Picture this: you’re a start-up founder and you can’t sleep at night because your venture is on the edge, and you’re beginning to wonder if your start-up’s problem is you. If you’re waking up at night with racing thoughts, playing Taylor Swift’s Anti-Hero [1] on repeat, or worrying about shapeshifting from your company’s biggest asset into its greatest liability, read on.
What is the Founder Effect?
The influence founders have on their start-ups is inevitably profound whether the venture has one founder or several co-founders. The Founder Effect, also known as Founder Syndrome, explains this common phenomenon that can impact a start-up from its early stages and continue after the founder’s exit. The Founder Effect includes both positive and negative influences of the start-up founder on the business. [2] But adversity tends to bring out the good, the bad and the ugly. So that’s why we tend to notice the Founder Effect when a start-up is experiencing challenges.
Rolling with the punches
There are multiple reasons why start-ups can hit a rough patch. These include problems of the start-up’s own making or external factors beyond the company’s control. Regardless of the cause, how the founder responds to adversity from self-sabotage or acts of God will have an outsized impact on the venture’s fate.
How the Founder Effect shows up
Not only is the Founder Effect inevitable, it’s also a double-edged sword. Founders build their start-ups from the ground up, investing their blood, sweat and tears along the way. The upsides of the Founder Effect include passion and charisma that inspire talented people to join their team, investors to back them and customers to buy their products or services. But its downsides can creep in if the founder’s drive and control that initially put the start-up on track for success begin to constrain its continued growth and achievement. [3] Let’s look at the likely places in a start-up, where, for better or worse, you’ll find the Founder Effect at work.
Brand share
A classic example of the founder effect is having blurred boundaries between the founder’s personal brand and the start-up’s brand. When the brands of the founder and the company are inextricably linked, it’s hugely positive when both the founder and the business are in the ascendency. Apple co-founder Steve Jobs rejoined the company in 1997 and brought it back from the brink. He was lauded as the company’s visionary technology and marketing genius. Following his death from pancreatic cancer, Apple’s share price dropped. [4] The media narrative was Jobs had been Apple’s saviour and, without him, the business was doomed. But Jobs had other ideas, and before he died, he put plans in place, including appointing Tim Cook as CEO to ensure Apple would live on. [5]
People do business with people
It takes an ecosystem to raise a start-up, as we recently discussed in our article How to find the right ecosystem and why it’s important. Surrounding yourself with a strong ecosystem can help unlock valuable resources and opportunities for your start-up, and it makes the start-up journey much less lonely. Make sure you are carving out the time and energy to leverage and build relationships in the ecosystem around you.
Founders often forget to give sufficient thought to how they’ll attract investor funding when their start-up reaches a point where equity funding makes sense. Don’t waste time on investors that either don’t want to or won’t invest in your business, or that you don’t feel comfortable with. And when you do get the opportunity to pitch to an investor, do your homework and make it count. Start by consulting your network or ecosystem partners for advice on which Business Angels and Venture Capitalists would be a good fit for your business and take things from there. Remember that people do business with people. So make sure that between you and your team, you have the skill sets and product-market fit to appeal to and convince investors to back your start-up. For more on this topic read our article, Raise capital in a recession and get investors hooked.
Risk-taking
By nature, founders are risk-takers because they simply wouldn’t have started a business if they weren’t comfortable with risk. However, the Founder Effect can trigger sub-optimal risk-taking behaviours in founders as their start-ups grow. Some founders can become overconfident and end up betting the house and wrecking the start-up. Other founders have the opposite response to their start-up’s early success. They tighten their grip on their start-ups instead, minimising the risks the business takes. And this behaviour pattern can result in missed opportunities and stifle the start-up’s growth.
Decision-making
From the get-go, founders and co-founders must get comfortable with making and owning their business decisions. The negative side of the Founder Effect can emerge around decision-making in several guises. Some founders start backing themselves a little too much. They prefer to navigate decisions using ‘gut feel’. They end up avoiding external opinions, such as the team input, and objective data they need to develop a strong product-market fit for their innovation: all the elements that could light the way to future success. Co-founder conflict is another pitfall of the Founder Effect. It’s typically in full flight when it’s decision time and the cracks in a fraught co-founder dynamic are there for all to see.
Leadership style
The experience of the ‘lonely’ founder or co-founders starting from scratch to create a successful start-up can sound heroic or exhilarating depending on your viewpoint. But the dark side of too much responsibility too soon is that it can lead to some founders developing an autocratic leadership style. As their start-ups grow and the pressure to deliver on multiple fronts ramps up, their autocracy casts a shadow so long, and so dark that it can threaten the venture’s future.
Too many hats
Start-up founders and small teams often find themselves wearing too many hats and for far too long. With a mountain of work to be done, and limited human and capital resources available, wearing many hats can be a smart move for founders when their business is in its formative stages. But this balancing act will start to have a detrimental impact on the business as it starts to scale. Knowing when to hire specialists and release the reins is key to a start up’s success journey. Read our article, Build the start-up team your innovation needs to succeed for tips on how to avoid these pitfalls and assemble and retain a high-performing team.
