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When To Fire a Startup Company?s Founder-CEO

By Ryan Roberts

When should a founder be replaced as CEO of a venture-backed company? The topic is obviously a touchy one for a startup founder that brought early success to a company.

But while a founder might have been successful leading the startup to a funding event, can the founder also lead the startup to a liquidity event?

Startup company founder and CEO are two completely different roles. And although founders can handle both roles, that seems to be the exception rather than the rule. Startup founders tend to be young and thus lack true CEO experience necessary to bring the company to a liquidity event.

So when is the right time to fire a startup company founder-CEO and transition to a more polished CEO?

Fred Wilson, a venture capitalist and principal of Union Square Ventures, recently gave the following advice on his “A VC” blog concerning the optimal timing of the startup founder-CEO transition:

I?ve learned that nothing can replace the entrepreneur?s passion and vision for the product and the company. If you rip that out of the company too early, you?ll lose your investment. I think it?s best to wait until the initial product has succeeded in obtaining a critical mass of users and a business model has been developed that works and make sense for the business and is scaling. Then, if its warranted, you can sit down and have the conversation about bringing in experienced management.

(Read Fred Wilson’s “The Human Piece Of The Venture Equation” here.)

I also believe gaining traction with the startup’s user base and model should occur before replacing the founder CEO. If you replace the founder CEO before that happens, you probably removed the founder before the startup company fully-utilized the founder’s enthusiasm.

Of course, a founder’s incarceration would warrant removal earlier than the startup’s enjoyment of a scalable model. But that’s a topic for another post.

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Full post as published by The Startup Lawyer on August 20, 2008 (boomark / email).