the initial risk to get it off the ground. Founders often wear multiple hats, from product development to fundraising, and they establish the company culture. A CEO, on the other hand, is responsible for running the company in a structured, scalable way. While a founder may naturally step into the CEO role at first, over time, a growing company may require leadership that prioritizes execution, financial management, and operational efficiency.”
As the definitions illustrate, as a business grows and matures, the type of leadership required changes. Below are the key differences between founders and CEOs:
- Visionary vs Operator
- Founders are idea-driven
- CEOs are focused on execution and operational efficiency
- Risk-Taker vs Risk Manager
- Founders often take bold risks to grow
- CEOs balance risk with stability
- Builder vs Scaler
- Founders focus on innovation
- CEOs focus on structure, process, and long-term sustainability
- Personal vs Institutional Perspective
- Founders have an emotional attachment to the company
- CEOs act on behalf of shareholders and employees
It’s common for founders to step aside at a certain point in the company’s growth. Many founders enjoy the frenetic pace and constant changes associated with startups. Managing uncertainty and solving problems, often in ways that aren’t scalable but necessary, is a skill set that doesn’t always mesh with running a stable organization.
As a company matures, it becomes more stable with processes and policies developed to continue to scale the business. This includes finance and accounting practices, regulatory compliance, and operations and HR policies, to name a few. At this point, the founder needs to either change how they lead, which may be the right decision, or look to bring in a CEO experienced in building companies at this growth stage.
Outside of company growth, outside factors may dictate the succession timing for the founder CEO. It could be a change in regulatory policy, economic upheaval, or new competitors entering the market. Any number of outside factors could initiate a need for a new approach and a change in leadership.
This doesn’t mean the founder has to leave the company, though they may choose to do so. Roughly three-quarters want to continue to contribute to what they’ve built. This could be in a different C-suite role, such as Chief Innovation Officer, as a board member, a special advisor, or as a chairperson.
According to the article, there are indicators of when the time is right to transition.
The Company Is Moving from High Growth to Operational Efficiency
As mentioned earlier, the startup phase of growth is very different from mature businesses. Rapid growth at early-stage companies goes hand in hand with uncertainty and risk. This is very different from more established businesses that seek to minimize risk and operate with process and structure to optimize long-term profitability.
Investors or the Board Are Pushing for Leadership Changes
If a company has gone public or raised rounds of venture capital, board members and investors oversee the founder to ensure the company remains sustainable. When they have concerns about the company’s growth, they may push for a change at the top.
The Founder Is Feeling Burnt Out or Disengaged
Founders burn a lot of energy starting a company. The adrenaline rush is real, and building a company is intoxicating. However, that level of focus and energy is not sustainable for years and years. Burnout will hit at some point. Some founders will recognize it immediately, and others will take more time and continue to push through without the passion they once had until it becomes unbearable and they either realize they need to step aside or are forced to.
Scaling the Company Requires Expertise Beyond the Founder’s Capabilities
A founder may realize they are out of their depth when the company hits an inflection point that requires far more complexity. Bringing in a CEO with specific skills is required. Examples include:
- Global expansion
- Regulatory compliance
- Mergers and acquisitions
- Financial structuring
- Talent management at scale
Leadership Challenges Are Hindering Business Growth
Outside of the complexity noted above, there are less obvious growth challenges that may indicate it’s time for a change of leadership. Some founders have leadership styles that work well during the early stages of growth but aren’t aligned with larger company dynamics. Signs of this include:
- High employee turnover due to poor leadership alignment
- Difficulty attracting senior executive talent
- Struggles in making long-term strategic decisions
- Internal conflicts with investors, the board, or key stakeholders
Since the turn of the century, capital has been easy to raise, and startups have been able to grow without being profitable. In the past couple of years, raising capital has changed with higher interest rates and a more critical eye being placed on profitability. The era of “growth at all costs” is over.
To better understand today’s landscape, Egon Zehnder looked at more than 50 founder CEOs who stepped down in 2023. Here are the themes they discovered.
Sometimes it’s Just Time
These founder CEOs often compare their company to having a baby. Once it has reached a certain age (so to speak), it’s time for it to go it alone, or in these cases, without its founder.
Sometimes it’s Not a Fit Anymore
Another theme discovered is stepping down before the company has its IPO. These founder CEOs understood they didn’t have the skills or perhaps the passion to lead their company at that stage of growth.
Sometimes You Just Can’t Refuse
One of the outside factors that plays a role that is too good to pass up is being bought. It could be private equity or an M&A deal. These offers, while financially beneficial, will almost always bring about new leadership teams. Conversely, poor company performance can lead to new leadership and founder CEOs being forced out.
Regardless of the reason, it’s difficult for founder CEOs to step aside. The company is part of who they are, and the process will be emotional for them. It is also critical for the company. “The transition must be carefully managed to ensure business continuity and cultural alignment.”
Good succession planning enables the founder to maintain their personal legacy while the company continues to grow, support new leadership continuity and company culture, and provide strategic vision without being mired in day-to-day operations.
If you’re considering a leadership change, send us a note. Our team of executive recruiters can help advise you on the best path forward.