Entrepreneurs have a tough job. They give everything they’ve got to turn their big idea into a company and then, just when things start to really get going, they often have to be willing to turn the reins over to someone else.
This is the ironic truth about successful start-ups: Stepping aside as CEO may be a founder’s single most important contribution to a company’s success.
As a VC firm, our job is to help compress time and get a venture from idea to development to market as quickly as possible. At the same time, we try to remove as much risk from the process as possible by lending our experience and abilities to entrepreneurs. We focus a lot of our attention on the CEO because a good one can remove a lot of the risk involved in building a sustainable, successful business.
If you’re a founder CEO in the process of deciding whether or not to replace yourself with a CEO from outside, you’ll have to ask yourself a lot of tough questions’and answer then honestly. You’ll need to evaluate your ability to fill the CEO’s shoes, just as any other company stakeholder would. When looking at your ability to take your company to its next stage, consider these issues:
• At which stage is your company in the business cycle and do you have the skill set for the next step?
• Where does product development stand? If you’re ready to start production, are you prepared to develop and run a manufacturing operation?
• Have you begun to build a sales team? Are you prepared to build and strategically manage an extended sales force?
• Has the company’s needs for leadership and operational management grown beyond your experience?
• What is your current revenue? While in many cases founder CEOs can take a company to $50 million in revenue, getting to $1 billion in sales requires a more seasoned CEO.
• Do you have the contacts to form and build strategic relationships with partners and customers? Access to a long list of customers and business partners is one of the key assets an experienced CEO can bring to a start-up.
In our experience, solid leadership is the single most important factor in a venture’s success. Many companies under-perform, or even fail, because the founding team doesn’t make the right management transitions at the right time. At each critical juncture in a company’s growth, founders should evaluate their role as CEO with an honest appraisal and be willing to step aside for the sake of their company’s growth.
Reprinted from my son’s Blog on www.startupmuse.com :
Marianne Hudson, the Executive Director of the Angel Capital Association sent me this letter and I thought it was worth sharing:
Sen. Chris Dodd released his Financial Reform bill last week. To say that the behemoth bill has scary things in it for angel investors – and the entrepreneurs you in invest in – is an understatement. Essentially it recommends increasing the thresholds for accredited investors and also puts in a complicated and long process that would probably result in state regulation of Reg D offerings, likely leading to greater difficulty in syndicating deals across state lines. The relevant sections are Sec 412 and 413 (pages 380-381) and Sec 926 (pages 816-819).
Bottom-line, these sections could reduce the number of accredited investors by two-thirds (based on data from Rob Wiltbank’s returns study of angel in angel groups) and create all kinds of complications for entrepreneurs (120 day waiting periods for review of filings, different state regulations that make it difficult to syndicate, and even calling into question whether angel investors are “covered securities.” ) Yikes!
ACA leadership has talked with staff from Sen. Dodd’s office and we believe it was not his intention to create this kind of damage for investors, small businesses, and jobs. Instead, they want to protect investors from more Madoff funds, hedge funds, and the like. With that understanding, we are meeting with staff of both Sen. Dodd and Ranking Member Sen. Richard Shelby with recommended language to alleviate these issues. I should note that the Senate Banking Committee started marking up the bill this afternoon.
In the meantime, we want to make sure that as many Senators as possible are aware of these issues. We’re working on some of that via the media, working with the Kauffman Foundation, etc. We also need your help in contacting your Senators, and offer the attached toolkit:
Please write your Senators about your concerns about the bill, particularly if your Senator is on the Banking Committee. Attached are several tools to assist you.
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Copy of ACA’s open letter to Sen. Dodd dated today.
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A word based document you can use to write your own letter.
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The summary of the feedback from several members on syndicating deals across state lines.
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List of the Members of the Senate Banking Committee – see http://banking.senate.gov/public/index.cfm?FuseAction=CommitteeInformation.Membership (Hint on letter to Senators – it turns out that FAXING is the best way to reach them. Really.)
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We also have a whole bunch of other resources on the ACA Web site – go to www.angelcapitalassociation.org/resources/public-policy/federal-policy-issues/highlights/.
I will be sending a note to ACA’s full membership shortly, so you’ll get another email from me. In addition, I will be contacting a few of you individually to get additional help in contacting Senators on the Committee.
Thanks to Joe Bartlett – an attorney with Sullivan & Worcester who has put in considerable pro-bono time for us - but also Liddy Karter (who is meeting with Sen. Dodd tomorrow), Dick Reeves (who is connecting us with Sen. Shelby), and Bob Franklin.
Best,
Marianne Hudson
Executive Director
Angel Capital Association
913-894-4700 x1
mhudson@angelcapitalassociation.org
