Founder to CEO Transition: What Can Go Wrong and How to Make it Work

Ori Eisen | Leadership

Editor’s note: This is the fourth post in a series aimed at founders who are considering hiring a professional CEO to run their company. The author, Ori Eisen, is a member of Georgian Partners’ Advisory Board. As the founder of 41st Parameter, the leader in online fraud intervention, he underwent the founder to CEO transition himself prior to selling the business in 2013. The previous post in the series was on how to hire a CEO. To start at the beginning of the series, click here

If I had to guess, I’d say that founder-CEO relationships fail nine times out of ten. That may seem kind of shocking — how could two educated adults working toward the same common outcome be so unsuccessful? — but based on what I’ve seen in my career it’s true. The important thing is to not only recognize this, but also understand why it happens.

I think there are two interrelated reasons.

The first is pretty simple: sharing is hard. It’s no easier for adults to share responsibility for their successes and failures than it is for kids to share their toys in the sandbox. Of course, when you get right down to it, one of the most difficult things of all to share is power. Unfortunately, when it comes to hiring a CEO, that’s exactly what you and your new CEO will have to do. When the CEO takes the reins of the company, he or she has to share power with you the founder, and vice versa. That dynamic alone probably accounts for most of the reasons why these relationships fail so often.

The other big issue has to do with expectations (often around how to wield power).

When you’re a founder who’s in the throws of hiring a CEO and everything’s moving at a fast pace, it can be easy to overlook asking certain basic questions. Likewise you may never find the time for important exchanges — at least not to the extent that you should. That can be a real problem and one that can easily open the door to misaligned expectations. That’s why to maximize your chances of making it work, you’ve got to talk to your potential new CEO about expectations before extending an offer.

Any time you have a conversation about expectations, the most important topic should be values since both your values and the values of your new CEO are inevitably going to be reflected in the company and the way it’s governed on a day-to-day basis. For example, you and your CEO should be completely aligned on how to hire and fire talent, what your processes are, what the company’s dress code is, and even what the hours of operations should be. Trust is another important value to discuss. Is it something that must be earned or that you automatically give someone until they lose it? These are just a few examples from a much larger list of considerations that you have to discuss in terms of values and expectations.

If you stumble upon any critical misalignments when talking to your potential new CEO, don’t simply brush them off. I guarantee they will resurface when the CEO starts, and if you have a sense that you may not like something now, you definitely won’t like it later. That’s why it’s so important to make sure that you both agree on:

  • Values
  • What you’re each going to do alone and what you need to report back to each other
  • What you’re going to do together
  • What you need to discuss and be aligned on before doing

Let the CEO know during the interview what bothers you, what you don’t care about and which lines can and can’t be crossed when discussing your values and expectations. Unless you have this open and very direct conversation, nothing can spare both you from the potential aftermath. On the other hand, if your new CEO knows what bothers you and what the boundaries are, it can help that person better navigate working and sharing power with you.

Importantly, don’t assume that your potential CEO knows your values and thoughts. After all, do you really know know theirs? Instead, take the time to learn about each other so that you can work together more effectively and avoid some unnecessary conflict. Doing so will make it easier for you to not only share power, but also lead your business to greater success.

Like what you’re reading? Check out the next post in this series around the founder to CEO transition, which focuses on what your role becomes once your new CEO is on board.