How Does a Founder Choose the Best Time to Step Aside?

For every successful entrepreneur there comes a time to head for the exits. WHEN is the really tricky part. Some scenarios lend themselves for this transition–and some don’t.

When is it time for a permanent break from your company?

Let’s take a look at a few scenarios that fit the “time to move on” criteria….

Not a startup anymore — and startups are in your blood

It’s easy to recognize this one because as the company changes from a startup to a more mature enterprise the actual “work” of the CEO often changes dramatically with it. Many CEOs recognize that they are much better suited and enjoy far more the role of a startup CEO than one leading a more formal and oftentimes bureaucratic enterprise. The problem occurs when the CEO fits this mold and doesn’t realize it. Sometimes they love the company so much their identity is totally connected to the company. Other times they grow to enjoy the trappings of a larger-company CEO. But if you’re truly not suited to manage in this environment, for the good of your baby you need to yield to someone who is. I don’t mean to imply that no one who starts a software or hardware company has the skills or can’t grow into the role of managing a larger, more mature enterprise. Certainly there are folks that fit into this category. However, I’ve seen too many CEOs that didn’t–but thought they did–do great damage by sticking around too long.

Time to go fishing for good

This situation is also pretty obvious—as long as you’ve planned for it. So when you’re ready to retire you just do it, right? Pretty straightforward. But one of the problems in this area occurs when the founder/CEO has kept such a tight rein on the management of the company, that he or she truly is an irreplaceable piece. Founders are often so integral to initial success that it’s very natural to believe you are the only one that can be trusted to do certain things well enough. But if that idea is taken to the extreme over a long period of time, a company won’t have the people and processes in place needed to carry on successfully once they are gone. So in order to leave a healthy, functioning company when you do retire–it’s very important to set the stage for that day far in advance. Let go well before you actually need to, while you’re still there to coach and make corrections as needed.

You realize others are better suited to run a company

This scenario is the most important one of all to keep in mind and can come into play at any time. It usually is because of lack of certain skills or the appropriate temperament, but could be for a variety of other reasons– including everything from complications due to life situations to a general lack of interest. In any event, once you realize this it’s time to get out as expeditiously as possible. Being able to objectively reach this conclusion when it’s warranted is critical to the success of your company. Unfortunately, ego often gets in the way and doesn’t allow it. This circumstance may come at the very beginning of a startup, or well into the tenure of a mature company. It helps to have trusted advisers around you who will tell you the truth, but most of all it requires a level of self-reflection that not all of us have. I’ve seen the inability of many CEOs to see the truth cause great–and sometimes irreparable–harm to the very company they care so deeply about.

You’ve just reached your limit

But what if you really do have the skills to do the job and it’s far from the time to retire? However, starting and growing a business is so all-consuming that is some cases it can practically suck the life right out of you. At some point some segment of founders become exhausted or simply bored with the business. When this is true it’s time to refresh yourself by moving on to a different activity. Once you realize this, the path is pretty clear. The only caution I’d put forth here is that you shouldn’t act rashly, because once you’ve acted it may be hard to undo it. So give this decision a bit of time before finalizing it. Be especially cautious if you tend to be a decisive, fast-moving decision maker. This is a life-altering decision and it’s very important to make sure that it’s not just a vacation you need, rather than a complete life/business change.

And a few scenarios that aren’t as clear cut…….

An investor wants his to bring in his own man/woman as CEO

Here is one of my pet peeves: the VC or angel that wants to replace the CEO–just because. He/she only feels comfortable working with people that they worked with/made them money previously. Now you might say “it’s their money they’re risking, they can do what they want”. Maybe so. But I’ve seen the people brought in under these circumstances wreck good companies which were executing or were capable of executing very well. In my opinion, maybe these investors should start a company themselves if they need that granular level of control. Don’t get me wrong; there are many situations where the CEO needs to go, some of which are spelled out above. And the investor may be acting as a trusted adviser and in the best interest of the company. I’m talking strictly about the situation of wanting to replace the CEO due to lack of familiarity or “I always bring in my own CEO”. Unfortunately, this happens more often than it should. If faced with a situation like this and after an objective analysis (including outside advice) you believe you’re the best person to run the company at this time — move on to the next investor. Unless they are the last investor on earth–then you may need to reconsider!

You don’t want the daily grind of being CEO—but would still like to make all the decisions

If you feel this way it’s a warning sign it might be time to move on. Life may just be saying it’s time to do something different. But be careful–maybe you just really need a quick break, some time to reflect and refresh. Either of these is fine, but trying to have it both ways can be problematic. In my experience, removing oneself from the operations of the business more or less permanently, but still making decisions from a distance can lead to real problems. The person actually running the business on a daily basis is usually the one best positioned to understand the real needs of it. There is a rhythm to any business that needs to be listened to and felt, as well as all of the small details that pop up day-to-day which add significant information important to make optimal decisions. Companies are vibrant, constantly changing entities; wisdom ages quickly when you’re not intimately involved. In this situation it’s good to see if you can become refreshed enough to recommit as the day-to-day CEO. If not, it may be best to step aside COMPLETELY from the day-to-day decision-making; hire an new CEO and let them truly run the company.

You’re advised to add new talent/prestige with a higher profile CEO

This is usually a very bad idea, in my opinion. Now, there may be other extenuating circumstances such as those proposed above that should lead you to stepping aside. But just for the opportunity to bring in a talented individual — or even worse, a big name — it usually isn’t wise. This all assumes you’re capable and interested in running the company. If this is still the case, it’s almost inevitable that clashes between you and the new CEO will occur, because you probably haven’t really let go. In most cases this new CEO, no matter how talented or well known, won’t be long for the company. So think long and hard before you let go of the role prematurely if this is the rationale.

Those are my thoughts on what is likely a very controversial topic to some. What are your thoughts on the topic? Post a comment to fill us in.

Additional articles at Morettini on Management.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

Show your support

Clapping shows how much you appreciated Phil Morettini’s story.