This topic is always a hot one for founders when they are considering VC money!
Or indeed when they are talking with private equity companies.
I wanted to write about it as a very talented friend of mine was just “fired” after navigating the recession and raising a $30M round in this climate!
They fired him after he had worked his butt off for years and got his startup setup in a good position and then they replaced him with someone with less expertise and experience. All because of what sounds like VC politics…
I should say he has a great deal of experience, is mature and has worked in senior positions for the likes of fortune 100 companies– so this isn’t the situation where the founder is too young, dumb or lacking core expertise at all.
So what’s so dumb about this other than the obvious then?
Well in my personal experience (where I fired myself and brought in the “grey hairs” to replace me as CEO) is that the “heart and sole” of a startup is the founder(s) and their energy, determination and culture.
If you rip that out at the wrong time, as I did with myself, then you cause chaos, people leave, you “get execution lag” where the new person has to come on stream and you also lose credibility with customers…in many cases!
Most importantly, many of the core people in a startup are there because they are following the founder and they believe in that “person”, if the founder is killed then all those folks will get very nervous and will consider leaving. That’s the case in my friends startup, core technical expertise essential to the Company joined because of him and now they are seriously considering their options.
In my case, I convinced staff to stay but the new guy went on a bunch of ego trips from overspending, to not reacting to market conditions and reducing costs (i.e. their salary) for example – why not? – it’s not their baby and not their money!! The founders will do anything and everything to keep the baby alive: if it means 6 months no pay then so be it, ramen soup 3 meals a day, then OK…anything to win. You will never get that with outside talent as they will not have “founder fever”.
When I ran the startup we had a great company culture but we had holes in the carpet as I didn’t waste the money on replacing it. I preferred to run “lean” and only spent where the funds were most need like technology in this case.
Now, as with any example, there can be good reasons to replace the CEO/founder at the right time. Often if the founder is very technical and needs the expertise of a CEO and they can work that out and accept it then great. But in that case you have positive agreement and you keep the goodwill in the company as it grows, all very sensible.
So to finish my rant, one: be careful when you take VC money they can and will fire you if they feel like it; two: try and make yourself replaceable over time anyway then you will be able to scale and move on if you so wish; three: be very careful both legally and in the culture to make sure you don’t get killed if you value your Company’s future!
In my opinion you are taking the very lifeblood of a startup out of it when you mess with the founders unless you are very, very careful and make the whole process positive. Startups are already fragile “babies” early in their lives and it doesn’t take much to kill one, firing the founding CEO is like dropping the baby (startup) on it’s head…not a great idea.
I don’t know the stats on what happened to companies where the founder was forced out but I am guessing they don’t look very good at all…(a bit like most VCs returns that do this sort of thing!)
Here’s a great video that covers some of this topic and explains why Facebook CEO Mark Zuckerberg does not step down even though he is young and inexperienced!