13 November 2006

Founder adoption

There is no closer analogy for the hired gun CEO taking over a founder run business than adoption. Founders "baby" their startups, spending inordinate time and attention nourishing them during their early years. Mistaking taking over for the founder (especially one that remains involved in the business) for anything less than this level of emotional attachment is a fatal mistake.

So when I made the decision that we needed to change the name of our company as we positioned ourselves for market expansion, I knew I was in for a difficult process. The founder of my company had been its leader for almost 18 years by the time I took over. He had painstakingly bootstrapped the company and had done so quite successfully. Deciding only after this time that he was finally ready to take on some institutional capital in return for a partial cash out, he agreed to replace himself as the CEO.

The transition from founder to hired gun CEO actually went pretty well. We worked closely together, he as a mentor and me as a change agent. I made no material changes without a detailed discussion and rationale with him and ultimately, if I was passionate about a change, my direction was adopted. If not, and we disagreed, he often was able to talk me out of it.

This arrangement worked quite well. The company grew quickly during the first few years of the transition, culminating during the heat of the market runup in 2000 with us taking on some strategic investors (two of our clients) and our founder being able to cash out even more of his holdings at a very nice multiple. It was at this time, that we decided to expand our business. As our team reviewed the alternatives, one of the ideas that became clear is that we needed a bit more expansive name than the TLA (three letter acronym) that we had adopted as our call letters. So after much painstaking process, and many rejected attempts at renaming the baby, we all agreed (founder included) that the change would go into effect.

We positioned the name change to be announced at a gala affair we had arranged in conjunction with the San Francisco Giants baseball team. We had rented out (then called) PacBell field to invite some of our largest customers, partners, and investors to play ball with Vida Blue and Mike McCormick - two former Cy Young award winners, in a charity event. The idea was to make a big splash with our marketing repositioning.

The founder and I dressed in our best baseball garb in the visitors' club house and began the long walk out from the clubhouse through the dugout onto one of the finest baseball stages in the world. As we were coming up the steps of the dugout onto the field, the founder turned to me and matter-of-factly told me that he had changed his mind and that he was withdrawing his support for the change of name.

Fortunate for me it was too late. I pointed to the scoreboard out in center field that glowed with a welcome message with our new name and logo. The deal was sealed. The baby was renamed, and we all lived happily ever after. (By the way, four years later we sold the company for a slightly lower multiple than the heady valuations of 2000.)

The moral of this story? Don't take lightly the responsibility and emotion that is involved with adopting a founder-based early stage company. There is much more involved than meets the eye.

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