Get All Access for $5/mo

When To Fire Yourself, or Change Before You Have To More than 50 percent of founders are replaced by the third round of financing. Here's how to know if you'll be one of them.

By Jocelyn Kung Edited by Frances Dodds

Opinions expressed by Entrepreneur contributors are their own.

RUNSTUDIO | Getty Images

Successful founders often have a fierce, singular vision, and an unstoppable determination to will that vision into reality. I've coached many leaders who are programmed to be the smartest person in the room — and often they are. But there are downsides to this sort of zealous personal conviction. Founders' single-minded focus may inspire their company while it's getting off the ground, but as the business begins to grow, it may also discourage others from sharing their ideas. Too often, this results in missed opportunities, a diminished sense of agency and motivation among team members, and ultimately suboptimal performance.

Consider these sobering statistics from Noam Wasserman's research in The Founder's Dilemmas:

  • More than 50 percent of founders are replaced by the third round of financing. The traits and skills that get a founder to achieve success in the beginning often inhibit their progress once the company gains financial and market traction.

  • 73 percent of replaced founders are fired by the Board of Directors. Only 27 percent leave voluntarily. The fallout from these types of transitions can wreak havoc on a company.

  • 65 percent of start-up failures are caused by people problems, not business ones. They fall into 3 main categories: relationship issues, role and decision making confusion, and dissatisfaction with rewards (equity splits). While most start-up founders are exceptional technologists or entrepreneurs, they sometimes lack the emotional intelligence required to navigate interpersonal issues.

Surprisingly, a founder's best shot at staying involved with their company is probably to fire themselves. When a founder voluntarily steps down, she stays on the company board 96 percent of the time, or in a different executive role 37 percent of the time. If you want to grow with your company, you've got to know when it's time to step back, and make space for fresh, innovative leadership.

To stay ahead of this curve, the best CEOs can anticipate the following four pitfalls.

Related: 9 Signs It's Time for You to Step Down as a Leader

Know when your ego gets in the way

I'm not talking about a strong and healthy sense of self here. Your ego is the part of you that doesn't want to be wrong, or thinks you should be able to handle things yourself, or is unwilling to show any kind of vulnerability. If you find yourself talking (persuading, defending, justifying) more than listening, or canceling one-on-ones to spend time working on your own, or finding it hard to get others to open up, it may be time to look inward.

If you don't know it's happening, the problem is probably worse. Having done thousands of 360 reviews in my career, I can guarantee that every leader has blindspots that will derail them if they go unchecked. Leaders tend to either be curious and open to feedback or closed-off and defensive. If you're defensive, it will be very difficult for you to evolve as your company's needs change. If you are committed to continuous growth, it's vital that you actively seek honest feedback from all your key stakeholders. To ensure that you're getting the real scoop, doing a 360 review every year is a good practice. If this seems too painful or uninteresting, it may be time to consider moving into a position that doesn't require as much personal scrutiny, like senior technical or professional individual contributor roles. There's nothing wrong with making this kind of move if it's a better fit for where you are emotionally.

Loyalty can backfire

In the early days, founders tend to hire people who are close to them. But it can be hard to set boundaries— especially with friends, family, and prior co-workers. Everyone is in a flat, inner circle with informal communication and blurred social lines. Loyalty is natural and it can become difficult to make objective decisions or hold people accountable for performance.

I find that the biggest people-challenge that leaders face is confronting issues early and directly. When leaders make excuses for their people, work around problems to avoid difficult conversations, or express frustration to third parties, issues go unresolved and affect others on the team while they fester. If loyalty is holding you back from delivering hard messages and taking swift action, you may need to consider stepping out of your management role.

Related: Why Netflix Co-founder Marc Randolph Doesn't Regret Stepping ...

You're not the Chief Problem Solver

You are used to being the go-to person. Most likely you are the most knowledgable expert, the final word, and the most available, enthusiastic person on the team. But once your company grows to more than eight people, it becomes imperative that you build a team you can delegate to. The biggest mental hurdle is to switch from being the star player and on-the-ground decision maker, to being a coach with the "30,000 foot view." In this role, your personal success metrics change from having the answer to every question, to bringing out the best in each player and facilitating teamwork.

To move nimbly as a team, prioritize relationships first

There is a clear cut sequence to forming a great team and most leaders miss it. Staying ahead of the competition in an accelerating world creates an urgency to act fast. Interpersonal breakdowns and wasted efforts will significantly hinder your team's ability to move decisively and effectively as a group. To sidestep these obstacles, follow this 3 step dance:

  1. Resist starting with action planning; always build relationships first. Take time to set a baseline of trust so that people are aware of the humans around them and how to best work together.

  2. Create alignment (deeply felt agreement) around the three to five big outcomes the team needs to achieve in a specific time period. These outcomes always require cross-functional coordination and horse-trading, which is where breakdowns usually happen. Teams need this tangible destination to help them prioritize and sequence the many competing, potential solutions.
  3. Define tasks and take action. Now you can go fast.

The work involved in doing this can seem like a low priority compared to running the day-to-day plays. A successful founder CEO of a multi-billion dollar company that I coached over a four-year period used to say, "I used to tell people that I was a player-coach until I began to realize that there is no such role in sports. There comes a time when you learn that growing leaders is the most important thing you can do." He became one of the most successful founder-CEOs in the valley, and ultimately fired himself as CEO after many years to become Chairman of the Board.

A final word: The best leaders are trained observers of both their business landscape and the people around them. They value relationships as much as results. They keep tabs on their evolving motivations, strengths and weaknesses. They strike the right balance between conviction and curiosity — so they can change before they have to.

Related: Want to Grow Your Business? You Have to Fire Yourself First.

Jocelyn Kung

CEO of The Kung Group

Jocelyn Kung is a leadership and organizational coach who has worked with many of the world's top technology companies including Apple, Oracle, Microsoft, Cisco, Juniper Networks and 23andMe.

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

Side Hustle

This Mom Started a Side Hustle on Facebook — Now It Averages $14,000 a Month and She Can 'Work From a Resort in the Maldives'

Heather Freeman was searching for a way to make some extra cash — and her cousin gave her a great idea.

Starting a Business

He Turned His High School Science Fair Project Into a Product That Solves a $390 Billion Problem: 'This Has Not Been Done Before'

Vasya Tremsin was just 18 years old when he came up with the idea for outdoor fire sensor company Torch Sensors.

Business News

Why Does Taylor Swift Keep Stopping Her Shows Mid-Song? It's Actually a Great Lesson in Leadership.

Taylor Swift has paused nearly half of her shows while on the European leg of her Eras tour, and the reason is something leaders can learn from.

Business News

YouTube Takes on TikTok With New Tools: 'You Can Build a Business'

Though YouTube Shorts videos are brief, they still draw 70 billion daily views.

Business News

Melinda French Gates Says This Mindset Hack Helped Her Overcome Imposter Syndrome

Melinda French Gates said she faced (and conquered) imposter syndrome while working at the Bill and Melinda Gates Foundation. Here's how.

Side Hustle

This 26-Year-Old's Side Hustle That 'Anybody Can Do' Grew to Earn $170,000 a Month. Here's What Happened When I Tested It.

Stephen Alvarez was working at a dental supply company and following his passion for cars on the side — then an Instagram ad changed everything.