I was recently speaking with the founder of a successful US startup. A few months before our talk, I had read the press release about his decision to step away from operational responsibilities at his company, so I wanted to know the details. What’s written in an official press release is often very different from the actual story.
As I guessed, the reality was rather different. As the company scaled from a creative startup that valued experimentation to a large enterprise focused on achieving quarterly metrics, the board found itself increasingly disagreeing with the founder’s decisions. Eventually the board requested that the product-focused founder step aside to make way for a financially-minded CEO. Since the founder didn’t want to disrupt the harmony among the company’s employees, many of whom he had personally convinced to join the company, he chose the high road by presenting his departure as a voluntary transition.
Assuming that investors have the legal right to replace a founder, they are very likely to face the question of whether they should do so at least once during the startup’s life. Each important decision that a company makes is an opportunity for the founder and the investors to disagree. As a result, as a company ages, it becomes increasingly likely that investors will eventually reach a string of disagreements with the founder. The right course of action in such a situation is a subject which has been covered at length by entrepreneurs and investors who have much more experience on the topic than I do. Therefore, my goal here isn’t to say that one approach is better than the other, but simply to share my thoughts.
Based on my experiences, the best founders who ultimately produce the large exits that drive a venture fund’s returns run their businesses much better than I ever could. While I may be a useful sounding board when they’re thinking about their strategy, and I may connect them with people who have a large positive impact on their business, I don’t live and breath their business every day of the week. Therefore, in the event that we have a disagreement, they’re likely to be armed with more comprehensive and accurate information than I am. This also means that they’re more likely to be correct than I am.
Let me illustrate with a concrete example. I recently had a disagreement with a founder looking to perform a large marketing campaign. The founder wanted to start the campaign now, while I recommended that we wait for the introduction of a few more product features which would improve the product’s registration to transaction conversion funnel. This way we would achieve a higher return on our marketing campaign.
Ultimately we started the campaign now and the results were very positive. While we will never know whether the counterfactual, namely if we had waited for the new product features to be introduced before performing the campaign, would have generated a better result, the founder’s decision produced a very successful outcome.
A single example is by no means sufficient to produce a generalizable truth. However the majority of my experiences suggest that an ethical, capable, and motivated founder’s decisions should be trusted. In the event of a disagreement, they are more likely to be correct than I am. As a result, as long as I still believe in the integrity, intelligence, and energy of a founder, they deserve to run the show.