When is it Time to Let go as a Founder?

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When you’re so closely tied to the company, how do you give up the strings?

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Recent news reports that Ralph Lauren, the founder of global fashion powerhouse is somewhat sabotaging his own success by hanging onto old ideas regarding his namesake company.

“Stefan and I share a love and respect for the DNA of this great brand, and we both recognise the need to evolve,” Ralph explained in a statement last week upon the announcement that newly appointed CEO Stefan Larsson would exit the company in May. “However, we have found that we have different views on how to evolve the creative and consumer-facing parts of this business.”

It’s certainly not the first time that a company founder has found themselves at odds with the direction of their companies: founders are typically better at the quick sprint of set up, rather than the long-distance trot of building a strong, scalable business. Start-ups typically don’t begin the way they continue – the initial flurry of activity at some point must give way to consistency.

Founding director of USC’s Founder Central initiative, Noam Wasserman agrees: “Start-ups in which the founder is still in control of the board of directors and/or the CEO position are significantly less valuable than those in which the founder has given up a degree of control,” he explains, after surveying American start-ups in the tech and life sciences industries. “More specifically, on average, each additional degree of founder control reduces the value of the start-up by 23%‐58.1%.”

As Noam points out, the beginning of the start-up journey relies on the attraction of key resources, like financial and human capital, which allow them to better grow a more valuable company.

“However,” he continues, “attracting those resources can come at a stiff cost: the imperiling of the founders’ control of the company they created.”

Founders spend their early years just trying to get control of their idea and company, only to face the inevitable choice of relinquishing that control to someone new – which explains why it’s such a tough decision.

“Some of the smartest people we work with understand their limitations and figure if success involves someone else managing their company, that’s OK with them,” Rachel Sheinbein, a partner at San Francisco-based VC firm CMEA Capital explains.

There are still successful founder-slash-CEOs including Twitter’s Jack Dorsey, who is also CEO and founder of Square, as well as honorary co-founder and former CEO of Polyvore Jess Lee (who stayed on for almost nine years before being wooed away to Sequoia late last year), Acumen’s Jacqueline Novogratz and RewardStyle President and founder Amber Venz Box.

The key to a successful transition? Working together to head in the same direction.

“I’ve never felt like I’ve come in and waved the big stick and said, ‘We’re going to do this.’ It’s kind of like, ‘Hey guys, we’ve identified these opportunities; how do we prioritise, how do we actually get on and start tackling them?’” 99 Designs CEO Patrick Llewellyn says of his appointment to CEO as a non-cofounder. “We’ve always done that as a group. We do our strategy sessions together; we do our business planning together.”

“I think the trap for a lot of people when they move into roles is they feel like they have to make their mark quickly,” he continues. “I’m a big believer in taking a little bit of time to make sure you fully understand the lie of the land and understand the fundamentals of the business before you really start to shake it up.”

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