10 January 2018  | 

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Challenges for early-stage technology companies

Being the founder of an early-stage company that has successfully transitioned from start-up to a sustainably growing business is an exciting place to be. Getting there takes grim determination, long hours, deep passion for the goods or services that you have created and for your early customers. You have probably committed more of your own finances to developing the business than you find comfortable and taken less salary than some of your employees. Perhaps your company has been through one round of financing and you are approaching a second.

Although this stage of the company’s life cycle is full of promise, it can be a challenging time for the founders. Many dream of emulating Bill Gates, Sir Richard Branson or Steve Jobs, who personally led their businesses on to greatness. These global icons are the exceptions though. It is also worth remembering that Jobs was ousted by his board and only returned to Apple years later, to then lead the company on to market preeminence. The skill-sets that are required to lead a start-up, where everybody pitches in to everything and the firm is too small to require substantial management systems, are quite different to those required to manage a growing business enterprise. The transitions required are usually made during this early-stage growth phase. In an article in the Harvard Business Review, Noam Wasserman* wrote that of >200 successful US start-ups he studied, only 50% of founders were still CEO by the end of year three and only 25% led their company into an IPO. That same research showed that 80% of the founder CEOs who stood down from the role were forced to do so, usually by the company’s investors. It is very difficult for founder CEOs (in any industry) to simultaneously manage the enterprise in the way they believe best and to maximise value creation for its shareholders (including themselves.) Ironically, there can be significant financial advantage for founder CEOs who do step down. Frequently, such founders end up far wealthier when they sell their equity or the company goes public. In the meantime (unless their stepping down also involves leaving the company) they can move back to focus on innovation and new product and service development, where their true skill and passion frequently lies.

Importantly, the research can also be read the other way. Half of founder CEOs were still in that role after three years and a quarter of them whose companies went public, did lead the IPO. Whether or not the founder continues as CEO as the company grows is not predetermined. It is a choice, albeit a very important one both for the founder CEO and the company’s investors. CEOs who succeed usually do so by surrounding themselves with competent, trusted advisors. This is especially true for founder CEOs. These advisors provide the range of support required to transition from early-stage to the next level of the corporate growth cycle. Cambridge Strategy Group’s services are particularly valuable to companies where the founder CEO does decide to remain in control. In that case, we can support that person and the company’s board in striking the right balance as the firm grows, between the founder CEO’s aspirations for the company and generating growth and shareholder value at a pace that satisfies other investors, too.

* Wasserman, Noam. 2008. The Founder’s Dilemma.
Harvard Business Review, February 2008