From Founder to CEO Mentality: A Seven Step Transition

Katy Trost is one of The Org's Expert Contributors. She is a leading coach to tech CEOs and Founders, at Series A stage and beyond. She specializes in effective leadership skills, and implementing systems for scaling organizations.

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Once a company achieves product-market fit and reaches scale, founders have to go through an important transition - from functioning as a (co-)founder to becoming a professional CEO.

As the venture marks 50+ employees, raises a Series A, or recruits the full executive team, founders must transform their role in order to keep up with the growth challenges. They need to think about their “baby” as a business with a life of its own. Their focus must go from building a great product to building a thriving, sustainable company.

Many founders struggle to make the personal changes necessary to survive as the CEO of a growing firm. “Few have the breadth of experience required to lead a company from a nascent startup to a scalable organization in a competitive market.” The role requires founders to step back, shift their mindset, and acquire a new set of skills.

Becoming a CEO means getting out of the weeds and removing yourself from the day-to-day. You have to see the bigger picture, look beyond just the next quarter, and see potential challenges and opportunities on the horizon. The culture is no longer an extension of you with a family feel but you have to earn people's trust and convince them with your mission to contribute their energy.

Operationally, achieving high-growth means that systems and processes get overwhelmed and ad-hoc management is no longer sufficient. You will need to develop infrastructure and dedicate one day per week to management. This can feel counterintuitive and frustrating but will prevent things from spinning out of control and help everyone stay aligned.

If instead of making this crucial change, you’re looking to hire an external CEO, here are a couple of helpful articles about managing the transition:

• Founder-Led Companies and the Professional CEO: Setting Up the First Year of Marriage - Bain & Co
• How do You Know When it’s Time to Step Down as Founder CEO? - Seedrs

The importance of getting it right

Successfully transitioning from founder mentality to becoming the CEO is one of the greatest challenges as a company matures. Besides other growth pains such as scaling people and operations, the personal and leadership development of the founder are an important component of long-term business success. The most likely cause of failure after initial startup challenges are overcome, is the transition to a functionally organized and professionally managed company.

In reality, the odds are against the entrepreneur holding on to the CEO position. The characteristics and skills required to start up a venture are very different from those necessary to build a great company. The adaptability and willingness to change, broaden their horizon, and adopt a new set of skills determines if the founder will eventually be replaced or not.

Once the first external investment has been taken, the company is no longer owned by the founder - meaning the needs of the company are more important than the needs of the founder(s). The board determines if a professional CEO should be replacing the entrepreneur to scale the business. More often than not this is the case. Only 25% of founders lead their company to an IPO.

However, ensuring the founder doesn't get pushed out, significantly increases the chances of success. More than 50% of leadership transitions fail and founder-led companies generally outperform the rest: Companies that remain the founder’s mentality, keeping it’s founder as CEO or on the board of directors, are four to five times more likely to be top quartile performers. An index of S&P 500 companies in which the founder is still deeply involved performed 3.1 times better than the rest over the past 15 years. Additionally, a change in leadership can be damaging when employees are loyal to the founder.

The best case scenario for all stakeholders is therefore to leverage the “founder benefit” while learning to CEO. The goal is that the founder - whilst addressing countless growth pains - adjusts his mentality, skillset, and expertise to remain in the leadership position as long as possible.

Here are seven steps to successfully transition from founder mentality to CEO:

1. Objective view and broadened skill set When learning how to CEO, founders must step back from their functional expertise and shift their focus from internal day-to-day operations to developing a broader skill set. The goal is to retire from being a “musician” in the orchestra to become the conductor, the person overviewing all departments and making them work together effectively.

By implementing a meeting rhythm to align the entire company, CEOs can manage their direct reports and executive team in 1-2 days per week. This allows them to dedicate the majority of their time to strategy, building a network, learning from employees and maintaining a strong culture, working with the board and ensuring KPIs are met.

Entrepreneurs must understand their gaps and be open to learning and new approaches. Acquiring a basic CEO skill set and best practices sets the foundation from which the leader must surround themselves with high-caliber individuals who are experts in their field. Hiring a COO is an important milestone to split up responsibilities on the top and complement the CEOs strengths and weaknesses. There is not one job description of a COO, the second in command is unique to the company and the CEO.

This means the founder must be adaptable, open minded and humble. The “stepping back” and facilitation of the leadership team is harsh on the ego and usually a challenge for the entrepreneur who is used to being the start of the show. In order to cultivate a great company, a single-minded entrepreneurial style of management must be replaced by a structure and a set of leadership practices to handle the challenges of a high-growth organization.

