Excerpt from Eric Markowitz | September 8, 2011 | Inc.com
Entrepreneurs are often ousted from the companies they start. Management experts weigh in on why founder succession happens, and how you can avoid it.
In July, Etsy CEO Rob Kalin was moved out of the top spot at the handmade goods retail website he founded in 2005. It was a surprise shift for a founder who had been ousted from the CEO spot once before.
“Transitions are never easy on the people involved and the company that goes through them,” Fred Wilson, a venture capitalist and Etsy investor, wrote on his blog about Kalin’s departure. “But they are inevitable in any company’s evolution.”
So are start-up founders ill-suited to be CEOs?
Founder-succession is so common—other once-ousted founders include Apple’s Steve Jobs and JetBlue’s David Neeleman—that the country’s top management theorists study why entrepreneurs can’t seem to hold on to the reigns of their companies.
Noam Wasserman, a professor at Harvard Business School, has been looking at the subject of founder succession for nearly a decade. In 2003, Wasserman published his landmark study on the topic titled “Founder-CEO Succession and the Paradox of Entrepreneurial Success,” in which he examined the succession histories of 202 Internet firms.
The percentage of founders that stay on with the company for extended periods of time as the CEO are very low “especially in high-potential ventures,” Wassermen told Harvard Business Review in a 2005 interview. “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, not because they are typical,” he noted.
Part of the reason start-up founders don’t seem to make it long-term is “the paradox” Wasserman identifies in his study’s title. Wasserman explains that if a big firm performs well, the CEO will most likely keep his or her job—and be rewarded. But in smaller companies “when founder-CEOs do really well, that also increases the chances that they’re going to be replaced” with an individual skilled to manage the growth, Wasserman says. In short, it’s a lose-lose position for start-up founders; If they perform poorly they’re out, and if they perform very well, they’re out too.
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