The company began with immense energy and a sharp, focused vision, capturing widespread excitement. Now, as it approaches a possible IPO, the initial enthusiasm has waned, and performance has slowed, leaving future growth uncertain.
Could it be that the very individual who breathed life into the company, guided it through tough times, and inspired belief is no longer the right person to take the organization forward? Has the business’s complexity outpaced the founder’s skills or ambitions?
Research on CEO performance, including studies on the CEO Life Cycle, highlights a critical risk: delayed board action when a CEO struggles. The longer the board hesitates, the harder it becomes for the organization to recover.
Acting promptly to evaluate challenges, align with the CEO on vision and timeline, and mitigate risks posed by their limitations can often set things right. Interventions might include bolstering board and leadership team effectiveness, providing executive coaching, or adding experienced leaders to address skill gaps.
However, sometimes the board must conclude that a new CEO is necessary to propel the company forward. Such a decision should precede any glaring signs of dysfunction—one investor aptly notes that founders often step down about six months after the ideal transition point. Research shows that boards acting quickly during steep performance declines significantly improve recovery outcomes.
Common Founder Challenges in Early-Stage Companies
Several patterns emerge when founders encounter the limits of their leadership:
- The Technical Visionary: An engineering-focused founder who thrives in developing innovative prototypes but struggles to transition the company into a scalable operation capable of generating consistent revenue. A market-savvy leader may be needed at this stage.
- The Charismatic Leader: A magnetic founder whose personality attracts investors but falters when it comes to managing the operational complexities required for scaling. The charm that once energized the team may now hinder focus on execution.
- The Plateaued Partnership: In cases of co-founded ventures, growth stagnates as the team’s management rhythm fails to keep pace with scaling demands. The issue often lies not in individual departments but in an overarching lack of leadership cohesion.
Other signs that a founder may be out of their depth include missed projections, poor financial discipline, a lack of scalable processes, and unresolved tensions within the leadership team. Over time, these struggles create friction and erode trust, leading to internal discord and talent attrition.
Recognizing and Addressing Founder Limitations
Boards can identify early warning signs by maintaining strong connections with the leadership team, conducting 360-degree CEO assessments, and gathering unfiltered feedback from investors and employees.
Key indicators of founder struggles include an aversion to operational details, inability to scale leadership skills, and resistance to shifting away from early strategies that no longer work.
While interventions—such as coaching or augmenting the leadership team—can sometimes resolve these challenges, deeply ingrained issues, referred to as “founderitis,” may require decisive action. Founderitis, if unchecked, can have disastrous consequences, underscoring the board’s responsibility to act at the pivotal moment.
Managing the Transition to New Leadership
When replacing a founder/CEO becomes necessary, the process must be approached with transparency, sensitivity, and a clear plan:
- Define the Ideal Leader: Boards must articulate the skills and characteristics needed for the next CEO, considering the company’s current challenges and future goals. Strategic thinking, change management, and cultural alignment are often critical.
- Engage Stakeholders: Gaining buy-in from the founder and key executives is vital for a smoother transition. Highlighting the founder’s contributions while framing the new CEO’s role as essential for the company’s next chapter can ease tensions.
- Redefine the Founder’s Role: Transitioning the founder into a role aligned with their strengths—such as CTO, head of strategy, or board chair—can preserve their influence while reducing operational strain. Some founders may step away entirely to pursue personal interests.
- Prioritize the Search: Boards should dedicate resources to finding the right candidate promptly, ensuring alignment among stakeholders and maintaining clarity around the role.
- Facilitate a Smooth Handoff: Effective communication about the new CEO’s qualifications and vision is critical to winning the support of employees and investors. Ongoing mentoring and support from the board can further ease the transition.
Conclusion
When performance begins to falter in a founder-led company, proactive board engagement can redirect its course. Whether that involves targeted interventions or a leadership transition, addressing founder-related challenges demands candor, empathy, and a commitment to long-term outcomes.
By working alongside the founder to strengthen the leadership team, boards can honor their contributions while paving the way for sustained growth. This collaborative approach ensures the organization’s future and preserves the unique vision that only a founder can provide.
Join the Founders Meetings to explore actionable strategies, share best practices, and cultivate the support essential for thriving founder-led businesses.