2. Redefining the role To leverage their time and energy means that once the executive team is fully recruited, founders need to redefine their role and responsibilities in the company. By leaning into your strengths and zone of genius (activities that only you can do and that give you energy) you can allocate your time and energy in the right places. Clearly determine the value you bring to the company - are you a visionary with endless ideas, operationally strong as an implementer, etc. Create a new responsibility Scorecard with outcomes and required competencies to be successful in the role. Decide what kind of leader you want to be and intentionally develop a powerful executive presence.

I always suggest identifying the important KPIs and priorities and then scheduling everything into the calendar including focus & thinking time, organizing & emails, networking, internal meetings, open office hours, etc. Try to pre-schedule as much as possible to ensure your week is filled with only high-impact activities. Everything else needs to be delegated. By providing clarity, frameworks, and inspiring people to achieve their objectives, micromanagement can easily be avoided.

3. Building a strong executive team Becoming a leader of leaders means you have to surround yourself with experts, then give up control and empower them to step up. Your function becomes to facilitate their minds, turn decision-making authority to others and coach them to find solutions themselves. A strong executive team is more than just a collection of high-caliber individuals, it’s the teamwork and collaboration that can really make a difference and has everyone pull in the same direction. In his books The Advantage and The 5 Dysfunctions of a team, Patrick Lencioni explains the importance of a cohesive leadership team to achieve organizational health. The job of the CEO is to enable the team and to help build strong relationships between each of them. With alignment and a general understanding of each other's personalities, differences, and styles, executives can have healthy debates to solve important issues and support each other.

Strategic planning means getting the minds of your leaders involved, letting them identify important objectives and extracting every possible idea and perspective from them. Then, the CEO must have the courage to make final decisions even if not everyone agrees.

Make sure your leaders continuously grow and develop. Provide them with resources and the support they need to fulfill their potential. Align their interests and incentives. Build capacity on others rather than just yourself and give them permission to step up and even make mistakes - get them to push the limits rather than play safe and hide.

4. Obsessive transparency Patrick Lencioni suggests the CEO should really be the CRO (Chief reminding officer). Only after repeating a message seven times, people start to listen and take it seriously. Internal communication is one of the greatest challenges while scaling. Executive teams often operate in isolation providing little transparency instead of bringing people on the journey with them. Simplicity of strategy, clarity on priorities, and important milestones will help you keep the company focused. Set a clear direction and over-communicate it.

5. People and Culture Post the 50 people mark, the company has a life of its own. You don’t get to speak with everyone on a regular basis and you learn about new hires on their first day on the job. The culture is no longer an extension of the founder, their vision and enthusiasm for the impact they want to make. People feel removed and tucked away in little pockets. Building a positive and productive culture means traveling through the company, listening, staying connected, and motivating employees.

Align your performance management systems with your core strategy (purpose, vision, mission, values, etc.), and implement a robust recruiting and on-boarding process that attracts the right candidates and gets them up to speed in no time.

Learn to practice Conscious leadership and the principles of Level 5 leadership. CEOs need to step back and let others shine. Learn to enable, empower, and encourage executives to step up and coach them to their potential. If you can remove your ego and understand that you're no longer the star of the show, but your mission is to support your team and make their job easier, you will encourage a culture of support and humility.

6. Creating infrastructure Provide clarity on org structure and responsibility Scorecards across the entire organization. Every single person must know who they report to, what their responsibilities and critical numbers (KPIs) are and how their performance is measured (outcomes). Additionally, the priorities of the business, their department, and themselves (OKRs) will help keep everyone focused on high impact activities. This is crucial when you scale. Avoid working in isolation with your board and executive team while leaving the rest of the company in the dark about direction and strategy. Implement management routines such as goal tracking and meeting rhythms to keep everyone aligned and support growth.

7. Standardizing and providing frameworks While scaling operations and people, the only option is to give others autonomy and delegate as much as possible. It’s common but avoidable to become the bottleneck as a CEO. Standardize processes and document everything, help teams and individuals self-organize by providing framework and systems. Create a company wiki and centralized folder with essential documents to set a clear standard of how things are supposed to be done and to avoid confusion. Provide people with frameworks for OKR setting, giving feedback, decision making, issue resolution, effective meetings etc. Best practices and tools are your friend - especially when you grow headcount by 50% or more per year. If there is not ONE way of doing things, people run in circles.