In this post I’d like to examine a delicate subject, always present in every business, but particularly tricky in family businesses – When is it time for a founder to step aside?
It’s not always an age related retirement issue. Recently we’ve seen the young CEO/founder, Parker Conrad of Zenefits pushed out by the Board. Several years ago, there was also the public firing of the relatively inexperienced, Andrew Mason, founder and CEO of Groupon. So when is it time for a founder to step aside? This question was asked at the time of the Groupon debacle, by the FT. The answers by an investor, a current CEO and an academic were helpful and can be summarized as:
- When someone else can do the job better.
- When the best interests of the company are not being met.
- When the founder has moved way beyond his level of competence.
Now let’s relate these thoughts to a family business. In Part 1 of this series, I recommended aligning shareholder objectives with corporate objectives. Well this issue is probably the most important example. If the founder and CEO wants to continue but the corporate objectives are not being achieved, how can you move forward? Who is going to tell father?
Well every situation is different. Is the CEO/founder the major shareholder? Does he/she own greater than 50%? Is the business dependent on the CEO? There are many diagnostic questions required to establish the facts, and therefore the best way forward.
So let’s simplify the scenario by assuming the CEO/founder wants to stay on but the rest of the family/senior management think it’s a bad idea!
How we do solve this problem? First of all you need to bring in external help. That help needs to be credible. The founder needs to believe that the external advisor, has been here many times before and ideally has run a number of significant businesses. My secret sauce to solve this problem involves five simple steps.
- Meet with everyone involved to understand the issues, the politics, and the history.
- Conduct a Discovery audit to get the facts on the table.
- Persuade the CEO to do a simple little test – The Founder’s Test.
- Ask the management team to complete the same test based on their views of the business and the CEO.
- Recommend a best way forward.
The Founder’s Test I’ve developed is a strong guide to the CEO’s performance and state of mind. It’s not the only piece of evidence I use to influence the CEO/founder, but it’s key. 10 questions, 1 to 5 scoring. Scoring of 5 for a question suggests the answer is a definite yes. Scoring of zero suggests the answer is a definite no.
- Are you still passionate about what you do every day?
- Do you still believe in your story your web site is telling the world?
- Are you optimistic that your team and products can gain profitable market share over the next 3 years?
- Are you proud of your top five managers?
- Do you have their loyalty and support?
- Are all operational priorities aligned with the company’s strategic objectives?
- Is it fair to say that legacy products DON’T dominate the Sales line?
- Is it fair to say that no one customer accounts for more than 5% of annual sales?
- Is it fair to say that the business is not dependent on you?
- Do you spend at least 30% of your time acquiring and developing talent?
So what do the scores mean?
- 35 or greater, the CEO may well be the best person to continue to lead the business. It will depend partly on which questions scored low.
- Less than 35 and founders really need to bring someone else in to help them. We offer operationalize help, perfect for this specific occasion.
- A score below 25 means founders should find a new CEO. Again we support clients through this transitional phase, assisting in placing the right candidate in the role.