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When a Founder CEO Hands Over the Reins

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Bill Gates. . ’s Fred Smith. Dave Thomas of Wendy’s. 


If the world had a hall of fame for founder/ chief executive officers, they would be some of its charter members. These innovators not only started high-flying companies but ran them for a long time, or still do.

They’re the exceptions, however. Here’s a more common scenario: Entrepreneur starts a company. Company grows. To take the startup to the next level, founder decides to surrender management control to a CEO from the outside but remain very involved as a strategic leader.

Moving out of the corner office can be one of the most gut-wrenching, yet important and necessary decisions a company founder makes.

I should know. My partner Chip Pearson and I started a tiny tech company while in our early 20s and built it over the last decade into a category leader with more than 500 employees and 6,000 customers. Last summer, we hired the company’s first outside CEO, Dean Hager, and moved out of the corner office. We remain as heads of product strategy and strategic relationships and continue to serve on the board.

A million questions go through your mind as you decide to make this transition. 

How do you really know when you’ve found the right person?

How will he or she win the hearts and minds of employees, some of whom have been with the company for years and share a ton of history?

How do you avoid the kind of founder-CEO relationship fail that has doomed so many of these arrangements through the years? (When you’re the incoming CEO of a company in the Apple device management business, as we are, the excruciating descriptions of CEO John Sculley’s relationship with in Walter Isaacson’s Jobs biography can be extra chilling.)

Mulling these questions can be terrifying.

Now you’d think the most grueling question would be when to hand over the reins. That can be a tough one, for sure, though in our case -- and, I suspect, in many others though history -- you just know. My partner Chip and I realized that the skills needed to start and build a company aren’t necessarily the same to grow it.  We were spending less and less time every year on what we’re best at -- product development in my case, customer and partner relationships in Chip’s -- and more on management tasks not in our wheelhouse.

Once the decision is made to bring in new blood, everything should boil down to two critical concerns:  First, the hiring process. Then, recognizing that the new CEO is taking on one of the most daunting challenges in corporate America -- running a company with still-engaged founders still in the building -- and that you need to help him or her be successful.

Here’s what we did:

Took our time.

Chip and I actually started talking about the move a year-and-a-half before we decided to pull the trigger and then took several more months for the search. Avoid haste. You want to be 100 percent certain the time has come to bring in a new CEO and then have an exhaustive process to get the right person for the job.

Related: What It's Like to Transition From Founder to CEO

Were open with employees.

Our employees knew for a good six months that we were doing this search. That gave them ample time to process the situation and express discomfort or any other troubling feelings. And it removed the possibility of the CEO coming into a shocked organization.

Related: How This Young CEO Made the Transition From Founder to Leader

Placed a high priority on cultural fit.

We decided right away we required a CEO who not only had the right qualifications but also was an ideal cultural fit. Our company prides itself on an environment of openness, transparency and supportiveness. The new CEO would need to respect and embrace that while also having the courage and smarts to determine where we can improve. And he or she must have strong ideas on how to maintain/evolve a special culture in a fast-growing organization.  A tall order.

Related: How to Transition Back to Employee After Being an Entrepreneur

Trusted our gut.

In interviews with the eight finalists (out of 75 initial candidates the search firm forwarded), Chip and I immediately took a shine to Dean because her came in with sponge-like knowledge about our company and, while he had terrific ideas, at the same time didn’t seem determined to run some pre-conceived playbook. He listened to us as much as we listened to him. We also had Dean meet with the rest of the executive team -- we believed it was important that they be bought in to him as much as us. (It helps to be lucky too: So happened Dean lived between Minneapolis and Eau Claire, Wisc., where we have dual headquarters.)

Established relationship ground rules.

It’s essential that the founder and incoming CEO have an ironclad assurance to maintain and nurture open, two-way communication. It’s inevitable that both parties won’t always be on the same page on every issue, but they must identify those matters, honestly discuss them and resolve them. We promised that kind of relationship with Dean. We also vowed not to step on his toes. “I’m going to stay out of your way unless you bring me in to a situation,” I told him. “If I see something going sideways, I’ll offer my perspective, not to stop you, just to make sure you know everything that’s going on.” And Dean wanted that too.

Taking these five steps helped Chip and me feel the utmost confidence that after years of blood, sweat and tears to grow our company, we were handing over the CEO reins to the right guy.

Chip and I now can focus on returning to the product development and customer relationship roles we love so much. 

This feels like the ultimate form of happiness for an entrepreneur.

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