Do Good Entrepreneurs Make Good CEOs?
Millions of entrepreneurs start their businesses with a picture-perfect dream and a checklist: Launch the business, direct the business, hire the team, reap the profits and retire as a multi-millionaire.
And, because most founders are passionate and enthusiastic about their idea, they plan on being the one to oversee its execution.
But the day-to-day management of a company is a CEO’s job, not an entrepreneur’s (necessarily), right? So, will an entrepreneur automatically make a good CEO?
Defining the difference
Entrepreneur, CEO, businessperson and manager are four terms often used interchangeably, since many of the roles and responsibilities among these four titles overlap. An entrepreneur, however, is in charge of building a business, often from nothing, while a CEO is in charge of running a business once it’s already built.
"Businesspeople" can serve any role, provided they have a tendency to seek opportunity and profitability, while the title of “manager” can describe anyone who oversees other people.
Entrepreneurs, meanwhile, tend to have skills focused on coming up with new ideas, pitching to investors and building a business infrastructure with limited resources. CEOs' skills focus on maintaining and growing a business once it’s already been established.
Both need to manage other people and secure profitability, and both can serve as a figurehead for their respective businesses. But, beyond that, you can probably already see some crucial differences in training and skill set.
So, the question becomes, how can those differences affect an entrepreneur’s or CEO’s impact when he or she leads a business?
The case "for"
Let’s take a look at the case for entrepreneur CEOs:
There are many examples of successful entrepreneur-CEOs. In today’s marketplace, there are many examples of companies whose original founders became CEOs and led their companies to success.
Take Amazon, for example, which was founded by Jeff Bezos in a garage when he was 30. Today, that garage guy is now bringing in $61.09 billion in annual revenue. Bezos is also now overseeing 97,000 employees.
Another example? Consider Larry Ellison -- a college dropout who founded Oracle without much experience -- and someone who only stepped down from being CEO in 2014. So, anecdotally speaking, entrepreneurs can serve as good CEOs. In addition:
Entrepreneurs know their business intimately. Will Schroter, founder and CEO of Startups.co, has estimated that it takes at least four years for a startup to generate enough momentum to become a “real” business, and between seven and 10 years to become a real success.
CEOs who move in after a startup is established, therefore, miss out on the company history that an entrepreneur knows intimately; as such, they need to learn about the company from scratch; and that often means missing key details that may be important to the company’s future development.
Entrepreneurs are in it for the long term. Ben Horowitz, of Andreessen Horowitz, has explained his philosophy that founder-CEOs are better than professional CEOs in part because they’re totally committed to the long-term success of the company.
Professional CEOs, on the other hand, want to lead a successful company, and if they find a better offer, they may be inclined to jump ship and pursue it. Founder-CEOs don’t want to lead just any company -- they want to lead their own company, and that fact makes them naturally more committed.
The case "against"
Next, what about the arguments against entrepreneurs as CEOs?
Entrepreneurs often don’t have training. CEOs typically need to have a business degree, and years of experience in leadership and management. An entrepreneur can feasibly launch a startup with little more than a good idea and a strong pitch to investors.
Yet, though there are exceptions, entrepreneurs often aren’t as skilled, focused or experienced as their professional-CEO counterparts, which naturally makes them less effective leaders.
Entrepreneurs struggle with change and hard choices. It’s feasibly a good thing that entrepreneurs are passionate and enthusiastic about their own ideas, but it can also have negative consequences. Namely, if entrepreneurs are fixated on their original vision and original team, they’ll often be resistant to change.
They also have to make the difficult choices, and may find it tough to make the right ones when faced with an inevitable necessity to pivot.
Examples of successful entrepreneur-CEOs are the exception, not the rule. According to Noam Wasserman, author of The Founder’s Dilemma, by year three of a startup’s course, 50 percent of founders are no longer CEO, and by year four, only 40 percent are still active. Fewer than 25 percent of those who were their company's original founders are still around to lead that company’s initial public offering, Wasserman wrote.
This doesn’t explicitly mean that founders make poorer CEOs than their experienced counterparts, but it does present them with a difficult choice (the “dilemma” the book poses): Founders can either cede leadership to someone more experienced, or risk complete failure moving forward.
Ultimately, entrepreneurs don’t necessarily make good CEOs. Just because they’ve had an innovative idea and executed on it doesn’t mean they’re equipped with the training, skills, experience or even the mindset necessary to run a business.