Business Management, Entrepreneurship, SME businesses

When the Founder must Leave the Business

During the Easter holidays in 2016, I got a strange and challenging call from a friend that has been running a particular business for the previous 12 years. He called to seek my opinion about an important issue – he wants to exit his role as the CEO of his business by appointing one of his managers to run the business without any interference from him. Since I was aware that he owns over 75% of the business along with his spouse, I was confident that it was not an issue of board politics from other investors in the business, since he can easily vote out the minority investors. Definitely, this was not the type of advisory that I was ready for, so I requested that we meet over lunch the following day.

The lunch meeting started with a general discussion as to when is the appropriate time for a founder to leave a business. We wanted to ensure that we eliminate any emotional sentiments and bias in the discussion of his own peculiar situation. We agreed that an entrepreneur should leave a business anytime someone else could do a better job. We also agreed, based on several leading thoughts from experienced scholars and managers, that the managerial skills required for a start-up or growing business are usually not the same as the required managerial skills for a matured or plataeued business.

The key take-away from me from that meeting was that the entrepreneur could easily get bored when the excitement and the unpredictable nature of issues surrounding a start-up or growing business starts to decline once the business reaches maturity stage. This boredom could also possibly lead to unnecessary frustration with self and sometimes, with the team. This boredom could even lead to damaging behaviours such as “trying to fix things that are not broken”.

As the business grows, the founder might be unable to keep pace with the various ongoing activities across all the functional units – operations, HR, Finance, and Sales, in addition to managing relationships with stakeholders such as customers, vendors, banks and shareholders. Therefore, the continued involvement of the founder may even slow down the decision making process of the company as most, if not all, the key decisions might still require the consent of the founder.

I have heared of a founder and CEO of a company with annual revenues exceeding NGN 1 billion, that still insists on reviewing expenditure of NGN50,000. This causes vendor payments to be delayed for several months and thus leading to loss of key vendors. The continued involvement of the founder in routine and insignificant tasks and activities, will obviously also have a negative impact on the founder’s ability to lead innovations and formulate business strategy – the real role of a CEO.

Let me get back to my friend’s story – we agreed that the critical issue is the selection and appointment of his successor. He then agreed to go and clearly document the key job responsibilities (KJR), the overall corporate objectives, key success factors (KSFs) and key performance indicators (KPIs) based on his own experience over the years, so that the successor’s performance can be easily monitored and assessed, while he takes a somewhat uncomfortable back-seat in the day-to-day management of the business. The process took about seven months, but one of the senior managers was selected and appointed as the CEO.

Fast forward to almost two years after that change of guards at the company, there has been a significant growth in sales and profitability of the business. Guess what? My friend confessed that some decisions that the new CEO took which were primarily responsible for the amazing business performace were decisions he would have rejected if he was still the CEO. So, exiting the CEO role as an entrepeneur could be the best decision for a business venture.

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