CEO.COM
April 3, 2014
Executive Entrepreneurship And New Paths To Startup Success

“You always do want a Founder-CEO. But that person doesn’t always have to be the Founding CEO.” – Reid Hoffman

Ideas aren’t worth much without outstanding execution. Everyone has ideas, but few people are capable of executing on an idea and creating real value by growing a single product into a scalable, sustainable business. These exceptional individuals, known as Founder-CEOs, are critical during the startup’s early stages, but startups don’t last forever and their proven executors move on.

As the number of startups increases and the barriers to launch a company disappear, new and first-time founders are constantly entering the business ecosystem. The influx of founders into the business world has helped breed competition and keep idea generation fresh.

Two notable trends have developed as a result of this increase in startups that are competing for fast market validation and follow-on funding:

First, Founder-CEOs who succeed at building rapidly growing startups tend to be fired at a higher rate than slower-growth CEOs. The executive talent replacing those Founder-CEOs is 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, 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 the market has seen is a growing number of capable former Founder-CEOs and early-stage team members as the number of startups exiting incubated/accelerated companies increases.

The fundamental structure of most incubator models is to fail fast, pivot quickly and identify a viable product that is likely to secure customer validation and funding as quickly as possible. Consequently, the number of startups that do not scale or get funding out of incubators/accelerators has produced 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.

Several organizations provide an alternative path to startup success. Wayfounder, for example, sources startup ideas directly from the broader population of “Idea Generators” and “Nontrepreneurs” who would likely never funnel through the traditional incubator system. Successful ideas are rewarded with cash and equity. If a product has 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 called Executive Entrepreneurs.

A few of the value propositions that Executive Entrepreneurs offer are:

  • They’ve been to the rodeo before. They not only survived the experience with their health, sanity and relationships intact, they also 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. They have a strong desire to join 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.”

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author:
Damon D'Amore
bio:

Damon D’Amore has spent the last three years in two start-up ventures he cofounded in the consumer product and web/mobile spaces. Both experiences were inspirations for WayFounder, which is running a national competition starting April 8. Damon has more than two decades’ experience in taking products from concept through development, marketing and distribution. He also has 15 years of experience producing high-profile, multimillion-dollar marketing integrations in both television and online. Damon has worked closely with more than 250 of the most successful CEOs in the nation. In traditional media, Damon produced a number of creative brand integrations for Fortune 500 companies on multiple seasons of the reality television shows Undercover Boss and The Apprentice with Donald Trump. In the online space he produced the gaming promotions for Shrek the Third. Damon held the position of Vice President of Production and Development for the independent film and television studio The Shooting Gallery. Prior to his work in the entertainment and new media sectors, Damon was a Vice President at Cantor Fitzgerald, where he brokered and traded a range of institutional products.


  • http://www.bloomersisland.com/ Bloomers!

    I have asked a potential “co-founder” to join me 4 years after I started my company. I purposefully chose someone with a long history at Fortune 500 companies at a c-suite level precisely for this reason you write about. I told him – I can run a small company really well. I want you to teach me how to run a big company. Great post.

  • http://www.foundertransitions.blogspot.com Les Trachtman

    I’ve been the successor CEO five times to founders of those organizations. It’s a treacherous path to take over for a founder no matter whether you are an insider or outsider. Clearly, a successor who “gets” the culture, has a stewardship mentality, and a very supportive founder and board has the best chance to succeed. I have found the process of transition is just as important as where the heritage of the “next” CEO.