Seven steps to smooth CEO switches for start-ups

CEO succession in a start-up organisation is markedly different to the process in organisations with more traditional business models. 

Why?  Because the pathway to the top job is different - in fact, there usually isn’t an institutional pathway.

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The founder starts as chief executive officer and the chief of everything else; product, finance, sales, implementation and marketing.

As the business matures new players become involved - directors, chairpersons, investors and employees managing operational roles.

" [Startup founders] start as chief executive officer and the chief of everything else; product, finance, sales, implementation and marketing." Tony Rossano.

But the founder often remains deeply involved in all aspects of the business, with significant impact and influence over the day-to-day- running of the organisation.

Korn Ferry interviewed key players, including founders, chairpersons, directors and investors involved with founder-led businesses based in Australia and New Zealand for its report When a founder steps down – leadership transition in a founder-led organisation.

The report investigates the challenges of decoupling a founder from the organisation and the unique blend of circumstances that need to be carefully managed in order to maintain or build future business success.

While there isn't a manual for transitioning the top job at founder-led organisations, there are factors that can be considered when transitioning from the founder to the second CEO – factors which will help to retain shareholder value and pave the way for a planned, smooth succession. 

Seven steps

Korn Ferry’s research identified seven key steps for CEO succession in a founder-led company.

• Remain future focused while respecting the heritage

The contribution of the founder, management and staff should always be respected.

Their energy has enabled the entity to life from concept to substance, sharping the culture and influencing customers and the industry.

• Clearly define the future role of the founder

The ongoing involvement of the founder can be extremely valuable as a source of continuity of the business.

The founder can continue to bring unique insight and value to the organisation and its stakeholders through possible involvement with R&D, marketing, brand initiatives or other important activities.

• Objectivity and data to inform decisions

A major consideration of many stakeholders we interviewed was the need for greater objectivity when dealing with founder transition and post founder leadership appointments. 

Positioning the future while respecting the heritage in an objective manner is key.

• Recognise succession is a change management exercise

The impact of change of CEO will likely reverberate across the culture, operations, people and practices of the business, particularly when there is a significant shift in style.

Ensure the transition doesn’t focus too heavily upon the founder’s perspective and those who are staunch loyalists of the founder.

• Clearly define the cultural and business norms to keep and those to develop

Undertake a clear diagnostic of the culture of the organisation. Remove or de-emphasise cultural elements which do not support the strategy and seek to define those elements to be developed.

• Build succession bench through the organisation and in support of critical roles

All too often, transitions from founder as leader to non-founder are unplanned and therefore, urgent.

Early indicators for succession were often visible for some time but mitigation and recognised value of advance planning was sorely lacking. Succession planning needs to be on the agenda for the board and CEO.

• Put the organisation at the centre

This is the key factor for a smooth CEO succession.  While respecting the needs and sensitivities of the founder, the future goals of the business must be at the centre of the leadership transition.

Tony Rossano is senior client partner and head of Global Technology Markets Practice at Korn Ferry Asia Pacific

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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