A recent survey found that 9 out of 10 founder CEOs are replaced following Venture Capital (VC) investment. Discover the reasons they go and what you can do to make sure you're in the 10% that survive.
A recent survey by the European Leadership Programme (ELP) found that only one in ten company founders can expect to remain in charge of the business they founded following venture capital (VC) investment.
So what does this mean if you're the company founder and you're looking for investment? Should you be nervous?
The key is to know your own limitations and make sure you build a good team around you to compensate for areas where you are not so strong.
A VC will usually have performed significant investigation into the management team and especially the founder before they choose to invest, so you've already passed the first hurdle once you get investment. The investors want to believe in you and expect you to live up to their expectations based on what you've told them and what they've found out about you from their research. After you've been through this process it's unlikely you'll be let go because they don't like the shape of your head or you've upset the senior partner's wife, although that's not to be recommended. Ultimately it will be down to your performance and the performance of the business against the original plans and forecasts.
So what are the main reasons for removing a founder CEO and how can you make sure you don't get the chop before you want it?
1. They don't communicate
Your investor wants to know what's going on, whether it's good or bad. They don't like surprises, even good ones, as it implies that you as the CEO didn't know it was coming or chose not to tell them. And if the news is bad they definitely want to be notified in advance and hear what you're going to do about it. Communicate clearly and frequently and don't hide from bad news, just deliver it with a well thought out solution.
2. They panic
When you see the founder CEO looking like a deer caught in the headlights then you know it's time for them to go. Challenges and problems happen in business and they can be major. The CEO needs to keep a calm head and take clear, decisive actions to resolve the issues. Show you're in command and take firm control of the situation. If you bury your head in the sand then you'll end up losing it.
3. They don't live up to their promises
It's easy to get carried away when you're raising finance and promise all sorts of great results but if you can't deliver on them after the deal then you're liable to get the boot. Make sure you focus on what you said you would do, don't get distracted and stick to achieving what you promised. And be careful what you promise.
4. They make stupid decisions
This often comes back to the absence of a strong team. Founder CEOs by their nature tend to be strong willed and opinionated. This can be the key that helps them succeed in the early stages when it takes persistence and confidence to start the business. However, if you stop listening to your fellow directors or your colleagues are too timid to tell you the truth, then beware. You can easily end up making decisions that don't work for the company and everyone around you will just keep nodding and agreeing until it's too late. Recruit people you can trust as business partners who will be willing and able to give you a dose of reality when it's needed. And be willing to listen to them.
5. They're simply not up to the job
Of course no-one is going to believe this could happen to them. Again the founder CEO's ego is going to maintain an unshakeable belief in their ability to do anything and everything. If the business is going well and you've built a good team around you, then as long as you're playing a role that suits (inspirational leader, visionary product creator, deal maker, lead generator or operational champion) then there should be no issue about you remaining. If the business is struggling and you're obviously out of your depth then be brave enough to accept and admit it and be humble enough to support the business by bringing in people who can do the jobs you can't. There is no room in business to carry people who are not contributing, so find the best way you can contribute and continue to bring value to the business.
This can all be summed up by saying, build a great team with the right skills, communicate with the team and your investor, lead by example, solve problems with clear decisive action and listen. Do this and you're far more likely to keep your job and your company.
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