If you’ve launched an innovation business, transitioning from start-up Founder to CEO is often seen as the next step. But how do you know if the CEO role is right for you and your venture? We’re exploring all of this and more as we unpack what a CEO does, and why it’s now more important than ever to have the right person sitting in the corner office.
The top job
A CEO is the start-up’s big-picture thinker. They define a venture’s vision, nurture its culture, and steer the business as it navigates the risky path from founding to scaling. The buck stops with the CEO on hitting financial milestones, R&D goals or working effectively with the board. As the head of the company, the CEO is tasked with overseeing all of its activities and ensuring they’re operating efficiently and effectively.[1]
To CEO or not to CEO
There are several wildly successful Founders turned CEOs who have not only captured the public imagination globally, but also a healthy slice of consumers’ disposable incomes worldwide. Think Steve Jobs and Apple, Bill Gates and Microsoft, and Jeff Bezos and Amazon. They’ve steered their ventures to the top of their industries and were CEOs of the multinational businesses they built for decades.
Data talks
Despite the glamour, prestige and even mystique surrounding the role, life at the top involves some harsh realities. For starters, the CEO gig is the one peerless role in the organisation, and it’s said to account for 45% of an organisation’s success.[2] That adds up to a lot of pressure on the incumbent’s shoulders. And according to an article in Harvard Business Review, only three out of five newly appointed CEOs meet their performance expectations in their first 18 months in the role. But these insights are for all CEOs. What does the research tell us about CEOs who were once founders?
Beating the odds
Researchers from the University of North Carolina at Chapel Hill analysed the stock price and financial performance data from more than 2,000 publicly traded companies. They found that, on average, firms with Founder-turned-CEOs outperform those with Non-Founder-CEOs. But three years after the initial public offering the purple patch ends. And the difference dwindles to zero. At which point, the Founder-CEOs start detracting from their company’s value.[3] As mentioned, there are always exceptions to the rule. Take Melanie Perkins, Co-founder and Chief Executive Officer of Australian graphic design unicorn, Canva for example.
So what should you do if you’re a Founder who’s seriously thinking about taking on your start-up’s CEO role? Begin by considering when and why you’re moving, and how to make it a success.
When and why to make the leap
The good news — and also the bad news — is that there is no perfect time for a founder to become the CEO. Companies and their founders grow at different rates, and their priorities can differ too. So there’s no one size fits all scenario or specific qualifications a Founder should obtain to become a CEO.
However, according to research by In The Works, mission-driven founders they identified had one thing in common when it came to the timing of their decision to be a CEO. They reached a point when they recognised that a commitment to growth meant shifting from working in the business to working on the business. So they transitioned from an operational to a strategic mindset where the start-up’s culture, mission, and vision became their priority.[4]
A deciding factor in becoming a CEO is having an aptitude for the role, as well as, a burning desire to hold it. Having the drive, resilience and ability to take risks are commonly cited as desirable leadership traits among successful CEOs. McKinsey’s in-depth research identified six core activities of a CEO’s role.[5] They are: Board engagement, external stakeholders, personal working norms, corporate strategy, organisational alignment, and team and processes. McKinsey breaks down these six areas into 18 specific practices. The capability to excel across each category is the calling card of a successful CEO. So if you’re keen to become a CEO, look at your skill sets and attributes to gauge if you have the potential to succeed.
How to transition
The legendary long-time leader of McKinsey & Co, Martin Bower, considered the CEO’s role to be so specialised that the only way executives could prepare for the post was by taking it on. Thankfully, researchers have come up with a few pointers for innovators looking to move from start-up Founder to CEO.
1. Know what you don’t know
No one can have all the skills required to lead and operate a successful venture. As a freshly minted CEO, it’s time to make peace with the fact that you are not, and can never be omniscient. Acknowledge where the gaps in your know-how are and be open to new approaches and growing your expertise. Take steps to build a high-performance team whose knowledge complements yours and will take your start-up forward.
