When Ryan Petersen announced he was stepping down as CEO of Flexport to become a partner at Founders Fund, he probably didn't expect to return to the logistics startup just a few months later after a mistake in the succession process.
Succession is difficult and even the best-laid plans don't always work, as Flexport discovered. It's completely natural for founding CEOs like Petersen to want to leave their companies. Many Companies also reach a point where they can It makes more sense for a founder-CEO to step down and make room for different or more experienced leadership.
But in today's market, doing an IPO is more difficult than in years past, which has led to several first-time founders finding themselves at the helm of seemingly dormant and sprawling startups, with no end in sight. What's worse, the last decade of easy availability of capital encouraged many new companies to grow faster than they should. It also made many founders and CEOs believe that the good times would last. If things don't improve, we may start to see more exits next year, not of companies, but of their founders and CEOs.
Some startups already have succession plans in place, but they are probably in the minority. But succession doesn't have to be daunting even if you don't have a plan.
Founders can take some initial steps to prepare themselves and the company for an eventual exit, even if they're still unsure of the timeline. According to Lauren Illovsky, talent partner at CapitalG, the first thing you should do is make sure you are really ready to go.
“Founders need to think carefully and ask themselves if they are really ready to resign when they say they are,” Illovsky said. “Many times, when things seem to be getting bad, they are not so bad.”
If a founder is ready to leave, they should start by defining what their role as founder-CEO is right now and what they think it will be like in the near future, said Margot McShane, managing director at Russell Reynolds Associates, focused on senior executive talent.
Lisa Caswell, partner and leadership consultant at Spencer Stuart, added that this introspection should go beyond the actual tasks of a CEO. CEOs should think about their own leadership strengths and weaknesses, because if a founder-CEO is particularly invested in the product or brand roadmap, he or she will want to find a replacement who has similar strengths.
He cited Oracle founder and current CTO Larry Ellison and Steve Jobs as examples of leaders with specific strengths: “Larry Ellison is still very good at products and thinking about products and engineering, whereas Steve Jobs was actually more focused. in the brand and in what we can do for the world.”
Once the role and responsibilities have been detailed, founders and CEOs and their boards of directors can begin to think about who might be the ideal candidate for the position. If a founder-CEO needs to step down in the immediate or near future, your startup will likely be more successful by hiring an outside CEO. They can also ask their investors and board of directors for help, as they may have someone in their network worth considering.
If the founders don't plan to leave immediately, or don't leave at all but want to make a plan, Illovsky said they should make a list of internal and external candidates who might be a good replacement. These lists don't have to be shared, but he helps CEOs start thinking about it and lay the groundwork for building relationships with potential candidates outside their network.
They can also begin training any internal talent (or other members of the founding team if they are still there) who would be a good fit. “If you find an internal candidate who is very well developed and has a good view of the external market, they can be a great fit,” McShane said. “Identify people with potential; Develop them early and repetitively.”
The most important thing for founders and CEOs to remember, even if they feel like they don't have much time, is not to rush the process.
"This is not the time to hire on gut instinct or say, 'I like this person and they would be great at this,'" Illovsky said. “No, this is the moment for data and rigor. They need to fall in love with your company as much as you do.”
Finally, when a founder is ready to leave, they should plan how they will be involved with the company in the future and stick to the plan, Caswell said. If they want to step back until there is a complete transition, or remain in an advisory capacity, they should communicate their intention to both incoming leadership and existing employees to ensure the transition is as smooth as possible.
Even if a founder has no plans to resign, they should consider doing all this anyway.
Some founders think that talking about succession early on signals to their board that they are thinking about leaving or are disengaged. But Illovsky thinks the opposite is true: He shows his board of directors that he is mature enough to come up with a plan that can be implemented in an emergency. The New York Stock Exchange recommends that all its companies have such plans, he added.
At a minimum, keeping track of the CEO's current role and how it has changed, monitoring internal candidates with potential for growth, and maintaining a list of potential successors will help companies if they find themselves in a bind.
“For organizations that have not embarked on serious discussions about succession planning, we strongly advise not to delay,” McShane said. "In traditional companies, those that do not have a founder, that process begins the first day the new CEO arrives."
