I’ve personally led numerous startup CEO replacement searches. All of those start-ups weren’t necessarily doomed otherwise, but drastic change was needed. The decision to replace a CEO is never taken lightly. Replacing any CEO is difficult enough. Replacing a Founder-CEO is even more traumatic and fraught with risk.
Although I have never seen a case in which a CEO, even a founder, is indispensable, over the years, I have formed a strong preference for Founder-CEOs.
Most cannabis industry founders have never been a CEO. Some may have never even had a corporate job or any leadership role in their past life. Yet I prefer to work with them as they are known for learning on the job.
I won’t get into why we prefer founders (not the main topic of this article), but I love a good Founder-CEO success story!
When Founder-CEOs perform poorly, they should be replaced like anyone else at any level in the organization who is not executing in their role.
Well, not exactly like anyone else, because replacing a Founder-CEO is no small matter. The Founder-CEO is the core around which a startup grows. Replacing that “core” is a highly divisive and hotly debated topic.
More on that later…
THE PARADOX
The interesting paradox of entrepreneurial success is when Founder-CEOs perform really well, which also increases the chances that they’re going to be replaced.
Unless you’re talking about the cannabis industry which is a place where Founder-CEOs typically remain at the helm far beyond the point where most agree they should step aside for someone more qualified to take over.
I understand the tech industry has, and continues to deal with this same paradox, but it’s my opinion the cannabis industry has more businesses per capita that are led by unqualified CEOs who are founders that are reluctant to step aside.
Why is this the case? Is it ego? Is it the coolness factor associated with being a cannabis business CEO? Is it because they feel the company is their baby that they had to fight and claw to bring into the world and it’s too painful to imagine giving it up? That’s a difficult scenario to imagine, especially when said Founder is passionate about what the business is doing for medical marijuana patients or consumers at large.
Typically, early in the life of a company, the Founder who conceived the idea & began developing it is the ideal person to lead, to ensure that it will be able to succeed at hitting the core milestone of completing initial development.
However, when that milestone is reached—when the Founder-CEO has successfully led the company in its most important task—the chances that that Founder-CEO will be replaced also increase dramatically.
The challenges within the company can change so dramatically that the person who was best suited to lead the early stage of company development is no longer the best person to continue leading.
Now, the product or service must be sold. You have to create a sales organization, manage multiple functions, deal with customers, handle more complex financial issues and deal with a very different set of challenges for which many Founder-CEOs are not equipped.
Founders are good at vision, recognizing a need and then building the solution to fill that need. As a startup grows, the need for execution of this vision extends beyond filling a market need — it encompasses every aspect of the business. This means balancing priorities and changing focus from building a solution to building a business.
“The organization has to become more structured, and the CEO has to create formal processes, develop specialized roles, and, yes, institute a managerial hierarchy. The dramatic broadening of the skills that the CEO needs at this stage stretches most founders’ abilities beyond their limits.” The Founder’s Dilemma
Objectively, many founders might agree that the CEO’s job will require skills they don’t have, but emotionally, they are very attached to the companies they started, they’ve grown to like the CEO position, and the success that they have enjoyed makes it much harder for others to convince them it is time to step down.
However, it is precisely their success that has increased the need to replace them at this point and they must find a way to move their ego aside and step aside.
Far too many cannabis businesses are failing to reach their full potential, or failing period, because their Founder-CEO is not executing well in their role.
For many Founder-CEOs in the cannabis industry, it’s not only their first role as CEO, it’s their first attempt at leading others in any capacity. That’s no small feat, considering the cannabis industry is such a difficult minefield to navigate.
There is no real tangible substitute for experience as a leader to succeed as a CEO. Not passion, nor grit, nor charm, nor energy, nor intellect, nor any other essential skills that many cannabis industry Founder-CEOs possess. These traits will help many of these men and women fight successfully through some of the tough times, but we often see the tough times and challenges take their toll on them as well.
