Executive Entrepreneurship and the New Breed of Founding CEOs
(this blog post was originally published on CEO.com)
“You always do want a Founder-CEO. But that person doesn’t always have to be the Founding CEO.” – Reid Hoffman
Ideas have limited value without outstanding execution. Everyone has ideas; some are good and some are not, but a select few people are capable of executing on an idea and creating real value by growing business from a single product or service with traction through the long and winding road to a scalable, sustainable and successful business. It is these people who make startups successful but by definition, and for one reason or another, startups don’t last forever and their proven executors move on. WayFounder bridges this gap and provides an alternative path to startup success.
Organizations like WayFounder, for example, provide an alternative path to startup success.
As the number of startups increases and the barriers to launching companies decreases the ecosystem is constantly adding new and first-time founders. This is a welcome and important factor in keeping the landscape competitive and idea generation fresh. The incubator and accelerator community plays a big role in this process with more than 1,000 incubators and accelerators operating in the U.S. at the beginning of 2014.
Two notable trends have developed as a result of this increase in startups competing for fast market validation and follow-on funding:
First, Founder-CEOs who succeed at building a fast-growing startup tend to be fired even more quickly than slower-growth CEOs. We believe the executive talent replacing those Founder-CEOs represents a valuable and aggressively recruited group – comprised of talent from the pool of former startup CEOs exiting the incubator/accelerator ecosystem and the general corporate executive community.
Noam Wasserman shares some interesting statistics in his book The Founder’s Dilemmas (which I would recommend to anyone thinking of starting a business, and especially if there will be multiple founding partners):
Your success as founder-CEO gets you fired. There are two main reasons. First, the fast-growing startup outstrips their skills even faster than if they had achieved moderate growth. Second, the fast growth is often fueled by the raising of outside capital, which shifts the power within the board away from the founder and toward the outside investors.
More than 50 percent of founders are replaced as CEO by the time the startup raises its third round of financing. After the first round, 25 percent have been replaced; after the second round, 38 percent have been replaced; after the third round, 52 percent have been replaced.
Entrepreneurial strengths often become Achilles heels: Early on, a founder’s passion for the idea, confidence in its prospects and in his or her own abilities, and attachment to the startup can be the founder’s greatest strengths. As the startup evolves, though, each of those strengths can become a major liability as the founder refuses to adjust the idea, underestimates the need for additional resources or skills, and makes decisions that harm the startup.
The second trend is the increasing number of capable former Founder-CEOs and early-stage team members as the number of startups exiting incubated and accelerated companies increases. The fundamental structure of most incubator models is to fail fast, pivot quickly and identify a viable product with a high likelihood of securing customer validation and a fresh round of funding as quick as possible. Consequently the number startups that do not scale or raise funding out of incubators/accelerators is producing a large talent pool of Executive Entrepreneurs. These CEOs and their founding team members have firsthand experience in the challenges of scaling a startup and therefore offer tremendous value to those startups in the growth phase.
The WayFounder model sources startup ideas from the broader population of Idea Generators and Nontrepreneurs who would likely never funnel through the traditional incubator ecosystem and rewards them with cash and equity for their idea. If a product exhibits the potential to become a sustainable business, Founder-CEOs with experience in those specific verticals are recruited to take a scaling “business in a box” with early-adopter customers to the next level. Those second-stage Founder-CEOs are Executive Entrepreneurs.
A few of the value propositions that Executive Entrepreneurs offer are:
• Having been to the rodeo before, they not only survived the experience with their health, sanity and relationships intact, they genuinely enjoyed and thrived in a startup environment.
• The idea of taking a “corporate” or staff job at a larger established firm is not appealing. Stronger is the desire for growth potential in being part of another startup at the founder-level.
• The opportunity to assume the helm at a rapidly scaling and well-funded “business in a box” is more attractive than generating new startup ideas and beginning the long and painful investor/incubator/funding process all over again.
• A willingness to trade away a portion of the equity upside as if it was their own startup for “Optimistic Stability,” the added security of a salary, contract, and comfort of running a startup in their specific wheelhouse or vertical – and still earning a significant share of founder equity.
• Executive Entrepreneurs have day-to-day tactical executive hiring and decision-making power with the strategic guidance, resources and support of a high-level and actively engaged board and investors behind them team.
For some, serial entrepreneurship is a lifestyle and those founders will always be putting it all on the line to pursue their own startup ideas. Those personalities are incredibly valuable to both the innovation culture and the ecosystem as a whole. For many others who have taken that path and for whatever reason either cannot or choose not to go through the experience again, there are new opportunities to be a Founding CEO in a de-risked environment.
Here in Los Angeles and Silicon Beach I meet a lot of founders and founding team members after they have exited incubator/accelerator programs and have not, for various reasons, secured their Series A funding and are unable to pivot in a way to keep moving forward. A great number of them are excited when presented with the concept of Executive Entrepreneurship. Relieved of the pressure to come up with the “next great idea” to get funded they can focus on growing an existing early-adopter customer base into a sustainable business with the flexibility and control inherent in a CEO role.
In the constantly evolving world of startups, new ways of both founding and building businesses are coming to light. Executive Entrepreneurship is an integral component of the “new founding way.”