The Founder's Dilemma: Why Founders Fail And How To Succeed

Jacob M. EngelForbes Councils Member Forbes Coaches Council Leadership

Jacob M Engel (Yeda LLC) | CEO & Author | #1 Amazon Bestseller | Family Business & Entrepreneur Consultant | Leadership Coach.

In my last article, I quoted Prof. Noam Wasserman of Harvard about his theory of the Founder’s Dilemma and mentioned the dismal fact that few founders stay on to lead their company — instead, they're often replaced by the investors or board. Wasserman's argument was that it's either money or power. If the founder wants money, then investors will eventually push them out. If they want control, then they won't get the money. Simple, or so it seems. My question is why does it have to be mutually exclusive, an either/or? Why can't founders have their cake, so to speak, and eat it, too?

My mentor, Roy Cammarano, wrote Entrepreneurial Transitions, a hugely insightful book on the founder's journey from what he calls the entrepreneurial genius to the visionary leader. Along the way, there are four levels a founder will encounter, along with danger points. If a founder can successfully navigate these levels, there's a good chance they can stay on and grow the business successfully. Otherwise, the chances are very high that they could fail, end up losing their company or see it collapse.

Level One - Entrepreneurial Genius: This is the most common scenario where a founder starts a business either because they have some genius idea, invention or better way of doing something. The challenge is that they need to understand everything a business needs and perform in all of these capacities. Often, they act as the buyer, the salesperson, the bookkeeper, the production person, etc. Many companies fail in this stage as the founder is juggling a huge amount of tasks and it can take years to get a business off the ground and start seeing income. Level Two - Benevolent Dictator: Once the founder has surpassed some of the challenges of the first level, he or she can start to hire people to help with many of the functions. Many founders think that if they can duplicate themselves in each of the functions, they can accomplish so much more. Make sense? Sure, but it's fraught with danger zones. Mostly because of what I call "octopus syndrome," where you have a head with many arms. Everyone is operating as an extension of the founder, and the founder is constantly bogged down by questions and needing to make all the decisions. Who else but the founder understands the business and could even make decisions? Benevolent yes, but never the less, a dictator. The danger is that many people especially good ones, don’t appreciate someone breathing down their necks. Level Three - Disassociated Director: In this stage, the founder will either have lost some of their good people due to micromanaging or they will threaten to leave and, as a result, the founder will allow everyone to sort of run their own show. For a while, it seems like this approach is working but then things start to fall between the cracks as the founder has created multiple silos that are not speaking to each other or—worse—competing with each other. The founder will try to intervene but that too can make it worse. Often, the founder will feel displaced or sidelined and question their role. This might inspire them to jump back in and prove that they are still needed. Many times they will create the fire to jump back it! While they believe this is helpful for the business, in my experience, it often leads to failure.

When I share this insight with founders, they bashfully smile and many will comment "guilty as charged." Unfortunately, this is a huge reason I see many great employees leaving. They are so burned out from the founder's meddling.

Level Four - Visionary Leader: It is at this stage that a founder becomes a visionary leader by combining their positive traits and focusing on creating other leaders. He or she inspires employees with their vision and empowers them to make decisions with clear accountability for results. How founders navigate this level will determine the success of the business and the success of the founder. At this stage, most, if not all, founders will benefit from a coach who has experience in taking businesses to the next level and helping the founder find their niche and be comfortable in allowing others to step up to the plate.

Oftentimes, founders have an "aha" moment when I share with them the steps to becoming a visionary leader. It resonates, yet they need someone from the outside to be open and honest about this sometimes painful journey.

Roy says that they needs to combine the genius of level 1, benevolence of level 2 and directorship of level 3, to become the visionary leader! Roy & I worked with a CEO once who had built a hugely successful business with hundreds of employees yet had to make all decisions, to the point that people would line up by the founder's door until the wee hours of the morning. We explained to her that unless she started to create more leaders, her board and her investors would not allow her to continue running the company. She laughed it off. Unfortunately, a few months later she was fired.

Remember, your responsibility as a leader is to create leaders not followers and if your people are successful, you and your business will also be successful.

There is a famous Chinese saying that if you give a man a fish you feed him for the day, if you teach him how to fish, you feed them for a lifetime. I would add that if you teach them how to teach others than they won’t have to eat fish everyday!

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