Taking over from a founder-CEO: Why it goes wrong and how to get it right

Dude, you dropped the baton.

If you’ve ever been a founder, or worked in a thriving founder-led company you’ll know that the person who started it has a special and unique relationship with a company. It runs much deeper than their formal CEO job title and responsibilities.

Even in progressive, decentralised companies it’s as though there’s an umbilical cord between the founder and the initiative they started, from which a mysterious energy flows.

If a succession only happens at the level of the formal responsibilities of a CEO, and this deeper connection is not also given special attention there are some predictable and potentially disastrous consequences.

Fortunately it’s possible to make this deeper level part of the succession process, allowing the founder to truly move on in a way that’s natural for them, and for the incoming CEO to find flow in their new role.

A useful lens to look at the special role of founders

What follows might sound a bit mystical to some people, but don’t switch off. What I’m describing here is just a lens. It’s a metaphor, or way of seeing. I’m not saying there really are mystical forces at play. This lens was refined through conversations with hundreds of entrepreneurs and other founders, and it captures an incredibly insightful view of what’s going on beneath the surface.

The role of source

Alongside their formal leadership role as CEO, there’s a separate, vital role that a founder plays. Think of it as a creative and energy-giving role which holds the entire initiative together. Peter Koenig who has been studying this phenomenon for many years calls it the ‘role of source’.

There’s only ever one person in this role, even if there are multiple co-founders. The source is the first person who invested themselves in realising the idea at the very start. If you sensitively tune into the dynamic within an initiative or examine its history, you can identify the individual in this role.

Sensing the next step for an initiative as a whole

Koenig uses a metaphor that it’s as if there’s an ‘information channel from the universe’ about the initiative. The source alone is on the receiving end. Through this information channel flows the insight about what’s in and out of scope and what the next step for the initiative as a whole is.

In reality, this information comes from deep listening, as the source tunes into their own need or impulse which gave rise to the initiative; by listening to colleagues; and many other sources of information. Whilst it’s a centralised role, there is huge scope to tap into the collective intelligence of the whole group for insight. The key thing is that the source must host this process and take responsibility for it.

The role of source can be mistaken as that of an old school dictator, or ‘hero entrepreneur’, but a good source is more like a ‘vulnerable visionary’. When a source fully stands in this role, they develop a unique and deep sense of knowing for their initiative about what’s in, what’s out and what needs to happen next.

Finally, it’s important to note that the role of source isn’t appointed. You can’t have an election or formal recruitment process to decide who gets the role. It’s naturally occurring. Just like you can’t decide who is the mother of a child — it’s simply the person who gave birth.

Succession of the role of source

Just as the formal role of CEO can be handed from one person to another, the role of source can also be passed on through a succession process. When this happens successfully, the ‘information channel’ moves from the old source to a new source.

However, it doesn’t happen automatically when someone new becomes CEO. The role of source operates on a separate, deeper plane, and the succession of this part needs to be given special attention.

If the role of source hasn’t been considered, we can make some accurate predictions about what might go wrong. We can also cut through the confusion and blame which unfortunately follows a failed succession process. It’s usually nobody’s fault, there was just a lack of awareness about what was happening at this deeper level.

Let’s look at some scenarios which often play out.

When the new CEO doesn’t also hold the role of source

It’s very common for there to be a succession of the formal CEO role, but not the role of source.

If the incoming CEO is expecting to fully stand in their authority over the initiative, they will find it incredibly difficult. The founder, not them, will still be on the receiving end of the information channel. The highest level information about what the initiative is and where it’s heading won’t come to them.

The symptoms of a new CEO trying to take charge when they are not the source are predictable: Watch out for a drift towards either an overly authoritarian style in an attempt to exert their will, or a swing to the opposite extreme with endless consensus-seeking and watering down of the vision. I’ve seen situations where a company bounces back and forth between the two extremes with a succession of CEOs, never addressing the source issue.

In both cases it causes good people to leave and the focus on a clear, creative vision to which people naturally want to contribute is diminished.

The meddling founder

Sometimes an outgoing founder just can’t stop themselves from meddling after the new CEO takes over. They clearly haven’t handed over the role of source.

Watch out for a founder who says: I’m handing over to the new CEO, but I’ll always be the founder and I’ll stay on to offer guidance to the new CEO as they continue the journey. That’s a sign they aren’t ready to pass on the role of source.

Even after the new CEO takes office, other colleagues still look to the old founder when it comes to the deepest matters of getting clear on vision, values and high level direction. The new CEO struggles to find their place in the new order of things. They may well give up and leave (or be fired), blaming themselves or the old founder for the confusion.

The new CEO may also find themselves deferring to the founder for key decisions. That’s fine both if of them want that relationship, but in many cases they are not clear about it, and a power struggle can unfold.

The long-gone source

It’s fascinating to observe how persistent the role of source is. Even if a founder left the formal organisation many years previously, the role of source stays with them indefinitely if it hasn’t been passed on. They think they’ve left, but, using Koenig’s metaphor, the information channel is still connected to them and not anyone else.

This leads to the extremes of authoritarian or death-by-consensus leadership as already discussed. And it can also leave a power vacuum where others fight for dominance.

Interestingly, the outgoing founder can also find it difficult to fully invest themselves in new initiatives, or to switch off and enjoy their retirement. It’s as though a significant portion of their headspace or energy is still occupied by the initiative, even though they think they’ve left it. Sometimes they watch from a distance as their initiative loses its way. They can see what needs to happen more clearly than anyone else, but they are unsure about whether to intervene or how to do it.

