4 Out of 5 Entrepreneurs Step Down as CEO — Here Are 3 Things You Need to Do So You're Not One of Them. Navigating the journey from entrepreneur to CEO is a profound transformation, one that often separates visionary founders from effective business leaders.
- 1. Know when to evolve as an entrepreneur
- 2. Nurture leaders within the company
- 3. Build a sustainable business — don't just create a 'cash cow'
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Based on Noam Wasserman's The Founder's Dilemma, 4 out of 5 entrepreneurs step down as CEO, either because they discovered they weren't fit for the role or because investors ousted them from the company. This adds up to the notion that entrepreneurs rarely make good CEOs.
However, a recent study showed that companies with founder-CEOs were valued 10% higher during IPO. There's a premium associated with having the founder as the top executive when a company goes public.
Successful entrepreneur-CEOs, such as Jeff Bezos of Amazon and Larry Ellison of Oracle, led their companies to massive growth before stepping down as chief leaders. I started my entrepreneurial journey at a young age and eventually established Admitad in 2009, which has since grown to become one of the world's largest partner marketing networks, consistently reaching over 500 million customers globally every month. After years of growing the company and acquiring several businesses, we decided to consolidate all entities under the wing of a new parent company, Mitgo, where I currently serve as the CEO and remain the sole owner.
Here are my three key lessons for the transition:
1. Know when to evolve as an entrepreneur
Entrepreneurs and CEOs have distinct roles. Entrepreneurs are visionaries who create and transform groundbreaking ideas into successful, viable businesses. CEOs, on the other hand, execute the vision and build the infrastructure for the business to succeed, scale and adapt.
While many entrepreneurs can successfully grow their businesses, they often struggle to move beyond the entrepreneurial level of sustainability. To reach a larger scale, a startup needs a CEO. Embracing this natural evolution is essential for achieving true success.
To me, the realization came when I noticed a decline in our business's growth. We needed to transition to another stage of development and implement a management system.
Recognizing the need for change and having the courage to take action are vital aspects of leadership. To become a CEO, you must develop strengths in structure, organization, and delegation. It's a cognitive, proactive and deliberate process. It requires learning new skills, adopting new systems, and trusting others to make critical decisions.
2. Nurture leaders within the company
Entrepreneurs often start their journey alone. Even when a small team joins, the company structure remains informal, with founders taking on multiple roles. However, as the organization grows, entrepreneurs must relinquish some control by shifting from a hands-on approach to delegating crucial tasks to trusted leaders.
Becoming that thin throat for everything is not a good thing. To create something great, something bigger, you have to form leaders within your company. Nurturing leaders goes beyond simply assigning tasks to individuals. It involves creating a culture that values and fosters leadership qualities at every level.
As a CEO, you must empower leaders to make critical decisions, take ownership and drive the company's mission forward. Decentralization means letting go of a tightly controlled ship that relies on a top-down approach to decision-making.
Once you stop micromanaging every detail of the company, you can focus on larger strategies to scale your business and ensure its long-term success. To implement this principle, Mitgo now has business units led by specific individuals who act as CEOs of their respective units. They still report to a board but have been trained with the necessary skills to lead.
3. Build a sustainable business — don't just create a "cash cow"
It's normal for entrepreneurs to build a business to make lots of money. After all, who doesn't enjoy significant revenue and profitability? So, founders typically focus on quick wins, immediate profits and short-term gains.
But every visionary entrepreneur should embrace a deeper and more enduring concept: building a sustainable business. We need to build companies that are transferable and will continue to work even when we're out of the picture.
It starts with the legal. When the founder is gone, and they are the only founder, the company has no choice but to die. I want my company to live long after.
Building the legal foundations to make the business transferrable is just the start. As a CEO, you have to pave the road that others can follow without the risk of failure. This means putting signposts to guide them along a clearly designated path. It also means realizing that they all have families and that the decisions you make can impact them.
The leadership qualities of a good CEO
Entrepreneurs are born leaders. From an early age, they are inherently creative and possess the skills to make things happen. During the early stages of the business, they lead by example and play a crucial role in driving the team's success.
However, transitioning to a CEO role requires additional leadership qualities. Being a good CEO means acknowledging that you cannot do everything alone. You must delegate responsibility and empower the team to take ownership of their work. You must be receptive to feedback and listen to what others have to say.
In a constantly evolving business landscape, you must be willing to pivot when necessary and make well-informed and timely choices. You should also take accountability for the outcomes of your decisions and stand behind them.
Furthermore, you should continue to encourage a culture of innovation and proactivity. This includes promoting a forward-thinking mindset and staying on top of trends. As CEO, you must continue to seek out opportunities and address potential issues before they arise. Remember, you are shaping the future of your organization.
In the initial stage, you are the nucleus that holds the whole team together. At some point, you realize you can't do it on your own. You take people with good soft skills, teach them the hard skills and give them time to grow. You rely on them to help lead the company while you pursue strategies to grow the business. That's how you become a CEO.