Every founder dreams of making it big.
Stories about struggling entrepreneurs who turned their startup into million-dollar businesses have captivated the industry for years. But what founders rarely talk about is what happens when they’re asked to leave the very company they helped create.
“The interesting paradox is that when founder-CEOs do really well that also increases the chances that they’re going to be replaced.”
It may sound counterintuitive, but starting a company doesn’t guarantee a job for life. Founders are forced out all the time. Entrepreneurs behind some of today’s most-talked-about tech enterprises — like Steve Jobs (Apple), Jerry Yang (Yahoo) and Andrew Mason (Groupon) — all found themselves pushed out at one point in their career.
Getting the red slip
Interestingly a founder’s early success can play a crucial part in their firing. As startups grow, they often bring on more investors. These investors end up on the board of directors and can make management decisions about hiring and firing.
In fact, a study by Noam Wasserman, a professor at the University of Southern California, found founders rarely last. On average, four out of five entrepreneurs are forced to step down or removed from management. By the time startups reach the three-year mark 50 per cent of founders are no longer CEO. By the IPO fewer than 25 per cent still lead their company.
“The percentage of founder-CEOs who ‘go the distance’ is extremely low,” Wasserman explains.
“People like Bill Gates and Larry Ellison, who are able to lead their companies for quite a while, get all the attention because they are rare.”
Plan for the future
There aren’t any steadfast rules for founders who want to stick around, but here are three things that can help.
Ryan Howard, ex-CEO of Practice Fusion, was fired twice from his own company. He suggests entrepreneurs plan ahead in case one day they’re forced out too.
It helps, he says, to tackle the uncomfortable ‘what ifs’ by hiring a lawyer who can help, he explains in Fast Company. “That attorney can help draw up an employment agreement for the founders. [It] might include things like accelerated vesting and a severance package.”
Don’t give up too much control
Another way to prevent being pushed out is to properly vet board members. Ensure new members offer value, share the same vision and future plans for the company. By doing this, founders can spend less time worrying about being ousted and concentrate on work.
“Founders get fired when they’ve turned over majority control of their company to others in exchange for working capital, and the investors lose faith in the founders’ ability to create value” shared Ian McCullough, engineering manager for Uber.
Grow with the company
Changing with a company is crucial. Like everything in life, it can take time for entrepreneurs to get accustomed to a new environment. Founders that can grow with their team and adapt have a better chance of lasting.
“If you are a founder that constantly questions yourself as well as your business then the founder concerned is better positioned to carry on making the right decisions for the business,” explains U.S. VC Guy Lewis.