Beyond the lack of hard skills required to continue to effectively scale a cannabis company after it becomes a large ongoing concern and/or goes public, there’s a far and wide lack of essential leadership skills such as Emotional Maturity, Emotional Intelligence and Self-Awareness from some Founder-CEOs that sow unrest throughout even the best performing cannabis businesses.
We’re on the front lines speaking with cannabis industry employees all day every day and consistently hear stories of leadership fails at the top that drive away great talent that deserves better and prevents other talent from joining the organization because it’s a small industry where stories of failure spread like wildfire. The cannabis industry needs better leaders.
We could write a book with all the tales we’ve heard of cannabis industry Founder-CEOs who consistently make poor business decisions that send the business off course and/or abuse their people because of an inability to keep from feeling too overwhelmed or even frazzled and then take out their frustrations on their people.
All of that being said, I do have plenty of Founder-CEO friends in cannabis who are crushing it! More about them another time…
THE TRANSITION
Back to the concept of executing the removal of a Founder-CEO in order to get an experienced CEO in place. Some CEO transitions are smoother than others, but all are disruptive to a company. The goal is to minimize the disruption — a responsibility shared by all stakeholders, including founders, board members and management. But the person who shoulders most of the responsibility is the new CEO.
This is how it usually goes down and how we usually think of replacing a (non-problem) Founder-CEO.
As the startup grows, either the board, the investors, the executive team, or even the employees, start to believe that the founding CEO has reached his/her limitations and the company has grown past them. It can happen in good times or in bad. If it happens in good times, it’s usually connected to an event, say a new investment or an acquisition. If it happens in bad times, it’s likely a last-ditch effort to bail out a sinking ship, but a Founder-CEO can get replaced at any point and without reason.
A growing startup means that what the founding CEO is doing is working, so why replace them? The natural response to that question is that the company needs to be growing faster, but that Founder-CEO’s specific flaws or limitations must be identified in order to create and search on the newly-desired CEO profile. If no one can show that, then it’s setting up your new CEO for failure. The new CEO may have all the tools to get the company from X to exit but the startup was at Y. What happens next is the new CEO starts doing what they’ve done before, same methods, same connections, same strategy. None of it fits with the startup’s story, tech, or culture, everyone from employee to customer gets alienated, and it’s a slow meltdown from there.
The CEO who shouldn’t be CEO. The company has not been acquired or landed a new investment. The company is not sinking. If none of those things are happening and we’re asking ourselves whether or not someone should be CEO, we must acknowledge there’s a difference between experience and limitations.
The fact that the Founder-CEO got the startup from idea phase into growth phase says a lot about their potential to lead. If we never made new leaders in the field, the old ones would just die off, because we certainly don’t make new leaders in a classroom.
However, if that Founder-CEO is not picking up the strategies to be successful at this stage, or not surrounding themself with the people who can get him/her there, then yes, it might be time to step down.
Another reason may be that leading a company is a high-stress, high-responsibility life choice. There is no shame in admitting the stress is too high, and startups have seen too many examples of founders crumbling under that strain.
The final reason a founding CEO shouldn’t be a CEO is because they don’t want to. If we’re not all in, we should be out.
There’s a lot of nuance in leadership. There’s a lot of nuance in a startup. And there’s a lot of nuance in self-analysis. If we’re considering removing a Founder-CEO, whether that person is us or not, remember this: We have to be so sure that the replacement CEO is going to be better than the founding CEO that we’re willing to bet the life of the company on it. Because that’s exactly what we’re doing. And ideally, the exiting Founder-CEO is fully supportive of the incoming CEO choice and agrees to play a role in supporting their success and adding value as a company leader in some other manner.
Don’t underestimate the importance of synergy between the Founder-CEO and the incoming CEO. Put plainly, you have to like the people with whom you work, and the relationship between the CEO and the Founder is no different — especially if the aim is to keep the Founder on board of the company.
