Visionary tech founders aren’t always synonymous with experienced SaaS enterprise leaders. For every founder turned CEO, there are ten times as many early-stage founders who don’t have the executive experience to scale their idea from startup to IPO.
In fact, Dr. Noam Wasserman, a longtime Harvard Business School professor, conducted a survey of 212 American start-ups that sprang up in the late 1990s and early 2000s. He discovered that most founders surrendered management control long before their companies went public. By the time the ventures were three years old, 50% of founders were no longer the CEO; in year four, only 40% were still in the corner office; and fewer than 25% led their companies’ initial public offerings
Of course, there are exceptions to this rule—recent data tells us a different story.
Among all the unicorns founded in the past 16 years, 65% still have the original founder as the CEO. Of those which were acquired or had an IPO that valued them at over $1 billion, 73% were founder-led at the time of the acquisition or IPO.
That’s why many fast-growing companies are now bringing in professional CEOs—not to replace founders, but to bring the experienced business leadership necessary to drive disciplined growth, allowing founders to focus their full attention on making their product great as the business scales.
When to hire a professional CEO
While founders bring the core vision, hiring a professional CEO is about unlocking the potential of a company. Most founders are more product-oriented, and are great at the evangelist sale, but they need help building a GTM engine. They need to get a replicable sales motion in place that drives growth—and by extension—the valuation of the company.
This becomes increasingly important at each growth stage. As a company reaches its next inflection point, a CEO has to make decisions about the next stage of scaling, including which systems, processes, channels, and products need to be implemented.
But, as every investor will tell you, it also includes the executive team. (i.e. are they the right people going forward?) And this includes an honest appraisal of the CEO themselves. Do they have the skills, experiences, and capabilities to drive growth at the next stage? Do they want to take on the challenge of leading a company that's looking to expand?
As CEO, I am ultimately responsible for 5 things:
1. Creating and evangelizing a winning strategy by answering the two-part question: “What business are we in” AND “What business are we not in”?
2. Shaping the values and standards of the organization
3. Building and leading the executive and leadership teams
4. Managing board/investor expectations and interactions
5. Allocating capital; balancing sufficient yield in the present with necessary investment in the future
And finally, overall results.
If a founder is spending more time on planning GTM moves and managing a large team than they do using their core skills and talents to optimize and innovate the product, it may be a good time to bring in a professional CEO, COO, or other executives. Sometimes, a fresh perspective in the C-suite is exactly what’s needed to drive success.
Is now the right time?
Of course, that doesn’t mean every startup should immediately hire a professional CEO. Transitioning from founder to CEO too soon risks stifling the energy and flexibility needed by early-stage startups.
As a company grows, though, it needs different things—new systems, more money, more investors, more customers, and so on. At each stage of the company’s maturity, the founder/CEO should ask themselves whether they’re truly thrilled to lead their company forward and whether they have the skills needed to do so.
The goal of any company leader is always to achieve alignment between passion, interest, and capability. Early on, passion takes priority, because you need that raw energy and willingness to pour sweat equity into your company to drive it to the next level. Later, though, you’ll find that specialization becomes more important.
But waiting too long to make the transition poses its own problems. You could find yourself missing important opportunities or putting your company on the wrong track. I often find that the Series C funding stage is the sweet spot for hiring a professional CEO, because it’s the cusp between the growth/scale inflection points, and it’s the point at which companies typically get too big for the CEO to be doing anything other than running the company. That makes it the perfect time for founders to hunker down and lead product development while passing day-to-day management across to a new leader.
Balancing the Founder/CEO relationship
An incoming CEO should spend their time asking the following questions:
How can we double down on what we do well?
What’s the right GTM model to put into place?
What are the strategies, structures, roles, and responsibilities needed to support our GTM strategy?
How can we reinforce company culture to unlock growth?
Incoming CEOs must show they respect the work that’s already been done, and the unique culture that’s been built, even as they make the changes necessary to accelerate growth. As founders, meanwhile, it’s important to ensure you’re truly committed to your company’s growth, and that you’re willing to do what’s best for the business you’ve built. You’re used to hiring the people who are right for the specific roles you need to fill—now it’s time to ask whether you yourself are the right person to be CEO, or whether your talents would be better leveraged elsewhere in the organization.
The real kicker is decision-making: how does the company understand who’s going to make what decisions? Clear communication between executive teams and across the organization is vital as you look to the next chapter in your company’s story.
Bringing in a CEO isn’t a demotion
Be honest about the stage of your company and which growth levers you can pull to get to the next level. Technical founders who aren’t as well versed in GTM or other business-facing functions need to ask whether a more experienced manager could help unlock new pathways to growth.
The key, for both founders and incoming CEOs, is to put ego aside and remain fiercely committed to making their company the best it can be.