Firing

What Happens When Founders Are Fired

Replacements face a daunting task.
What Happens When Founders Are Fired
Image credit: Hero Images | Getty Images
Guest Writer
Chief Talent Officer of Strong Suit Executive Search
5 min read
Opinions expressed by Entrepreneur contributors are their own.

When a founder steps down from the company following its acquisition -- as David Karp recently did at microblogging site Tumblr -- it creates an urgent need for a leader who can bridge two worlds: digital native and corporate. It's a rare combination that, in my studies of "rock star" talent in high demand these days, won't be easy to find: a leader who can guide the company forward and, equally important, prevent other key people from leaving.

Related: Stop Calling Yourself the 'CEO' and Start Telling People What You Do

Entrepreneurial-minded founders don't enjoy spending their days in meetings, corporate presentations and strategy reviews. This talent tends to be action-driven and hard-headed and is likely to lose patience with playing the corporate game. (I know from personal experience, having left six months after my first company was acquired.)

Karp's departure from Tumblr, which he founded when he was only 20, follows a well-established pattern. Harvard Business School research has shown that founder-CEOs are often replaced precisely because their companies are successful. While Tumblr's data is closely guarded, its revenue is believed to be substantially in excess of $20 million.

On a broader level, Karp's decision to step down is part of the scope of leadership challenges that occur as entrepreneurial firms transition from one phase to the next. Founders who are so used to doing everything themselves -- product creation, sales, pitching to investors, managing stakeholders -- often need support in knowing how to navigate these transitions. That's why they need "hugs and kicks," as I call it: tough love and guidance from board members and advisers who help them stay motivated and understand the reality of what they're facing. That might have changed things for another founder, John Schattner of Papa John's, who recently stepped down from the CEO role, while continuing as chairman, after linking a sales slump at the company to NFL protests during the national anthem. The company later apologized for his comments.

Related: When and Why Co-Founders Should Stop Managing Their Company

Although it's well-known that startups benefit from having a board (typically, outside investors will insist on this), many entrepreneurs delay bringing in advisers. When a startup is successful, there's little incentive for the founder/CEO to undertake the time-consuming process of recruiting board members. Then there is the need to compensate board members in some capacity, which may mean giving away equity stakes, which founders tend to guard jealously.

Trusted advisers, though, can make all the difference. As a serial entrepreneur, I was fortunate at the age of 27 to have management consultant and bestselling author Patrick Lencioni as my executive coach -- it was literally life-changing. Now as an adviser myself, one of my key points for entrepreneurs (and for employers, in general) is about finding the right talent -- especially those who are stronger in areas where the founder and other key leaders are weak (for example, recruiting a strong No. 2 as a chief operating officer). I've found it's much more efficient for leaders to focus on their strengths than to expend so much energy trying to shore up their weak areas.

While some companies such as Google and McKinsey are strong recruiters, most employers are "sloppy buyers" of talent. Some 50 percent of new hires don't work out, a degree of inaccuracy that is inexcusable for anything in business. Compounding the challenge at digital/internet companies, it's a seller's market for talent today, particularly for highly in-demand specialties such as artificial intelligence. The most qualified "rock stars" can basically name where they want to go, what they want to do and how much they expect to earn.

Related: Why a C-Suite Shakeup Is Exactly What Your Company Needs

When the talent market gets really tight -- as it is now, the tightest we've seen since 1999 -- employers often default to hiring someone who is deemed good enough, rather than operate with an open position while continuing to recruit the right person. The problem is that hiring a "warm body," who is only a B- or C-player, undermines team performance. The existing rock stars will be the first to leave (and will find themselves in demand), because they want to be part of a winning team. It seems counterintuitive because maintaining a vacancy -- holding out for a top performer -- means the slack must be taken up by everyone else. But, the rock stars on the team will love it because they know their employer is being highly selective.

For entrepreneurial firms everywhere, the challenge is always building a pipeline of talent: Qualified candidates need to be developed ahead of time to succeed key players in leadership roles, as well as to manage functions such as sales and technology. No matter how many other "priorities" entrepreneurs have in growing their business, having the right talent must always be at the top of the list. Without the right talent, even leaders with the best ideas will be severely hamstrung in executing strategy.

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