3.9 Founder’s Syndrome

Technology entrepreneurs are typically high-energy, confident people, or else they never would have taken the risk to found a company. While this strength of character is essential to driving the Company through the many challenges to success, it has a dark side. Many entrepreneurs believe they have all the answers and resist advice. They also want to make all the important decisions themselves, and frequently over-rule decisions with which they do not agree. This frequent phenomenon is termed "Founder's Syndrome". This behaviour typically prevents the company from growing larger than a small size defined by what can be accomplished by a single, driven founder.1 Often it causes the company to become one of the 80% that fail to achieve their expectations.

Worse, founders often realize that they need to take advice and delegate decisions, and resolve to do so. They hire senior executives and strengthen their board. Often, they may cede the CEO position to an experienced manager. However, as well-intentioned as these actions are, when confronted by an important decision with which they do not agree, they may grab back the controls, cursing the day that they listened to people who didn't understand the situation.

This is one of the occasions where the intervention of an experienced Board may be crucial to making or breaking the company. First, the frequency with which Boards have to deal with Founder's Syndrome may in fact be reducing. Angels and venture capitalists are becoming much more adept at recognizing founders who believe they know it all and won't take advice and can't effectively delegate. An entrepreneur who is tagged as "uncoachable" usually does not get funded, and cannot attract a professional Board. Sometimes, these founders can struggle for years before coming to terms with their own limitations and then accept the advice and assistance of other professionals. If they don't, their companies often struggle miserably.

However, Boards may find themselves in a situation where the Founder/CEO, often under the pressures of growth or challenges of setbacks, begins to pre-empt decision-making processes, over-ride his managers, take on more work, and start to exhibit signs of stress. These are typical symptoms of Founder's Syndrome. The Board needs to act, but judiciously.

The first action should be for the Chairman, as the director with the strongest relationship with the CEO, (Please see related document Relationship between Chair and CEO) to take the CEO off-site for an informal coaching session. In his role as mentor, the Chairman should empathize with the pressures of the CEOs job, and the current challenges in particular. He should note where the CEOs approach may be counter-productive and offer suggestions for improvement. The Chairman should meet with the CEO briefly, but weekly, to review progress. A coachable CEO should be able to take the advice and put it into practice. The obvious danger is that the Founder/CEO may become defensive, and cut himself off.

Often, however, this may not be enough. It may be a tall order to overcome the controlling tendencies of strong individuals in times of stress. It may take time. The Board, through the Compensation Committee, may establish a formal, written performance improvement program for the CEO. Progress should be measured by objective surveys completed by the Board and senior reports. Considerable care will be needed in implementing and monitoring the program so as not to diminish the credibility and authority of the CEO. Experienced Human Resource professionals may need to develop and administer the program. There may be no quick fix to the issue. However, if the CEOs approach does not worsen, and shows measurable improvement, even if small, then the appearance of the change may be as welcome as the change itself, and a crisis may be avoided.

Far too frequently in early stage technology companies, even the performance improvement process does not produce the needed changes. The Board may conclude, with regret, that the Syndrome is impeding the company's progress and it cannot be changed within the individual. The CEO must then be replaced. Please see related topic CEO Succession.

In venture-backed companies, the shareholders agreement may specify that the preferred shareholders, meaning the venture capital investors, have the right to hire and fire the CEO. (In negotiating the shareholders agreement, companies should strive mightily to retain this responsibility with the Board, or else the Board is essentially neutered.) Were the shareholders to lose confidence in the CEO before the Board, then an irreparable rift could occur on the Board. This could devastate the company from the stress on the CEO, senior management and the Board. This is a situation which experienced Boards should be able to avoid.

The important point for Boards in this discussion is to be aware of Founder’s Syndrome and the significant detrimental impacts it can have on the company. Only the Board can effectively deal with the situation, and the Board must act.

1 For more information on the stages of company growth, please see the seminal article: "Evolution and Revolution as Corporations Grow", Larry Greiner, Harvard Business School press, harvardbusinessonline.hbsp.harvard.edu/relay.jhtml?name=itemdetail&id=98308.