01 August 2006

A Factor Impacting Successful transitions

Some recent discussions have led me to to believe that a critcal factor that impacts the success of a CEO - founder transition may be the prior cashing out of at least some material portion of his or her ownership. Arguably, cashing out enables the founder to take some of her risk off the table. By doing so her replacement is more likely to be given the freedom necessary to make the decisions required to successfully lead the company.

Noam Wasserman writes on his blog Founder Frustrations, that "Bridge CEOs" are most times not successful and that VC board members have suggested that companies be prepared to hire two, since the first CEO who replaces a founder will not be successful. I've lived through both situations where founder successors have and have not been successful. A differentiating factor seems to be a pressure relief valve that is at least partially opened by cashing out.

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