A VC in Vacationland

Let’s get the band back together!

One of my son-in laws recently revived his band, after a seven year and two grandkid hiatus, to play at a close friend’s wedding.  Since we had never heard him play, we invited ourselves to the post reception party (as in "It’s OK, I’m with the Band"). Let’s just say it was not the best idea to restart the band, but my son-in-law is a terrific drummer, nonetheless.

In the same week, the founders of two of my portfolio companies approached me about either taking over again or wanting to stay in power longer. So the whole "let’s get the band back together thing" triggered some thoughts about whether founders should continue participating in the management of the companies they have helped found.

I’ll tell you my "returning founder biases" up front–only in very limited situations should founders stay around in management roles. Unless you are a founder like Steve Jobs ( a clear success) or Michael Dell (jury still out), you are probably better off deciding what you want to do next in your life, rather than trying to relive an earlier success.  Further, everyone is replaceable in this world and you should have already ensured that the right resources are available to carry on what you have begun and nourished. Finally, if someone wants to go through all that start-up misery again, I begin to question their sanity. 

So, when should founders move on?  Continuing with the overworked music theme, perhaps The Clash (Combat Rock, 1981) have an answer:

Should I stay or should I go now?
Should I stay or should I go now?
If I go there will be trouble
An if I stay it will be double
So come on and let me know…..

Seriously, here are some thoughts on when the founder should consider moving on:

• Scaling the company–most founders have not lead a company through various stages of revenue growth.  Entrepreneurs are usually great at getting a company going, raising some cash, designing and building the initial product and attracting launch customers.  But many entrepreneurs are not interested in the day-today miseries of running a business, hiring the next round of talent, adding infrastructure, etc. etc. Investors begin to see that the company’s growth potential is limited by the inability of the entrepreneur to scale employees, customer service, channels, development and operations. It is not really the founder’s fault.  If you have not done it before, why should you be expected to understand the process when you have no play book in your mind?
• Management failure–It is not uncommon, even after a founder has relinquished their C-level roles at his or her company, for a management failure to occur.  An initial reaction by many founders is the urge to run in and save their baby.  It may have been more than a few years since the founder had any direct operational responsibilities, but the urge is there.  They begin to lobby the board about "taking over again", often denigrating current management for screwing up.  Again, unless you are very close to the company and really know the way out of its problems, you are better off spending your time finding new leadership who have a vision forward, rather than try and remake what worked in the past.  Michael Dell was quite clear to his employees on Day 1 of his return to Dell that the old ways were not going to cut it.  We will all see if his new ways work, but looking for new solutions that build on past success is the right way to approach the issues. 
• Back to the Future–Another related example of why founders should let others move the company forward is that some founders believe it is totally wrong to change how a company worked under their regime. The movie, Back to the Future, may be fun to watch, but it is sure no way to run a company.  Even when things are going well at a company, the founder may not like the version of success being enjoyed by the current management and try and reverse course.  This is always a bad idea, even when management failure is involved.

Next week, we will look at some reasons founders should stay involved with their companies.