One of the most captivating scenes in technology companies comes when the founder leaves and the BoD hires a manager to take over. Why does this almost always happen?
Who takes charge when the start-up entrepreneur leaves? This often occurs with venture-capital-financed technology companies. We only see those with a high profile, but it happens at all levels.
Attention on venture-backed startups has been greatly magnified by the huge valuations attached to Unicorn entities. These are privately financed companies with value of more than $1B. Approximately 200 companies worldwide are in this category at present. Many have stayed private longer than in past years due to the availability of private financing, plus to allow for higher public valuation as they move toward profitability.
The latest adventure in this regard is the stepping down of Travis Kalanick, the Uber co-founder.
Board conflicts, scandals in operations, lawsuits involving theft of intellectual property with a Google subsidiary, and possible government investigations of bribery in foreign countries to allow operations there unhindered. As Travis was forced to step down, the board of directors tried to figure out what individual or type of leader Uber needed.
Although this case has dominated the news cycle for months, if not the past few years, the circumstances are typical in such entrepreneurially oriented companies in which a founder/leader is forced out. The main thought of the BoD is to stop the chaos. They want to bring order to operations. They hunger for a new leader that will solve the headaches and smoothly run the business.
Forget the fact that the previous start-up founder has brought them to their current level from nothing. They reason that the company has reached staying power in the marketplace and now needs an "adult" to run it. So the tendency is to look for someone with totally different skills with a high priority on successful management business experience. This happened at Apple. Tim Cook, the consummate manager, was selected to succeed Steve Jobs, the ultimate entrepreneur. This has proved successful so far as the iPhone has continued to improve and grow in sales and profits.
The knock on bringing in business managers is that they don't really understand the business/market in their gut. The thinking is that these new managers can continue what exists but don't have a clue of what the market needs in the future. Criticism points out that these managers will, therefore, make multiple R&D bets, hoping that they strike pay dirt. The result: R&D expenses rise, but new successful products don't. The result is a slowdown in growth because the recipe is no longer there. Additionally, the leader who understood what the market needs or who had an innate ability to discern the "tea leaves" of always-changing markets is lost.
Is there a better way?
Probably not. Entrepreneurs are not taught to be what they are. They come along infrequently and have the gumption, the ability to bet on themselves, and the tenacity to see things through — despite the odds against winning. Can that be replaced? Not by any business manager, not by BoDs that are almost always financial types, not by anyone that Board members would find appropriate. Their goal is to bring order from chaos. They're there to save the day and the company. They need someone they can talk to who will understand the company’s plight, not the company’s market/customer future needs.
The Board yearns for a neatly greased machine of a company, not an everyday battle in the market, not in the internal people problems of modern company life. They hold the cards and they will follow a similar course every time. The manager selected will calm the chaos, he will find profit, his goal will be to bring boring into vogue. But growth will suffer. It is as sure a prediction as the next day coming along.