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Executive Education

When Should You Hand Over the Reins of Your Company?

Success is never guaranteed for every founder who throws his hat into the entrepreneurial ring. For the lucky few who achieve success, they may face a challenging question: When is it time to hand over the reins to the company?

Jeremy Roche, founding CEO of cloud-based ERP vendor FinancialForce, made that choice and stepped down from his post in January. Tod Nielsen, a seasoned CEO and COO, replaced him and said of Roche: “Jeremy has been great at laying the foundation, building the company up to this point. But he wasn’t necessarily desiring to take it to the next level, so he handed the baton to me.”

Roche saw where his strengths were and acted in what he thought was the best interest of the company. It is critical that a founder understands his core competencies and finds the best person to handle whatever shortcomings he has. And if one of those weaknesses is the handling of CEO duties, it’s best to find someone who better fits the bill.

Related: Lessons From Famous Founders: When It’s Time to Take a Step Back

Do less juggling

Advanced HR’s annual Executive Compensation Trend Report revealed that 25 percent of surveyed companies had already tapped a non-founder as their CEO. For younger companies, this percentage is lower, but the number grows as companies expand.

Founders often try to balance too many plates themselves, even if the capacity simply isn’t there. In a tech company’s early stages, leaders establish infrastructure, build technology, build the product’s initial traction, hire a team and develop processes.

Doing all that during growth gets increasingly more difficult, which is why a qualified CEO can help manage it all. Having a CEO who knows how to build a business can help you avoid pitfalls down the road — whether it’s product development issues, go-to-market snafus or internal strife and growing pains.

Related: Why Smart People Don’t Multitask

Ask yourself

You know why it’s necessary to hire a CEO, but is it the right time, and how do you smooth out the transition? As a startup founder, there are three key questions you should ask yourself:

1. Where does my focus need to be?

Determine the strengths and weaknesses for both you and any co-founders. Thoroughly vet the company’s needs with your team to reveal the gaps a new CEO can fill. Should he have a product background or be growth-focused? Perhaps a hybrid of the two?

Every company is different, so don’t choose from a “CEO template.” This position could be the most important hire in the history of your company. Sounds like a big deal, right? It is, so act like it and do the homework.

Planning is crucial before you hire. Ensure there’s alignment on sales and product plans, and determine the needs of each department. Get buy-in from the co-founders and all aspects of management.

Related: How to Recognize Your Biggest Weaknesses as a Leader (and Why You Should)

2. Where will a new CEO shine?

Perhaps it’s product development? Sales and market development? Supply chain? Regulatory hurdles? Once you’ve established your weak spots, it’s time to round up your leadership team and co-founders and begin an audit of upcoming milestones.

When determining what went wrong within his company, Retail Prophet founder Doug Stephens pinned it on two problems: He had too few managers with fashion experience and way too many from the technology realm. Although Stephens realized this after the fact, companies transitioning to new leadership can be proactive about this kind of analysis.

Determine what needs to be done to achieve those milestones, which team members can assist and where any gaps exist. It could be knowledge-based (engineers who haven’t sold into a market before) or resource-based (no one has the time). These concerns become your first draft of requirements for the potential CEO job description.

3. What kind of culture do you want to perpetuate?

Once you have an idea of the kind of CEO you need from a business perspective, it’s vital that you determine the cultural fit necessary for the position. Put concentrated time and effort into this. Some companies need an all-business, suit-and-tie CEO who pulls out the best in everyone and leads; others prefer a “jeans and T-shirt” leader who makes key decisions and then gets out of the way of his people.

Knowing the type of CEO leadership needed is vital when you begin the hiring process. Steve Jobs is a classic example of someone who micromanaged just about everything, much to his detriment.

When he left Apple to start NeXT Computer, his inability to delegate was one of the things that led to the company’s failure. Meanwhile, Pixar soared to success when Jobs decided to get out of the way and give his staff freedom.

Once you’ve dissected the company’s needs, determined it’s time to hire a CEO and identified the skill and cultural requirements, you’re ready to begin the search. Bringing on a new CEO is one of the most exciting and rewarding points of a company’s journey — embrace the moment.

Have you read?

Written by: David Ehrenberg, founder, partner and CEO of Early Growth Financial Services.

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CEOWORLD magazine - Latest - CEO Insider - When Should You Hand Over the Reins of Your Company?
David Ehrenberg
David is founder, partner and CEO of Early Growth Financial Services. He established the company in 2008 to address the lack of on-demand financial support available to startups. His passion for mentoring entrepreneurs and guiding early-stage startups prompted David to construct EGFS’ integrated financial solution, which includes day-to-day accountant support and strategic financial, tax and valuation support.