The Next Level

Avoiding the pitfalls of fast growth.

With all of Facebook’s struggles since its initial public offering, I suppose it’s not surprising that there were whispers over the summer that Mark Zuckerberg should be replaced as chief executive. But spare me. There is no one on Earth who is as qualified to run Facebook.

While things have started to look up for Facebook of late, this conversation is part of a familiar pattern. Bankers, investors and consultants are often outrageously quick to pull the trigger on founders of fast-growth companies. We all get intoxicated by hyper-growth, and expectations can get out of control, which is why smart, fast-growth entrepreneurs temper those fantasies. But it can be hard when the publicity machines are trying to turn the entrepreneur into some kind of Superman.

It happens all of the time with entrepreneurs who are successful enough to hire experts to help them move their companies to the next level. The problem is that the bankers and consultants often show up right in the middle of the hyper-growth stage and sometimes the next level is where the growth starts to level off into reality.

At this point, the bankers and consultants really can’t help, but they want to stick around and the only way to do that is by firing the guy who hired them and bringing in a white knight to “save” the company. You’ve seen this movie before: the founder steps down and is followed by a carousel of unsuccessful chief executives for years to come. If this kind of talk can happen to a founder like Mark Zuckerberg, who has produced billions of dollars of revenue, it can happen to any founder. But given how poorly the strategy often turns out, it’s tempting to ask why people are so quick to fire the founder.

There are two reasons. First, bankers, investors and consultants often underestimate founders by calling them visionaries or technical geniuses while questioning their skills as executives. But to get a company from start-up to second stage — where it has transitioned to both positive cash flow and increased market share — is extremely demanding. It requires swift execution and creativity. If the founder didn’t have those skills, the company wouldn’t have gotten so far. Often, the founder has to plead with people to make personal sacrifices; it can be very hard for an outsider to walk in and make the same demands.

In addition, bankers, investors and consultants often point to a decline in revenue growth (or in the stock price if the company is public) as a sign that the entrepreneur should depart. But no company — not even Facebook — has financials that only go up. Often, this argument is just a pretext. The fact is, the relationship between founders and financiers is uncomfortable from the start. Entrepreneurs are wheelers and dealers who are always testing limits and trying new things. Bankers and consultants like predictability and stability. More to the point, for them, firing the founder is part of their own exit strategy. Their goal is to flip the company by telling the next investor, “We have proven the concept, and we are now bringing in professional management to take it to next level.”

It does not have to be this way. Keep in mind that most of the people suggesting the replacement of fast-growth entrepreneurs have never built anything themselves. They don’t understand what it takes.

Founders often have more options than the bankers lead them to believe. For example, if the issue is getting financing, a good place to start can be your own customers — and I don’t just mean by selling them something. Lots of established companies are willing to make strategic investments in a smaller company that is performing a vital role for their businesses. Don’t be bashful. Present the idea as if you are giving the company a rare opportunity. And if you are asking for $5 million, make the effort to look and act like you know what to do with $5 million.

It’s also critical to be smart and careful with board seats. Don’t hand them out like water in the good times, and make sure you know how to count. If you have seven seats, you have to have four votes you can count on in tough times. That’s one reason I am a big advocate of keeping one or two people from within the company on the board.

All companies go through ups and downs. The bankers, investors and consultants will always be quick to pull the plug on founders when the first signs of trouble appear. But the person who is most likely to get the business to the next level is the very same person who got it to the current one.

Cliff Oxford is the founder of the Oxford Center for Entrepreneurs.

Article source: http://boss.blogs.nytimes.com/2012/11/06/why-everyone-wants-to-fire-the-founder/?partner=rss&emc=rss