Have Faith in Upstart Entrepreneurs

Young entrepreneurs should continue to run the startups they founded instead of handing the reins to more experienced executives. Pro or con?

Pro: Keep Investing in the Founder

A recent Wharton study found that among a range of technology companies, founding chief executives trumped professional CEOs in return on investment, time to liquidity, and exit valuation. Founders have scaled most of the great technology companies we can think of—Microsoft (MSFT), Facebook, Dell (DELL).

The skills needed to run a five-person startup differ from the those needed to operate a 500-person company. If you think of the CEO as just another job function, it makes sense to remove the founder as soon as the company can attract and pay for a more qualified candidate.

But founders have intrinsic strengths. Since their companies are their passions rather than just their jobs, they’re willing to make tough long-term decisions. Because they were selling the product before it existed, they know how to sell the company vision better than anyone else. Employees, customers, and all those affiliated with the company know that if the business is in trouble, the founder will be around, while a professional CEO will be long gone.

There’s a saying among basketball scouts: "You can’t teach height." A founder CEO is like the scrappy, athletic kid who hasn’t yet honed his skills but still succeeds on raw size and talent that can’t be taught. He might not look pretty, but he is tall, athletic, and effective.

It’s challenging for a founder CEO to learn to run a company, but it’s nearly impossible for a professional CEO to acquire the advantages of a founder.

Nearsighted boards might snap up a veteran specialist, but a board that spends the time to coach the founder CEO will build a better company in the long term.

Con: Know When to Look Outside

When I first started Vator, I thought for sure that I would need a new CEO within the first year. But many people—including those I considered for the position—told me I had a vision for Vator, and until that vision materialized, no one could be CEO but me.

Truth be told, I didn’t want to be. But I soon realized that when a founder has a vision, or a general idea of what he or she wants to create, there is no one better to lead. A founder CEO must stay at the helm until the first product or first service is out the door and the business model is past creation and well into optimization.

Now, when I say the "first product," I don’t mean the first product that’s built. I mean the first product that’s adopted. Having the first product or first prototype that doesn’t get traction is not the "first" product. It’s just the first attempt to build a product. Once a founding CEO gets a product to a point where there is demand, there may and can be a changing of the guard. The founding CEO has a decision to make. He or she can either continue to build and figure out a viable and scalable economic model or find a new CEO who can figure it out.

I believe many founding CEOs can do this job early on. But not all. If a founding CEO cannot figure out a way to monetize the product, he or she must move on. Ultimately, a CEO’s job is about not only making a great product but also being able to commercialize it.

Opinions and conclusions expressed in the Debate Room do not necessarily reflect the views of Bloomberg Businessweek, Businessweek.com, or Bloomberg LP.

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