Among the reading material Gabe Vehovsky gives to students in his entrepreneurship class at Northwestern University’s Kellogg School of Management is “The Founder’s Dilemma,” a Harvard Business Review article detailing the long odds that a founder will remain CEO.
Vehovsky didn’t think much about it until he found himself out of the CEO job, four years after launching Curiosity.com, a digital-media company that creates articles, videos and podcasts. The company was taking longer than expected to boost sales, and the board wanted to restructure it after raising another round of funding.
Two months ago, Vehovsky was on a phone call with his directors. “It got to a point where there was a material difference of opinion in how best to move forward. I said that if that’s the direction everyone wants to go in, maybe I’m not the right guy to lead the company. It wasn’t something I had ever thought about before, but given the situation we were in, it became apparent to me.” In mid-October, Curiosity named Lisa Weinstein CEO and Vehovsky became an adviser.
Curiosity is one of several Chicago venture-backed companies whose founders have headed for less prominent posts in recent months, including Luxury Garage Sale, NowSecure, Shiftgig, SMS Assist and SpringCM. They join a roster of earlier startups that turned to more experienced CEOs to oversee a bigger operation, including Cleversafe, Protein Bar, Sittercity and, most infamously, Groupon.
On average, about half of founders make it to the third round of funding, or the company’s fifth birthday, says Noam Wasserman, who later turned the Harvard Business Review article into a book and now teaches at the University of Southern California.
Some founders jump, but nearly 75 percent of the time they are pushed, Wasserman says. Some are self-aware enough to realize when they need someone with more experience to take the reins.
Eddie Lou, who co-founded Shiftgig, an on-demand staffing platform, knew from the start five years ago that he’d be vacating the corner office if things went as well as he hoped. “What we didn’t know is what year or what stage the company would be,” says Lou, who started his first company during the dot-com boom and was a venture capitalist before Shiftgig. “We pivoted the business in 2014, and it started working. I thought maybe I should find a person to take it to the next level.” In September, Shiftgig hired LinkedIn veteran Wade Burgess as CEO; Lou remains chairman.
Often the successor is nearby. Dan Dal Degan was a board member of SpringCM, a cloud-software company, when founder Greg Buchholz asked him to become CEO. Buchholz remains president and chief operating officer.
FOLLOW THE MONEY
Venture capitalists are less trigger-happy than you might expect because their chances of making money get better the longer a founder stays in the CEO chair. “You only make money as a VC if a founder can take the company really far,” says Ira Weiss, a partner at Hyde Park Venture Partners.
The reality, however, is few founders follow in the footsteps of a Bezos, Jobs or Zuckerberg, and make it from CEO of a startup to CEO of a big publicly traded company. “Those skills are totally different,” says Sam Yagan, a successful startup founder and venture investor who recently took over as CEO of ShopRunner, a venture-backed company. “It’s a pretty big ask.”
Even after backing Matt Maloney and Mike Evans, a couple of 20-somethings who founded Grubhub in 2004 and took it public a decade later, Steve Miller of Chicago’s Origin Ventures knows “it is the exception rather than the rule” for a founder to make the journey. Evans left after the IPO and recently started a new company. Maloney remains CEO.
“I don’t know why I was able to scale,” says Maloney, 41, who now leads a company with 1,500 employees and a market cap of $5.25 billion. “If you acknowledge you’re not the smartest guy in the room, but you can be the hardest-working; and if you’re willing to be coached, you can be successful.”
Miller praises Maloney’s and Evans’ smarts and self-awareness, adding, “It also takes a little luck.”
Self-awareness takes many forms.
“I’m not doing anyone a favor to hang on to something I wasn’t fully bought into,” Vehovsky says. “A founder has to have conviction, this unshakable belief in the direction the company is headed. I could get there, but it would take some time. That’s one thing a startup doesn’t have.”
He recently re-read that Harvard article, recognizing himself, if not by name. “It’s hard, abrupt and painful and all those things,” he says. “I remain an investor and supporter of the business, and I invested in the (financing) round. It’s one of those crossroads.”
It’s also, in other words, the founder’s dilemma.
Originally featured in Crain’s Chicago.