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Getting beyond start-up

One of the most critical decisions facing business start-ups is when and how to hand over the reins to the next generation.  This step often represents a shift from entrepreneurial leadership to professional leadership, and the consequences of the new appointment can resonate for many years.

New Skills Required

A founder-CEO will typically have been directly involved in inventing and developing the product or service proposition. The tipping point is often the step change required from proof-of-concept, to up-scaling and rapid expansion. This move significantly broadens the range of skills and competencies required for business success.  New initiatives can include the formalisation of sales and marketing, investment in manufacturing/assembly facilities, enhancing customer support, and the recruitment of additional key people. Inevitably, growth brings increased bureaucracy - the transition from less formal activities to more structured processes and procedures - and the need for greater functional expertise. The business can start to feel a little more grown-up, a little less personal, and simply bigger.

Ideally, the change in leadership will be implemented just before the change in scale justifies it. Getting this timing right is pivotal, enabling the business to evolve smoothly, accelerate momentum and maintain its competitive edge.

What will the Founder do?

Where the founder-CEO intends to remain associated with their firm, smooth succession in the leadership of the business relies heavily on identifying a purpose and ongoing role for the founder that keeps them as engaged as they want to be.  Answering this last question - How involved do you want to be? - is pivotal, but in practice is often difficult. Many founder-CEOs dream of life on the beach or the golf course.  Indeed it may be this very dream that has galvanised them through the trials and tribulations of growing their business.  But some quickly find that a life of leisure is a gilded cage, and yearn for the cut-and-thrust and self-validation that comes from business success.

The founder-CEO can play a vital role by providing continuity to the new regime, assisting in the preservation of the original vision and values; providing input to inventions or research & development; or maintaining and handing over key customer relationships.  However, they must give the successor-CEO the latitude, the autonomy and the support to act in the best interests of the business and its stakeholders.  As the founder-CEO is likely to be one of these ongoing key stakeholders, the new separation between management control and ownership (the governance) needs to be properly planned, managed and positioned.

However, the founder-CEO may well have developed strong interpersonal relationships with individuals that they recruited in the early days.  The successor-CEO will be less familiar with these personalities and will typically be less loyal towards them.  They will instead want to form an independent view of the respective strengths and weaknesses of existing personnel – and be free to replace or enhance capabilities to suit the next phase in the company’s development.  The communication and early enforcement of this new order is particularly crucial.  Frequently we have seen problems where staff know that the successor-CEO is now in charge, but they continue to go to the founder-CEO for direction, who may unwittingly exacerbate the situation by willingly providing it.

Smoothing the transition

Good successor-CEO candidates are, of course, alive to such risks.  They will undertake due diligence themselves to ensure that the mandate for change exists, and will not join the business if their hands are likely to be tied from day one, or if the scope of their authority is too narrowly focused. In almost all cases the chances of success are greatly enhanced by the presence of an independent Chairman, or non-executive who can help ensure a seamless transition, in particular by leading the recruitment of the successor-CEO, whilst ensuring the founder-CEO remains fully involved, but not necessarily in control of the succession assignment.

Finding the Successor-CEO

Wickland Westcott works extensively with founder-managed businesses – including those with external private equity backing. The assignment to find a successor-CEO begins with a wide ranging discussion to understand the background and history of the business, the vision and the key factors for success.  This determines not only the key skills and experience needed to manage the business today, but also the strategy required to develop and protect it in the future.  Prospective candidates can then be approached with an accurate, compelling picture of the opportunity.

Recruitment of this nature can represent a significant investment for a small company and getting it right first time is vital.  Regular communication, managing expectations and respecting agreed timelines with the client engenders trust and a sense of partnership develops as the process evolves. The use of psychometrics can deepen understanding of the key personalities involved, and can greatly increase the likelihood of a good fit between the successor-CEO and the business they are joining.

 

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