August 16, 2005
Why Bill Gates and Larry Ellison are unusual
Research by Prof. Noam Wasserman's research shows that a very low percentage of founder-CEOs actually hang around for a long time. Either they move on or are thrown out. Strangely enough, this seems to be true regardless of whether the firm did well or not and this works for large and small firms!
In large companies, when the CEO doesn't do well, the CEO gets replaced. When the CEO does do well, there is almost no chance that person will be replaced. If he or she has led the company to success, that person is about as solid in the position as one can get.
The interesting paradox is that when founder-CEOs do really well, that also increases the chances that they're going to be replaced.
My research shows that in small companies, it's still true that when founder-CEOs do badly, they are replaced. But the interesting paradox is that when founder-CEOs do really well, that also increases the chances that they're going to be replaced. Typically, early in the life of a company—when it is developing its first product or service—the founder who conceived of the idea and began developing it is the perfect person to lead the company, to ensure that it will be able to succeed at hitting the core milestone of completing initial development. However, when that milestone is reached—when the founder-CEO has successfully led the company in its most important task—the chances that that founder-CEO will be replaced also increase dramatically. The challenges within the company change so dramatically that the person who was best suited to lead the early stage of company development is no longer the best person to continue leading the company. Now, the product has to be sold: You have to create a sales organization, manage multiple functions, deal with customers, handle more complex financial issues, and deal with a very different set of challenges for which many founder-CEOs are not equipped.
Very interesting. It is tough not to argue with the explanation. The two organizations that I have worked in during the last seven years certainly do justify the findings, in one way or the other.
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