A healthy amount of self-delusion is required to go down the startup path. My gut says that, while most entrepreneurs understand that the odds of success are stacked against them, most, at the same time, are certain they won’t be among the dead.
Another myth many entrepreneurs cleave to despite the facts is the notion that, in companies that do succeed, the founder remains the leader at the finish line. In truth, dear entrepreneur, even when your company does great, the odds are you’ll be fired.
Investment-backed startups are created to discover scalable businesses. New products or services follow no clear, obvious path to winning, otherwise success would be the expectation, not the exception. So startup success requires reasonable self-delusion that you will succeed, as well as the courage for the experimentation / rapid iteration necessary to adjust to the challenges of discovering the successful business nested in the founding idea. The great CEO at this stage will do things like coming in with the crazy idea of the day saying, “Let’s try this… can we ship it by tonight?” Drive, tenacity, creativity, flexibility, tech acumen, and market insight are the hallmarks of a great early stage leader.
This process of discovery can lead to breakthroughs, but it can also lead to many failed experiments. If the company runs out of money before a scalable business is discovered, most likely the company folds and everybody loses their job. Even if that doesn’t happen, it is possible that the board, while still believing in the company, will see execution or leadership as the problem, and fire the CEO, then put in new money to support a new leader. From the CEO perspective all of these paths lead to the same place… you’re outta there.
But wait, Brett… those are failure scenarios… I’m that 1 in 10! I discovered product market fit! I delivered on my mission! I found the scalable business! We’re winning!
Cool… You’re probably fired anyway.
Okay. Yes, you’ve done something truly amazing. You’ve lead people down a crazy path, likely engaged in some mixture of know-how, magic, luck, skill, and insanity, and came out the other side with a scalable business. It takes a particular type of person to do that successfully.
Unfortunately, that particular type of person is usually the exact opposite of the leader you want growing a scalable business. Growing a scalable business is more about efficiencies and optimization, much less about discovery. That same “crazy idea of the day” behavior that miraculously lead to discovering the scalable business is exactly what derails the consistency an organization needs, and what customers will expect. As the organization grows, process and management becomes necessary to handle the challenges that come with simply trying to get hundreds of people to work towards the same goal. The needs of operating a scalable business probably contributed to the CEO quitting their previous job and creating the startup in the first place.
Much like the CEO is responsible for ensuring that the executive staff has the best people for the needs of their roles, the board has the responsibility for ensuring that the CEO is optimally suited for delivering at each stage of the company. As the CEO and company experience challenges transitioning from product discovery to growth, it is a natural part of the board’s job to consider securing someone best suited for the changed CEO responsibilities.
It certainly is possible that the startup CEO has the rare combination of skills and perspective to transition through many stages. You can look at examples like Mark Zuckerberg, Drew Houston, Jeff Bezos, and Steve Jobs and, using that healthy amount of self-delusion, say “I’ll be just like them” (forgetting, of course, the first run of Steve Jobs at Apple). But if you look at all of the companies in the valley that have scaled successfully, you’ll find most had the founding CEO “step aside.”
Your gut response as a startup entrepreneur is likely something like, “I’m going to make sure that doesn’t happen to me.” However, I encourage looking at it a different way. This scenario happens. Live with it. Embrace it, even. You’re probably going to be replaced, and that’s probably okay. It’s better to prepare for the possibility rather than assume it can’t happen. You may find being replaced is actually the best outcome for you personally, if you prefer building new things rather than optimizing existing ones. And leaving represents, in many cases, a necessary period of rest and recharge after the exhausting work of creating something new. Once out of the day-to-day, you can think more clearly about how you want to put newfound mental and emotional muscles to work in the time ahead.
As hard as it can be to step away from a company you’ve built, I’ve had many friends express how much happier they were as a result (which, of course, it usually takes a few months to recognize).
If you’re convinced leaving your company is completely unacceptable, the most reliable way to avoid being replaced is by not giving the board (or anybody else) the power to replace you. In practice this is usually only possible if you take only minimal outside investment you need to keep your ownership percentage above 30% and at a par with your biggest investors. Even more importantly, you need to keep control of the board make up: an odd number of members where the majority have loyalty to you, not the outside capital. This all but demands that you deliver performance from the company so strong that it attracts competing investor interest. You also need to focus on building your company around revenue, which creates value without reducing your ownership and power, versus outside capital which naturally puts a downward pressure on both. The trade off you make for getting extra cash to accelerate your progress comes with the price of forfeiting some control.
At the risk of self-promotion, one of the ways you can grow your company and keep your job is to work with early stage funds that focus more on supporting you than on taking control. My fund, Social Starts, is one of those. We put a lot of effort in getting to know the human beings we support with investment. We don’t take board seats or other forms of control. Rather, we put effort into being responsively helpful to the CEO and core team. We are deeply founder focused, and we are not alone in that perspective.
The single best way to make sure you get fired is too raise too much money, too fast, at too high a price. That will make current investors nervous and future investors skittish. It may feel good to land the fat round, but without incredible follow-on results to back it up, you are actually shortening your incumbency in doing so.
Assuming you’re taking investment, the best path is likely to make accommodations for a transition as part of that investment. Address things like an ongoing role post-handoff (operational and board), vesting of stock, participation in success rewards, and your treatment for liquidity events (acquisition, IPO, secondary offerings). Also account for variations to the plan. For instance, while you may want to maintain a significant operating role after a transition, it may be determined that the new CEO can’t be successful while employees still look to their founding CEO hero for direction. I have found that, if you look every dark scenario full in the face and create a response, it becomes less likely to happen, and even if it does happen, you are prepared.
Finally, if you do get to the point where you are being fired after successfully delivering on your mission, make sure you let yourself recognize your truly amazing accomplishments. Celebrate yourself. Spend time with the people who love you and appreciate you in ways that go beyond any single job. You knowingly engaged in a difficult challenge, one few get the chance to attempt, you have persevered with all odds against you, and you won. You put food on the table of many households. Many people, your team and customers, will have their futures improved because of what you built. The world has new possibilities that sprang from your head and your efforts.