When To Fire a Startup Company's Founder-CEO
When should a founder be replaced as CEO of a venture-backed company? The topic is obviously a touchy one for a startup founder that brought early success to a company.
But while a founder might have been successful leading the startup to a funding event, can the founder also lead the startup to a liquidity event?
Startup company founder and CEO are two completely different roles. And although founders can handle both roles, that seems to be the exception rather than the rule. Startup founders tend to be young and thus lack true CEO experience necessary to bring the company to a liquidity event.
So when is the right time to fire a startup company founder-CEO and transition to a more polished CEO?
Fred Wilson, a venture capitalist and principal of Union Square Ventures, recently gave the following advice on his “A VC” blog concerning the optimal timing of the startup founder-CEO transition:
I’ve learned that nothing can replace the entrepreneur’s passion and vision for the product and the company. If you rip that out of the company too early, you’ll lose your investment. I think it’s best to wait until the initial product has succeeded in obtaining a critical mass of users and a business model has been developed that works and make sense for the business and is scaling. Then, if its warranted, you can sit down and have the conversation about bringing in experienced management.
(Read Fred Wilson’s “The Human Piece Of The Venture Equation” here.)
I also believe gaining traction with the startup’s user base and model should occur before replacing the founder CEO. If you replace the founder CEO before that happens, you probably removed the founder before the startup company fully-utilized the founder’s enthusiasm.
Of course, a founder’s incarceration would warrant removal earlier than the startup’s enjoyment of a scalable model. But that’s a topic for another post.
About the Author
Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. Click here to learn more about his practice.
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Please consider subscribing to The Startup Lawyer, following @startuplawyer on Twitter, or contact Ryan directly.8 Responses
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Dan says:
If you are the CEO and 51 % owner can you be fired or forced out by a investor, this not a publicly traded company?
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It depends on the board rights and other contracts you might have. Officers are typically appointed by the board and not the shareholders themselves.
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It depends on the board rights and other contracts you might have. Officers are typically appointed by the board and not the shareholders themselves.
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I like the block quote above. Caution should always be exercised in removing a founder. Think Steve Jobs. How different would the world be (or not) had he not been ousted in favor of Sculley in 1985? Ousting a founder is one of those tough early decisions that any startup will face.
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I like the block quote above. Caution should always be exercised in removing a founder. Think Steve Jobs. How different would the world be (or not) had he not been ousted in favor of Sculley in 1985? Ousting a founder is one of those tough early decisions that any startup will face.
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Ali says:
We are still in the idea stage, have put together a website and submitted provisional patent applications. We have not registered a company yet. We do not have clients or investors.
We are a team of 3 and one person does not do much work. There is always an excuse- the kids, the dog, the mother in law.
He did not contribute any money so far. If we fire him- do we need to pay him anything (we agreed on 33% ownership each)?
He is of course allowed to continue working on the idea as he is on the patent, but what about the rest? Can we just keep the website name- or is it better to change that too?
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We are still in the idea stage, have put together a website and submitted provisional patent applications. We have not registered a company yet. We do not have clients or investors.
We are a team of 3 and one person does not do much work. There is always an excuse- the kids, the dog, the mother in law.
He did not contribute any money so far. If we fire him- do we need to pay him anything (we agreed on 33% ownership each)?
He is of course allowed to continue working on the idea as he is on the patent, but what about the rest? Can we just keep the website name- or is it better to change that too?
If you are the CEO and 51 % owner can you be fired or forced out by a investor, this not a publicly traded company?