2. Maximise your impact and delegate
Decide what kind of leader you want to be and lean into your talents to show why you are in the C-suite. Prioritise corporate strategy and the elements and activities identified by McKinsey. It’s paramount that you delegate. It can be hard to hand over the reins but you must empower your team. Remember if you want to make a go of being a CEO, you need to be working on the business, not in it.
3. People and culture
Once your team has more than 50 people, the culture of your business will assume a life of its own. And as CEO, you need to find ways to maintain, nurture and grow it consciously. Otherwise, you run the risk of your company values being replaced gradually over time. And in the worst scenario, you wind up with a toxic workplace. Build a positive and productive culture by being present in your company, listening, staying connected, and motivating employees.[6]
3. Communication
Internal communication is one of the biggest challenges CEOs face when growing and scaling their venture. Too often executive teams operate in a bubble and forget to get buy-in from the rest of their company’s employees. Set a clear direction and explain the strategy. Be crystal clear about the company’s priorities with all your staff. And like a broken record, never stop communicating these key goals to them.
5. Infrastructure and processes
Extend your company’s hyper transparency about strategy and goals to your organisation’s reporting structure and each employee’s key performance indicators. If everyone on your team knows where they’re going and has a roadmap, appropriate support and the tools they need, you and your company will get there faster. Work with the team to standardise and document your business processes. This is probably the singular most important activity to help you as CEO scale a fast-growing venture successfully. As CEO coach and adviser Katy Trost says, “If there is not ONE way of doing things, people run in circles.”
Alternative roles and pathways
What if you’ve taken a long, hard look in the mirror and concluded that moving into the CEO role is not for you? With economic storm clouds gathering and business leaders facing challenges the world hasn’t seen in decades, it’s more important than ever for companies to have the right people in the right leadership positions. The good news is, there are other roles in your start-up that could be a better fit for you and your business.
It’s not uncommon for tech-focused Founders with a strong engineering background to transition to the Chief Technology Officer role. For example, Mark Sceat is the Chief Scientist of Melbourne-based innovator, Calix ,a business he co-founded. Founders with a talent for sales and marketing and a flair for working with people often migrate to the Chief Marketing Officer or Commercial Director roles. And, if after much sole searching, you conclude that you’d much rather work in the business than on the business, Chief Operating Officer may be the perfect role for you. Alternatively remaining on the venture’s Board in an advisory capacity can be another pathway for Founders. To learn more about other key leadership roles in start-ups, read our article, Build the start-up team your innovation needs to succeed.
Funding to make it happen
If you decide to take the helm as your start-up’s CEO, then you will need to buckle up for the scale-up journey and evolve with your growing business. The right funding strategy will be crucial to both the success of your venture and your tenure there as CEO. Having sufficient, non-dilutionary capital, such as R&D financing, is the fuel you need for growth. It also enables you to keep more ownership of the company you’re working hard to build, so you stay in control while you scale. Radium Capital’s R&D financing – the Radium Advance – is uniquely flexible. And you can tailor it to your R&D expenditure needs as your business scales. Contact us today to find out more and get your application started.
[1] Startups.com. 2022. Founder vs CEO: What’s the Difference? | Startups.com. [ONLINE] Available at: https://www.startups.com/library/expert-advice/founder-vs-ceo.
[2] Bradley, C., Hirt, M. and Smit, S., 2018. Strategy Beyond the Hockey Stick. John Wiley & Sons.
[3] Harvard Business Review. 2021. Research: How Long Should a Founder Remain CEO?. [ONLINE] Available at: https://hbr.org/2021/12/research-how-long-should-a-founder-remain-ceo.
[4] In The Works. 2022. Founder vs. CEO: Why and When to Make the Transition. [ONLINE] Available at: https://intheworks.helpscout.com/founder-to-ceo/
[5] McKinsey & Company. 2022. Mindsets and practices of the best CEOs | McKinsey. [ONLINE] Available at: https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/the-mindsets-and-practices-of-excellent-ceos.
[6] Katy Trost. 2022. From Founder to CEO Mentality: A Seven Step Transition | by Katy Trost | Medium. [ONLINE] Available at: https://katytrost.medium.com/from-founder-to-ceo-mentality-a-seven-step-transition-a0706193be63.