Management style
Autocratic and controlling founders along with sparring co-founders can adversely impact how the start-up is managed. Founders acting on their controlling and combative behaviours can become too involved in the decision-making and tasks of their staff, contractors and stakeholders. These micromanaging founders inadvertently sap the motivation and engagement of their team. They undermine their team’s trust in them as founders, and this ultimately leads to team members and stakeholders walking away.
Strategy and planning
The race to be first in the market with a shiny innovation can result in the start-up’s strategy and planning being left by the wayside. Some founders take a set-and-forget approach to their strategy and business plan, overlooking that these areas must permeate the business, not gather dust on a shelf. They can become overly focused on the start-up’s innovation or other areas of the business that interest them more as their venture grows. One planning facet that many founders overlook is succession or transition planning. This can occur when founders perceive themselves as being their businesses and cannot imagine a future for their ventures without them.
Hope for the best and plan for the worst
Wilful blindness on succession can, at best, destabilise your business after the founder exits or, at worst, spell disaster for its survival. Founders can and do die unexpectedly or be derailed by personal tragedies. They can experience a debilitating illness or injury out of the blue, go through a divorce, or be blindsided by an investor coup. [6] So it’s crucial to plan for as many eventualities as possible by simply ensuring you have a workable succession or transition plan so your start-up can continue when you’re no longer around.
Governance
Many founders tend to employ people they know and trust without casting the net wider and hiring the right people. And in the early stages, it can seem like the least risky option. But as the start-up grows, what was less risky can rapidly become highly risky. Nepotism can lead to inefficiencies and a two-tier approach to staff management. Those in the inner circle can either be or be perceived to be treated more favourably. And in the rush to market, founders often ‘move fast and break things’, overlooking the checks and balances that all businesses need to succeed as they grow. Ultimately that can result in start-ups angering their investors, falling foul of the law, or finding themselves caught in the crosshairs of regulators.
Mojo
Founders are, by nature, driven by their goal to build their start-ups. This all-consuming passion can see founders achieve incredible results in a short space of time with minimal resources. But it can also lead to burnout. So if you feel like you’ve lost your mojo and with it your passion for your business, burnout could be to blame. Founders are perceived as high-energy always-on visionaries. But burnout is way more common among founders than you might imagine. [7] The pressure of growing a start-up is relentless, so it makes sense that founders could succumb to burnout. If you’re feeling fatigued, cynical and inefficient, take note, because these are the three classic calling cards of burnout. To learn more about burnout and what you can do to protect yourself and recover, read our article, How to avoid burnout so you and your business thrive.
How to navigate the Founder Effect for your start-up
So, how do you overcome or minimise the negative elements of the Founder Effect? Start by acknowledging it. Try to identify which of your traits and behaviours brought your start-up early success and consider how they could become the biggest threat to its survival. Don’t do this alone, seek out and discuss the Founder Effect with your co-founders, leadership team and Board of Directors. Once you’ve done that, it’s crucial to create an action plan to manage the downsides of the Founder Effect on your start-up. This should include ways to empower your team and foster a more collaborative working style. Crucially, your plan should have some action items to reduce the workload burden on you and your co-founders if you have any. Be sure to tackle those often-overlooked governance issues and lock in business insurance. Directors & Officers insurance and Start-up liability insurance should be on the list. [8]
Seek long-term stability and success for your start-up
Finally, create a transition plan, so your start-up is on solid ground when you leave the business. This will ensure the legacy of your innovation continues, and with any luck, your hopes and dreams for that business come to fruition.
[1] Swift, T. (2022). Taylor Swift – Anti-Hero (Official Music Video). [online] www.youtube.com. Available at: https://www.youtube.com/watch?v=b1kbLwvqugk.
[2] The Embroker Team, (2023). What Is the Founder Effect? | Embroker. [online] Available at: https://www.embroker.com/blog/founder-effect/.
[3] The Embroker Team, (2023). What Is the Founder Effect? | Embroker. [online] Available at: https://www.embroker.com/blog/founder-effect/.
[4] Kollewe, J. (2011). Apple stock price falls on news of Steve Jobs’s death. The Guardian. [online] 6 Oct. Available at: https://www.theguardian.com/technology/2011/oct/06/apple-stock-steve-jobs.
[5] Archive, V.A. and feed, G. author R. (2022). How Apple got its mojo back after the death of Steve Jobs. [online] New York Post. Available at: https://nypost.com/2022/05/21/how-apple-got-its-mojo-back-after-the-death-of-steve-jobs/.
[6] www.linkedin.com. (n.d.). Anticipating the Dreaded Three D’s that Derail Startup Founders and Business Owners. [online] Available at: https://www.linkedin.com/pulse/anticipating-dreaded-three-ds-derail-startup-founders-o-donnell
[7] aqil. 2022. Founders Burnout: Why You Should Care, and 6 Tips on Combating It – Sleek. [ONLINE] Available at: https://sleek.com/sg/resources/founders-burnout/.
[8] The Embroker Team, (2023). What Is the Founder Effect? | Embroker. [online] Available at: https://www.embroker.com/blog/founder-effect/.