Startup Exit Strategies — Deciding on a Successor
Why CFO as successor is usually a bad idea
Like in any industry, you get good and bad. You get good doctors and bad ones, good hairdressers and bad ones, good lawyers and bad ones. I’m generalizing when I suggest that a CFO is generally not the best idea for a successor as CEO.
The moral of the story, however, is not that all CFO’s should be excluded from candidates for the next CEO to take over from the founder, and actually have a case study where one was a very successful choice, but that profit should never be chosen over purpose if you want to continue the energy and drive that made the startup a success in the first place.
Values For Success
In a previous post I discuss the four primary values which defines a successful organization in the age of the millenial, an age where happiness is the primary indicator of success and intrinsic motivation the main driver of productivity in the workplace.
The first and probably most important value being Purpose over Profit.
It means that profit matters, but purpose matters more. It’s why Simon Sinek says start with Why and why Apple outperformed Microsoft. It’s why Richard Branson seems to be loved by so many individuals. He’s not on the top 10 richest people in the world list, but he is by far the happiest and most balanced person I’ve seen in the business world and I haven’t met anyone who doesn’t admire him. The rest has lovers and haters, but Richard Branson seems to be loved by everyone.
Setup For Startup Success
More startups fail than succeed, as much as a 9:1 ratio in many reported studies. Startups seem to succeed only when there is as much passion as there are skills to make it happen. Without a founder breathing a clear vision of changing the world in some way and with a determination to see it through, most startups fail within the first year or two.
Passion is what makes a startup succeed in the first place, and naturally, the entrepreneurial spirit wants to move on and create something as new and exhilarating once maturity and financial stability has been reached. Letting go and moving on is a big part of why an entrepreneur embarks on the journey. Handing over the startup once it is a fully operational and profitable company is a necessary next step for any entrepreneur.
Giving Up The Baby
The question however is who to hand the hand-grown baby to? No mother would hand her baby over to just anyone, and in the business world, a startup is the baby given painful birth to and nurtured with endless patience and love until it could survive on its own.
Naturally, as founder, you would want to choose someone who you trust to take over the reigns. Naturally, you also would like to see the sustained profitability and success of the company and reap the rewards long after you’ve built it.
That’s why it seems such a logical decision to elect the CFO as the successor to a startup and why so many entrepreneurs make this decision.
Yet, making this choice means putting profit over purpose in most cases. The CFO’s job is to look after the monetary aspect of the business. Their focus is on cutting costs and increasing profits. That’s what they are passionate about, just as the entrepreneur was passionate about technology or a service or product or changing the world.
Profit? Or Purpose?
There’s nothing wrong with putting profit over purpose and in some cases might be exactly what you are looking for. But it is a signal for the culture to change from the high-energy startup where anything is possible driven by intrinsic motivation to the slow heaviness of a large corporate, governed by rules and regulations and red tape making decision making a long and painful process.
Inevitable, when the direction of the company is driven by profit, purpose and passion will be neglected to some degree. Exactly how much will depend on the team itself but ultimately, when profit is the driver the entrepreneurial spirit is sure to subside. And as the spirit subsides, so too ultimately will the profit, which is merely a result of the passion that created the product or service in the first place.
The Proof Is In The Pudding
There are many case studies proving the financial benefit of a motivated workforce driven by purpose rather than profit. Patagonia, a $600 million (in 2015) outdoor climbing gear manufacturer is one such example. Ironically, the CEO responsible for much of the success was the former CFO then COO of the company, proving that it is not the role, but the focus and values that matters.
Morning Star, another success story putting purpose over profit, is the world’s leading tomato processor who’s organization is built upon a clear vision of self-managing teams and environmental responsible processes. They care about profit, but they also care about the environment and empowering the employees.
FAVI, a brass foundry in France, has a vision of being customer focused and committed to sustainable development is yet another example of a company who puts employee happiness first and the list goes on.
The crux? Happiness matters.
Without purpose there is no happiness. Without happiness there can be no sustainable wealth creation.
Purpose, not profit, is the recipe for success in the age of the millenial.
More important decision factors to consider than profit is an aligned vision and aligned values. Most importantly, someone who cares about the people that you’re leaving behind.