The problems with founders are as old as time. They probably started with the earliest humans, when it turned out that the chap who discovered the cave and cleared out the hungry bear wasn’t necessarily the best person to lead the cave dwellers. Students of business are always looking for the moment when the founder can’t take the company to the next level.
We recognize this and have tried to distinguish between the founder and Founder’s MentalitySM, which is the sense of insurgency and mission, the owner mindset and the passion for the frontline that founders bring to a company. Most likely, a founder will not personally be able to take a company through every stage of its development. Founder’s Mentality, however, will always be essential.
On a recent trip through South America, I saw brilliant examples of founder-led companies in which the founders continue to play critical leadership roles. But I also saw unfortunate examples in which the founders became major obstacles to the firm’s progress.
One CEO I met with, whose last name is still the name of the company, talked frankly about the legacy of the founders. “Yes, I share the name, but I never refer to our founders, my grandfather and great-uncles,” he said. “They nearly destroyed this company, making a whole series of bad strategic decisions and then blaming one another, fighting as only brothers can.” To his mind, they were the worst examples of founders who didn’t mature as the business matured.
Let’s be honest: As my colleagues and I travel the world and talk about the virtues of Founder’s Mentality, we are also collecting good and bad stories about the founders themselves. The list of problems founders can create is growing pretty long, and it’s by no means exhaustive. We add to it every day and we’re sure we’ll find new ones. But here’s a sampling of some of the issues that seem to crop up regularly.
- The Big Fish, Small Pond Problem. The founders believe the rules that governed success in their home markets (where they are big fish in small ponds) should determine their strategies in new markets. The head of strategy for a leading company in South America explained it this way: “Our founders are amazing—some of the leading lights of South American business. But they learned everything they know about business in our home market, from running what is frankly a domestic monopoly,” he said. “Now we are an international company, competing fiercely in other markets. The home market rules simply don’t apply, but they keep wanting to go back to the original playbook. They don’t recognize that the game has changed.”
- The Changing Thumbs Issue. The founders believe that the rules of thumb they use to run the business will apply forever. This was the case at a US-based technology company. The highly regarded founder had created a great deal of value by keeping the business simple, and that commitment continued to serve the organization well in some ways. However, it also created “a tyranny of the old ways,” the current CEO declared. “Early in our business, cash was king. We were growing too fast and we needed to make sure that every contract we signed generated cash, so the single measure of free cash flow dominated decision making,” this CEO explained. “Now, a whole generation of managers continues to make all decisions based on cash generation, even though the founder himself no longer believes it should be the sole measure. They ignore return on investment, customer economics and market share dynamics. Everything is reduced to a few rules of thumb that governed our early years. Those thumbs need to change!”
- The Long March Syndrome. The founder stays fiercely loyal to the compatriots who helped establish the company in its early years (as Mao did, off and on, with the leaders who joined him on his Long March to power). This loyalty often means the founder defends not just the people, but the prejudices those people bring to the business long after they are valid. This is a problem an India-based CEO, the first non-family leader at a family firm, brought up with us. “Our founders are great, but they can’t distinguish people from policy. They are so loyal to the original team that they protect them even when those team members are simply wrong,” the CEO said. “I often think I am making a policy argument and then I find I’m seen as attacking a key member of the original team. Try as I might to make the founders understand they are holding us back, I find myself blocked at every turn by these original employees.” Another founder pointed out a different issue under the same theme. “I’ve got a problem,” he said. “I handpicked my team and they have been with me since day one. But they are ‘mission accomplished’ guys. They come to me, I tell them what to do and they make it happen. They are not business leaders who can work with teams to define an issue and resolve it. How can I replace these guys? They’ve been with me since day one and have done all I asked.” And one more variation on this theme: We saw a founder who struggled with the strong personalities of his original team replace that team with new hires who were more likely to be deferential. In some sense, the Long March never ends.
- The Octopus Myth. The founder originally ran the business by having his or her hands in everything—and so, as the business grows, the founder simply continues to “add hands.” This issue comes up often; a Turkish head of strategy for a large family business gave us the most recent example. “When you’re 500 employees, you know everyone and you can be involved in every decision,” this person said. “When you’re 23,000 employees, though, you have to change how you work. But our founder refuses to give up the right to place his hands on every decision—and he doesn’t have enough hands! He thinks he’s an octopus, but he isn’t, and we’re suffering as a result. Everyone ends up abdicating their responsibilities because they know the founder will make the final decision anyway.”
The list is a long—and growing—one, but in each case, there is a common theme: People think the founder is fantastic, but he or she is not adapting behaviors or perspectives as the business evolves. The Founder’s Mentality remains critical, but the founder’s routines need to change.
Management teams are key in helping founders through this transition. The risk is that the management team throws out everything to do with the founder in rebellion against old routines. This would be a huge mistake. Losing history and connection with the Founder’s Mentality is a heavy price to pay for not adapting in the right way.