If you’re thinking about forming a startup, you need to understand the differences between a founder and a CEO.
That way, you’ll be able to organize your hierarchy in the best possible way.
In this article, you’ll learn all about when a founder should replace himself, why some venture capitalist firms prefer founder CEOs and others prefer professional CEOs, and a few other things along the way.
What is a founder?
Unlike a CEO, who acts as the head of a company that already exists, a founder is the person who started or launched the business in the first place.
Founders are typically the ones who come up with the idea for a company, get it set up, and drive the broader vision of the company's goals. They're often in charge of the big picture, responsible for establishing the core team and establishing the resources they need to succeed.
While some founders can also become CEOs, the skill sets required to be a CEO or a founder are often quite different.
Amazon’s extraordinary example
One example of a revolutionary founder-turned-CEO is Amazon head Jeff Bezos.
Like all founders, Bezos secured the funding, found the resources, and aggressively marketed his brand to get to where he is today. Though he's recently stepped down as CEO, he remains the founder of Amazon, and will still be operating on that basis at the company -- securing big-picture business while the CEO works on the day-to-day.
What is a CEO?
A Chief Executive Officer (CEO) is the most senior executive in an organization.
He works with the founder to carry out the company's long-term objectives. To do this, the CEO oversees the company’s strategic management and has supervisory authority over all other employees.
The organization might have a board of directors. If so, the CEO answers to this board. The board offers strategic advice to the company, but the day-to-day operations are left up to the CEO.
Nonprofits use the title of executive director for their highest-ranking officer instead of CEO.
What are the differences between founder and CEO?
While every company has a founder, not every founder becomes the CEO.
The founder can choose to become CEO, or he can delegate that responsibility to someone else. Although many founders are the first CEOs of their organizations, it takes two completely different skill sets to start a company and run a business.
Founders are visionaries who came up with the original idea, think more about their product than running their company, and are future-oriented.
A CEO is an integrator who flourishes on transforming chaos into order. To do this, he slowly builds up the company while paying attention to the minutiae of organizational operations.
Suppose the company has plans for aggressive expansion. In that case, it might want to onboard a more seasoned CEO to realize its ambitious dreams.
However, professional CEOs can be somewhat myopic, focusing on short-term objectives rather than the compelling vision that made the company a resounding success in the first place.
Why some investment firms prefer founder CEOs
Conventional wisdom dictates that a startup hires a professional CEO once the company matures.
However, some venture capital firms prefer that startups they invest in have a founder CEO. Because they channeled their entrepreneurial energy to start their company, founders embody the soul of a business. That’s just one of the many reasons some venture capitalists choose to work with organizations that are still led by their founder instead of a professional CEO.
It’s also why so many companies ask their founders to return when the business encounters difficulty.
Another reason for this preference is founding CEOs consistently beat the professional CEOs on all kinds of metrics. These include capital efficiency (amount of funding raised), time to exit, exit valuations, and investment return.
Innovation and technology companies
Founder CEOs are particularly liked by venture capitalists when they oversee technology companies.
That’s because most technology companies succeed through their ability to aggressively innovate. This is something that founder CEOs seem to do a thousand times better than professional CEOs.
Innovation is the most challenging core competency for a company to learn. It’s also seen by organizations as inherently risky because undertaking innovation could be financially disastrous if things don’t work out.
However, most founders are natural risk-takers who have the guts to endlessly innovate despite the financial risks or the army of naysayers who criticize their every move.
While a professional CEO may have more detailed experience of how to keep a startup running, a founder-CEO can pair their own knowledge with the zeal that comes with running the company they started.
To develop the innovative ideas that fueled the organization’s first stage of growth, a founder should have a broad understanding of the technology that created the company in the first place. It's also worthwhile to understand the competitive field and the market in all its permutations.
That’s a mental database that can be difficult for professional CEOs to acquire.
The ability to jettison foundational assumptions
Innovation often requires throwing out foundational assumptions. Since the founder was the one making those assumptions in the first place, it's easier for him to do the jettisoning.
One example of this is Netflix, founded by Reed Hastings and Marc Randolph.
Reed Hastings let go of the archaic assumption that customers were only interested in consuming video content by getting old-fashioned DVDs mailed to their residences. Hastings was able to do this because he saw that streaming media had immense future potential.
As Netflix's founder, Hastings had the purview to tweak those assumptions. This is something a professional CEO might have a harder time doing.
When a founder should replace himself
During the early stages of a startup, building a company can be incredibly exciting for a founder.
There's the small, passionate team he's bonded with, the freedom of little (if any) outside capital, thrilling new technologies, and trying out-of-the-box strategies for the first time. Because of how much energy an owner puts into building his company, he often becomes emotionally attached to the enterprise.
Over time, this healthy attachment might turn unhealthy. When it’s time for a founder to hire his replacement, he may have difficulty letting go.
He can stay on board if he learns to be as passionate about the nitty-gritty details of running a company as he was about getting it off the ground.
This means being schooled in essential responsibilities like organizational processes, leadership, and managing an army of employees. If he can't learn to like doing these things, he won't be able to properly scale the business.
On the other hand, founder-CEOs might also be too close to the company to be completely objective about what the company needs. This is why some venture capitalists won’t invest in a company that's way too dependent on one individual. To reduce this perceived risk, they might ask a founder to hire an external CEO.
The best way to build your talent pipeline
Let’s say you need to build a talent pipeline that supplies you with high-caliber candidates to fill executive positions.
In that case, you’ll need to find a recruiting firm with global-spanning referral networks, state-of-the-art proprietary technology, and the ability to manage every part of the recruiting process for you.
Hunt Club has all this and so much more.
We specialize in one thing and one thing only: finding the top-tier talent that’ll help companies maintain their competitive edge.
If you could use an infusion of world-class talent, give Hunt Club a call today!