In a startup’s early days, a founder, more often than not, is the “chief-of-everything.” She is the CEO, the HR, and the customer service all at once. She does not have the luxury of hiring top talent from day one, so she works with the limited resources she has to build her startup from the ground up. In a company’s earliest stages, this makes sense.
Over time, the entrepreneur grows her team and scales her business. She hires top-level management and a reliable, well-performing team. Eventually, the founder will carry the “sole” responsibility of managing her company day-to-day as its CEO, governing the company’s long and short-term strategy and ensuring tasks are well executed by the team. These daily tasks, however, get in the way of the founder’s most important role – that as the company’s largest shareholder.
It is common for modern-day entrepreneurs to give more importance to their role as CEO than as the largest shareholder and chairman of the board. To be fair, the role of CEO requires constant, tireless work. What does it take to be the company’s chairman? Organize a few board meetings throughout the year and manage fruitful investor relations? Easy.
Being a large stakeholder in a company is much more than organizing a few board meetings, however. When a founder holds a large percentage of shares, she must align her incentives with all other shareholders and investors. Her most important role is to do whatever it takes to increase the value of the company and maximize returns. This means relentlessly assessing whether the company’s leadership, along with the decisions it makes, reflects the interests of its shareholders.
Often, keeping shareholders’ interest at the heart of decision-making means founders must constantly evaluate their own capability of running a company. Questions these CEOs should ask themselves include, “What am I contributing as the CEO?” “Would I maximize the company’s success in another position?” “Is my leadership harming the company?” and most importantly, “Can somebody do my job better than me?”
Take the case of Uber’s former CEO, Travis Kalanick. The entrepreneur had a remarkable ability to scale his start-up to a $68B company in less than 8 years. This made him a key strategist at the company’s onset. Over time, his inability to manage the company internally and the subsequent poor PR this generated led to an $18B decrease in valuation. Had the entrepreneur recognized his incapacities as Uber’s CEO and positioned himself in a more fitting role, he would have saved investors, and consequentially himself, a lot of time and money.
VCs place great value in an entrepreneur who is incessantly introspective, does not underestimate the value of governance, and does not overestimate the glory of being a CEO. A good entrepreneur recognizes when she is better suited as the company’s CTO or Chief of Sales, because ultimately, as the largest shareholder, she focuses on maximizing returns.