If You Don't Want to Be Fired From Your Startup, Founders Should Remember These 3 Things Not being in alignment with your board can cause troubles even founders can't manage

By Clint Korver

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

hoozone | Getty Images

It's a sad reality, but many chief executives and company founders get fired. Even the great ones like Apple's Steve Jobs and JetBlue's David Neeleman get pushed out.

However, for any founder who wants to beat the odds and keep his or her position through the initial public offering and beyond, the best route to success is having a strong relationship with their board of directors.

It's tough for any chief executive to enjoy an extended tenure leading a high-potential venture, according to Harvard Business School Professor Noam Wasserman. Indeed, he says, "People like Bill Gates and Larry Ellison, who are able to lead their companies for quite a while, get all the attention because they are rare, not because they are typical."

Related: The Top 10 Most Beloved CEOs, Including Elon Musk and Mark Zuckerberg

Most chief executives, especially those running startups, think that managing relations with their board is as simple as hitting their numbers, whether that's growing the firm's valuation, increasing profit, revenue or market share. However, even a gifted leader who is beating performance targets can still get fired if she isn't in sync with the board on three things -- trust, risk and alignment. That's something I learned from Dave Strohm, who's seen it all while sitting on boards as a Greylock Partners venture capitalist.

Trust

Chief executives often miscalculate who on the board will trust them in different circumstances and, therefore, which board member needs the most attention. Imagine the case of a former engineer turned CEO with a board including a VC with a business background and a former boss who runs the engineering group at a major technology company. When making the decision to fire the startup's vice president of engineering, the CEO might think the VC would need more attention than her old boss. However, her old boss is more likely to have strong points of view on managing engineering teams and may even share a professional network with the VP. Therefore, the old boss may not "trust" the decision without being consulted in advance. The VC, on the other hand, is unlikely to have firmly-held engineering opinions and so is more likely to trust the CEO on this issue.

Related: More CEOs Are Being Fired for Ethical Matters Today Than Ever Before

Risk

Incorrectly assessing which actions are risky enough to bring to the board's attention can also cost CEOs their role. In the case of firing the VP of engineering, a CEO has three choices: Fire the VP and inform the board later, consult with board members individually in advance, or take the issue to the entire board to seek its input and approval in advance. The smart approach depends on the board's view of the risk entailed in this decision. For example, if engineering is not central to a startup's competitive advantage, board members are likely to view this as strictly a management decision that the CEO can make without board input. However, if the startup's edge comes from technology innovation, then firing the VP of engineering could threaten the company's existence and the board will likely want the opportunity to review the decision before it is executed.

Related: The 6 Most Important Roles of a Startup CEO

Alignment

When the CEO and board are not aligned on a decision, extra coordination becomes crucial. First, a CEO should work to have substantially similar goals as the board. However, this is not always possible. For example, entrepreneurs and VCs may have different views of what constitutes an acceptable financial "exit." A $40 million sale of a startup might be a life changing outcome for the CEO, but inconsequential to a VC's fund returns. Likewise, when it comes to raising an inside round -- new funds come from existing investors -- VC board members and CEOs often have different agendas. Simply stated, CEOs often want a higher price and existing investors want a lower price. The most amicable way to resolve this difference is to find a new investor to price the round, but inside rounds often occur when no new investor can be found.

Smart entrepreneurs create alignment by design before taking an investment. When Tom Chavez founded Krux, he was concerned he would have trouble convincing top tier venture firms to offer term sheets. His entrepreneur-in-residence status at renowned Accel Partners made them the "heir apparent." This status ran the risk of scaring off potential investors who viewed Accel as being in a privileged position to match any offer and win the Krux investment opportunity. Worse, if a top tier fund like Accel leads a seed round, the market expects it to lead the Series A if the startup is doing well. Yet again, Krux would run the risk of scaring off potential investors and face a Series A valuation set by an existing board member.

Related: Avoid the Founder's Trap in Your Organization

To avoid this misalignment, Chavez sought financing outside the "usual suspect" large venture firms in Accel's competitive ambit. Instead, he worked with my firm, seed stage-focused Ulu Ventures, and angel investors to raise a $2-million seed round to ensure early investors were aligned with his goals. The market would not expect any of these seed investors to lead Krux's Series A. Accel did eventually lead the Series A round, but through a competitive process allowing Chavez to assess the market price for his startup with the full support of his prior investors. By carefully managing alignment with both current and future board members, Chavez was able to stay the course through the firm's eventual sale to Safesforce for over $800 million.

Most CEOs are fired or leave their position between raising VC money and the eventual IPO of the firm. Research by Harvard's Wasserman reveals that by the time startups are 3 years old, 50 percent of founders are no longer CEO and by the IPO fewer than 25 percent still lead their company.

CEOs who want to avoid that fate should ask themselves when making all major decisions:

  • Will board members trust my expertise and experience in making this decision?
  • Will board members view this decision as posing great risk to the company?
  • Are my interests in this decision aligned with the interests of board members?
Clint Korver

Entrepreneur Leadership Network® Contributor

Managing Director at Ulu Ventures

Clint Korver graduated from Grinnell with a B.A. with honors in mathematics. He has a M.S. and Ph.D. from Stanford University in management sciences and engineering. He is managing partner and co-founder at Ulu Ventures, a Silicon Valley venture capital firm investing in information technology companies.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Related Topics

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

Here Are 3 Strategies Startup Founders Can Use to Approach High-Impact Disputes

The $7 billion "buy now, pay later" startup Klarna recently faced a public board spat. Here are three strategies to approach conflict within a business.

Science & Technology

These Are the Top 6 AI Threats to Your Business Right Now

The modern workforce is forever changed by artificial intelligence. If you fail to understand that we will all need to learn AI to some degree, you haven't been paying attention.

Diversity

As a Black Woman CEO, I Built a Remote Company Not Just to Save Money — But to Mirror My Commitment to Diversity. Here's How.

To fuel innovation and global success, you absolutely need diverse perspectives — and having team members all across the world with varying thought processes, life experiences and viewpoints is the key.

Business News

'This Can't Be True': Google Responds to Viral Hoax Claiming the Company Is Shutting Down Gmail

The fake news release started making its way around X on Thursday.

Business News

I Tested the 'Invest As You Shop' App to See If It Really Makes Investing Less Intimidating

Grifin is an app that tailors a user's investments to their spending habits. Now, the app is getting even more personal.