Three years after founding Google, Larry Page and Sergey Brin hired Eric Schmidt, who led the company for a decade as CEO.
It was an incredibly smart move. Page and Brin understood that, in order to grow a wildly-successful company, they needed the leadership from an experienced CEO like Schmidt.
While this strategy doesn't hold true for every company, it is important for a CEO to know when to step aside. In fact, company founders often aren’t the right people to run the business once it starts to grow. That’s because a more mature enterprise usually needs a leader at the top with seasoned management skills —something the individual who started the firm might not have. Page and Brin got this.
Unfortunately, many owners don’t understand this fact of small business life. “Typical founders hang on way longer than they should,” says Les Trachtman, COO of Force 3 in Crofton, Maryland, who has served as the replacement CEO at four companies. The consequences of not letting go can include everything from lost sales to heavy turnover.
If you’re a founder, you need to recognize the four telltale signs it’s time to replace yourself.
1. You’re burned out...
...and can’t snap out of it. Many entrepreneurs find the startup phase exciting, but are less enthusiastic about what seems to be the more mundane process of running a more established company. As a result, they begin feeling increasingly less energized by their role as time goes by. And, despite their best efforts, they just can’t rally. “If running the business no longer excites you, it’s time to step aside and bring in some fresh energy,” says Ken Gaebler, who heads Gaebler Ventures in Chicago.
2. You lack the right skills to make your business plan a reality
Certain skills are needed to manage the growth of a company after a certain point—and you may just not have them. For example, if the business plan focuses on expansion through a series of acquisitions, and you lack experience in that area, you probably aren’t the best person to lead the company anymore.
3. You can’t get funding
“At a certain stage of growth, founders often aren’t attractive propositions to investors,” says Trachtman. For that reason, you might find it’s become harder to win funding from outsiders who want more seasoned management at the helm.
4. Snafus are out of control
The most telling indicator it’s time for you to go is a continual series of business problems. That can mean anything from customer defections to employee resignations or delivery mix-ups. If, after investigating the situation, you can’t get to the bottom of the problem, you need to consider whether you’re the cause. Gaebler points to a typical example: a founder who had a habit of over-promising to customers. The company was able to get by initially by scrambling to fulfill orders. But, as the company grew, manufacturing operations had a harder time meeting demand—and profits were squeezed. “You can get away with certain inefficiencies when you’re small,” says Gaebler. “But as you get bigger, you can’t make up for them anymore.”
What to do about it
Write a job description for your replacement. To ensure that your new CEO is the right fit, you need to make sure everyone understands just what the job will involve.Then run it by trusted advisers—preferably those who own businesses themselves—to get their candid, objective opinion.
Decide whether you want an internal or external replacement. It's best to bring in someone well ahead of time and groom that person to be your successor. But, if you haven’t done that, then you should determine whether or not to choose someone from within the organization. While there’s no set answer to that question, says Trachtman, “Outsiders aren’t always as sensitive to the politics of a founder-based organization.”
Still, hiring from the inside isn’t always a guaranteed success. Gaebler points to the owner of a professional services business who chose the head of sales to take over as president. But, the founder soon discovered the man was unexpectedly abrasive with employees, causing a rash of resignations. The founder ended up replacing his replacement with another insider, who worked out well.
If you decide to hire from the outside, says Trachtman, “Try before you buy.” That means hiring somebody, explaining that the individual might take over your role, but first has to show he or she is a good fit.
Lastly, get out of the way. Once your successor is on board, step back. That might mean leaving the organization entirely. If you do stick around, hold your tongue. “Nobody wants to be hired to replace you and then have you micromanage their every decision,” says Gaebler. “Once you transition control and power, you have to keep your mouth shut and let them make their own leadership decisions.”