A drift from creativity to a focus on money

The best companies are creative initiatives. There’s a creative vision to bring something meaningful into the world, to change something. As Steve Jobs famously said, ‘to put a dent in the universe’.

When a creative initiative is in full flow, with a source holding the space for the vision to be realised, it has a powerful force of attraction. It draws in the resources it needs including people and money. There’s a feeling of vitality.

When an initiative becomes disconnected from a creative vision, a focus on money often becomes the substitute. This can work for a while — years even — but as the company becomes less creative, it becomes harder to attract the resources it needs. The best, most creative people leave to start new ventures or join other companies which have more life in them. These creative people are are often replaced by high salary mercenaries who are themselves following the money, not a creative vision.

Over the long term, the focus on money can perversely make a company more financially precarious. Some of the best examples of this are once-vibrant technology superstars who become large, public companies. After the founder leaves, a new CEO tries to please Wall Street. Microsoft under Steve Ballmer was just like this. They dwindle, perhaps never to return to their former glory. Interestingly in that case, Bill Gates (the source) returned to Microsoft and appointed a new CEO, Satya Nadella to help him realise a creative vision once more. The company appears to have a new lease of life and it appears as though, finally, Gates handed over not just formal responsibility but the deeper role of source for Microsoft.

Notice how Facebook, Google, and Amazon (for all their faults) still have their founder-source in place and have remained wildly creative even at tremendous scale.

How to fix things when it’s gone wrong

The problematic symptoms to look out for are: power struggles; authoritarianism; death-by-consensus; a focus on money; a lost CEO; or a founder who just can’t let go.

In every case, the starting point to fix the issue is to look deeper than the formal org chart and identify who is in the role of source today. You can do this by investigating the founding story to identify who took the first risk to start the endeavour. Look to see if there have been any clear successions of the role of source in the past. When this happens, both the outgoing and incoming source remember the precise moment when it passed between them. If it’s unclear, it likely didn’t happen.

With a little experience of working with source, you can also learn to intuit who is the source simply by listening to people. It’s often not the person seen as the charismatic leader, but the more vulnerable person in the background whose voice seems to have more authority when they talk about the most fundamental issues of vision and values.

The source may well have left the organisation some time ago. It’s worth going to find them. When you explain what’s going wrong, they’ll often surprise you with their insight about what needs to happen next.

If the source can acknowledge themselves as holding this vital role, they can begin to take responsibility for it again. This might mean stepping back in operationally to provide critical guidance, or it might mean they can complete a hand-over of source to a natural successor who will take responsibility.

Whilst it’s not essential for the formal CEO to also hold the role of source, it can be simpler if that’s the case. If the new CEO didn’t also assume the role of source when they stepped up, the succession can happen later. They might need to be groomed for this role over a period of time if they are not yet ready. The main thing to focus on in this process is the long-standing values of the initiative. When the old source feels like the heir ‘gets it’ and senses they will take full responsibility, there’s a good chance they will willingly let go, and the new source can step into the role. It can feel like a special, almost magical moment which neither will forget.

How to avoid these problems in the first place

If you’re reading this in the run-up to a founder leaving, you can avoid any of these problems happening in the first place. Here’s what you need to consider.

When the founder moves on, one of two things needs to happen: 1) The outgoing founder fully hands over the role of source as well as the formal CEO role; 2) They agree with the new CEO that they will remain in the highest level visionary position and continue to guide the initiative, with the new CEO effectively being in a very high level operational role. The founder could also hand over the role of source to a third person who will provide this guidance to the new CEO.

Any greyness between these clear options will eventually result in the dangerous problems I’ve outlined.

It will only work if everyone directly involved is happy with the deal. Many incoming CEOs also want to take on the role of source and assume they will do so automatically, not realising it’s something separate. They may not be up for a senior operations role, and that’s going to cause problems if the old source doesn’t want to let go.

The key is to manage the whole situation in a loving and natural way. Nothing should be forced upon or away from anyone. Allow the new order to emerge naturally. If you can stay conscious and aware to what’s happening at this deeper level of source, it can all unfold graciously.

The power of ritual and ceremony

Ritual and ceremony are timeless artefacts of most cultures around the world. We intuitively understand the value of marking the human milestones, from births, deaths, wedding, birthdays and coming of age with ceremony.

The same is true for succession of source. It’s a natural moment to honour the deeply human rite of passage, when a creative endeavour passes from one person to another. To celebrate the loving transfer of something precious. It doesn’t have to be extravagant, just sincere and heartfelt.

Family businesses — the natural masters of source

Even if they haven’t worked with source as explicitly as I have laid out in this article, family businesses often seem to do it naturally.

When the grandmother retires, she knows she’s passing on to her granddaughter something more symbolic and important than simply some shares and a CEO job title. They naturally create some ceremony around the succession. Perhaps they take a walk together and sit on the same bench on a hill as grandmother did with her mother, the original founder, a generation ago. They talk lovingly about the creative initiative which is being passed on, and its timeless values. There’s a moment when they both feel like something energetically passes between them. The grandmother has let go. The new source is in. They are both changed by the experience. The company will enter a new phase, with a new vision, yet with the historical thread maintained.

How companies can last for centuries

Peter Koenig likes to tell a story about the oldest company in the world. It’s a firm of Japanese temple builders who have been around for a staggering 800 years. When someone in the current generation was asked the secret of building a company which can last not just generations, but centuries, their answer was simple:

“A business can last forever if it is passed from hand, to hand, to hand.”

Tom Nixon is a coach and advisor to creative founders. Contact him if you’d like help with your situation.

Tom is also the founder of Maptio, an online tool for consultants and their clients building self-managing organisations, and working consciously with source. Get early access to Maptio by registering here.

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