Founders of small businesses have a few things in common: First, they are risk takers. Second, they are market opportunists. Third, they are often innovators, inventors and creative thinkers.
Despite these noble attributes, they are commonly left behind when the businesses they create grow and expand.
Sometimes founders step aside willingly, when they recognize that the needs of their businesses exceed their ability to provide for them. This doesn’t automatically mean they lose their ownership position, but it often does. A founder’s equity can get diluted and even eliminated through the issuance of shares to attract partners or employees, or when raising venture capital.
More significantly, founders may realize that selling their businesses to competitors, customers or third parties is in the best interests of their companies, due to commercial opportunities. In these cases they are forced to step aside and watch their creations succeed or fail in the hands of others. It can be difficult, in spite of the financial benefits of a sale. It was after all, their blood, sweat and tears that brought the ideas to life. Now they are left with no influence at all.
I have great admiration for founders who check their egos at the door and see their businesses as living, breathing entities that deserve the best chance to thrive. That takes objectivity, discipline, thoughtfulness and humility.
I have seen cases where founders fail to recognize the bright side of letting go. They hold on to their businesses past their own ability to effectively manage them and they are left with companies that hit a growth ceiling far too prematurely, or they run their businesses far beyond their skill set and they burn out in fiery disappointment.
There are other situations where founders are forced out. This usually happens when businesses mature to the point where they have a board of directors – commonly made up of investors and independents – who correctly feel they are charged with putting the best possible candidates in positions of operational authority.
This doesn’t necessarily mean founders lose their existing ownership positions. But it also doesn’t make those founders, who are feeling alienated in their own businesses, feel much better. If it’s your business and you think you should be controlling it, and then you find yourself fired, capital gains and dividends won’t go very far in easing the pain.
Have you ever heard of Ronald Wayne? Maybe not. He was a co-founder of Apple. He excused himself from the company within the first year, selling his part of the business for $800.
Have you ever heard of Steve Wozniak? Maybe. He was also a co-founder of Apple. “Woz,” as he is often referred, single-handily designed the first two Apple computers that set the company on a tremendously successful startup growth trend. When he returned to Apple after recovering from an airplane crash in 1983, he decided he just wanted to be part of the engineering group, with no key leadership responsibilities.
He retired from day-to-day work at Apple in 1987 to pursue other interests and he remained a shareholder and he continues to receive a small stipend from the company. We all know the in and out history Steve Jobs had with his own company, Apple. His fate, and that of the other two founders, speaks directly to the reality that founders are not always keepers.
While I would never wish to see entrepreneurs ejected from their own companies against their wills, there are clearly situations where founders need to be aware that they are not necessarily suited as CEOs, majority shareholders or poster boys or girls. Be on the lookout in your own business for both the opportunities and the dangers that are commonly presented to founders of businesses.
No matter how a business got started, how it survives and thrives is of greater importance.
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.