Founders find it tough to choose someone to run their business

June 11, 2013 4:58 pm

Let the right one in

By Emma Jacobs

Kenny Wilson had a blunt conversation with Cath Kidston, founder of the eponymous floral home furnishings and fashion business, before he took over two years ago as chief executive. “I said ‘If you don’t want a CEO then don’t hire me’,” he says.

Stating the obvious? Perhaps. But Mr Wilson knew all too well that many entrepreneurs who appoint someone else as chief executive are incapable of actually ceding control. John Mullins, as­sociate professor of management practice at London Business School, ob­serves: “Founders let go with difficulty. People’s identity is subsumed by the business.”Allan Cohen, professor of management at Babson College in the US, believes the relationship a founder has with his or her company is analogous to that between a parent and child. “How many parents are prepared to let go of their kids and parent in a different way to when their children are tiny?” he asks.

Entrepreneurs unable to relinquish power risk constraining their business. As Noam Wasserman, professor of entrepreneurship at Harvard Business School, showed in his research and subsequent book,The Founder’s Dil­emmas: “The more decision-making control [held by the founder], the lower the value of the entrepreneur’s equity stake. Thus entrepreneurs are more likely to grow a more valuable venture if they are willing to give up control.”

Lacking external perspective is problematic, adds Prof Cohen: “Powerful people come to think they are good at everything. No one gives them honest feedback and they have a problem letting go.”

Reid Hoffman, who co-founded social network site Linked­In in 2003, writes in a recent blog post that the first step in realising he needed an external chief executive was to examine his own shortcomings. “As we scaled from a handful of people in my living room to dozens of people at an office, I saw the job of the CEO shifting. At 50 people and beyond, a CEO increasingly has to focus on process and organisation, and that wasn’t what I was passionate about.”

He hated, for example, running the staff meeting. His interests lay not in the nuts and bolts of running a growing company but in “solving intellectual challenges and figuring out key strategies”. “The decision to step back is a function of self-realisation. It doesn’t work if the plan is being externally imposed by investors.”

Inside tips on hiring an outsider

Recognise your limitationsSome people are better suited to starting a company than running a well-established business. It will be a happier experience if you recognise your skills and shortcomings yourself rather than get ousted by investors.

Recruit well Identify what skills a complementary hire may need, possibly with the help of an adviser or board.
● Identify a new role If you are staying on, you need a clearly defined job that plays to your skills and is distinct from the chief executive role. There must also be clear reporting lines for staff so that there is no confusion over leadership.
● Spend time togetherPreparation for making a handover is key to getting the transition right. The newcomer needs to understand the brand and the company culture as well as build trust with the founder.

It is vital, he continues, that a founder appreciates that the expanded company’s needs are very different to those of a start-up.

While Ms Kidston likens her relationship with the brand to that of a parent she realises that her established design group, like a grown-up child, had different requirements to a new business, or, indeed an infant. “The brand is 20 years old and should be independent. I want to be on good terms with it, involved in its development, but I want it to function and grow independently from me,” she says. “Handing over the reins has been enjoyable. I’m able to work full-time in the business as creative director, and trust the decisions around things such as global expansion are in very safe hands.”

Rupert Merson, a business adviser, says it is important to appoint an outsider with “complementary skills rather than complimentary”. Too many entrepreneurs recruit someone like them. “It’s the last thing they need,” Mr Merson says. “Recruitment is very subjective. It’s very easy to like people who agree with you. It requires objectivity to recruit the right person.” He suggests getting help from a peer, an investor or the board to identify that person.

It is advice that Max Barenbrug, co-founder and chief executive of Bugaboo, the Dutch pushchair maker, wished he had been given earlier in the company’s history. He warns entrepreneurs against being intimidated by executives who have worked their way up the corporate ladder. Having stepped back from the company and handed over to an external chief in January 2009, he wishes he had spent more time recruiting for the role.

“It is a profession in itself to find the right person,” he says. “We were entrepreneurs starting from scratch and learning by doing. Then you meet this professional person and they know all about processes and how it should work and you are impressed by him.” Mr Barenbrug bel­ieves he made an ill-advised appointment and reinstated himself as chief executive.

Once the right person has been appointed, however, founders need to carve out a clear role for themselves if they are staying on, such as creative director or chief technology officer. “The founder needs to get clear in their mind what they want to do,” says Prof Mullins. “If they want to stay on and be involved they need to identify a role that’s not a CEO. If they keep fiddling, the CEO will fail or go.”

For the external hire, there are clear advantages of having a founder remain, says Mr Wilson, who had previously headed the European operations of Levi Strauss, the denim company. “I know what Cath’s vision is. I couldn’t ask Levi Strauss.”

Preparation for a transition is important. Prof Cohen advises discussing how to handle certain situations before they arise.

Ms Kidston agrees. There was a six-month gap between Mr Wilson’s appointment and his first day in the job. During this period, the two spent time chatting over dinner at her home as well as in the office. “There has to be personal chemistry, respect and trust. When you walk into a founder’s business you can’t walk in with arrogance,” says Mr Wilson.

“Taking our time,” adds Ms Kidston, “allowed him to really understand the business [and] spend time with the teams. There will be times when you will disagree with your CEO, and how you resolve these disagreements will depend to a huge extent on whether you trust each other.”

In Mr Hoffman’s case, he booked a lot of travel for the first six months after Jeff Weiner came in as CEO in 2009. “When employees tried calling me to double-check a decision, I replied: ‘Sorry, I’m in Rome, talk to Jeff.’ Jeff needed to build up his own [connections] within the organisation. By the time I returned from Europe, those connections were hard-wired.”

Ms Kidston reflects: “There’s a risk that the existing team won’t buy into the new leader, or, even worse, that your teams start choosing ‘camps’, which can result in division across the business. If you have brought someone in, it is essential that you are seen as a team and that you are communicating with one voice and supporting each other.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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