The Role of the Company Founder

Bill Warner Thursday, May 07, 2009

With the economic downturn and unemployment rising, many more people than ever are thinking about starting a company. As a company founder, you should know what you are getting into. The business and personal behavior of a company’s founder will, at any time in the history of the company, determine whether the company will succeed or fail. Venture firms know that. Banks know that. Public grant associations know that. Attorney and accounting firms know that. Most well informed private investors know that. As a company matures, there are many transition points that require the founder to make key decisions:

  • Selecting the founding team
  • Picking advisors
  • Funding the company
  • Selecting the management team
  • Deciding when to step aside or give up ownership
  • Selling the company

Founder block

If the founder handles these decisions intelligently, the chances for success are much higher. If not, the company will experience a quick demise. I call this ailment “Founder Block.” Major roadblocks to success occur when:

  • Founders pick incompatible founding team members who don’t share the vision and buy into the business proposition
  • Inexperienced and irrelevant advisors are picked to assist with the business
  • Founders display inappropriate business behavior that shakes investor confidence that the founder has the required maturity
  • The founder does not relinquish control to the management team
  • They don’t step aside when more qualified people are needed to run the company
  • Founders balk when share ownership changes occur and when the company is going to be sold

At the start-up of the company

Let’s start at the very beginning of a company’s life. The founder has a vision and an idea for a company. The founder does the research and creates a business plan to flesh out the idea and determine if a viable business can be created. Depending on the type of business, the founder may need other people of different skills to join in the early formation of the company to complete the business plan and actually get the company started. This founding team has to be put together considering the following essential principles:

  • Every founder has the passion for the vision and is willing to make incredible personal sacrifices to accomplish it
  • Everyone has skin in the game, in both time and money
  • They all agree on the business plan
  • The founders create the culture of the company and have compatible business and personal values
  • Everyone is an “A” player, and their skills are complementary and necessary to create the company
  • They work well together

Business advisors

Every successful company has had solid business and technical advice from a small group of highly qualified and relevant advisors. A board of advisors can help a struggling founder avoid a lot of early pitfalls. Considerable thought is required to pick them, making sure the advisor team consists of:

  • Relevant technical expertise within the company’s selected industries
  • Business development experience and a broad array of contacts in the company’s market segment
  • People with a broad range of experiences in business, finance and management
  • People with complementary product or services experiences that can assist with determining alliance partners

The first business transition point

The founder’s first jolt of harsh reality occurs at the time the company is financed. Whether it is a personal obligation to a family member who provides funding, debt that has to be personally guaranteed to a commercial bank, a grant requiring research results, or the obligation to shareholders taking private equity, the founder owes somebody something from the beginning. Successful founders will handle this set of transactions by:

  • Treating the financing partners with business respect
  • Managing the money with appropriate professional judgment
  • Keeping them informed of progress
  • Visibly, and with thoughtful action, committing to the fulfillment of the obligation

Finding the right management team

If financing isn’t enough pressure, adding to that pressure is the selection of the management team. For the first time, the founders have to decide where they really belong in the company, based on their personal skills and abilities. The new members of the management team have to fill the gaps that the founders cannot fill. Quite often, the founders need an experienced CEO to run the company. Experienced executives need to be brought into to accomplish the first set of milestones whether they are product research, product development, marketing introduction, early sales or manufacturing operations. Therefore, management team selection is not a one-time event. It has to be done throughout the life of the company. This is a difficult task for founders, and should be facilitated by experienced business executives. The keys to making the right selections are:

  • Accurately and honestly assessing the skills and abilities of the current team; thereby determining what additional executive skills that are needed
  • Openly admitting where help is needed by leaving no problem without thorough consideration
  • Crisply defining the roles and responsibilities for the new members of the team
  • Rigorously and intelligently selecting the people to fill the positions

Business growth and maturity

As a business matures, many things can happen to cause a founder to change their involvement in the company. Typical examples of this are: realizing the founder is not contributing or is a disruptive force, the founder in not required for future success when the company’s business direction changes, additional funding dilutes the founder to a minority shareholder, personnel conflicts occur that require the founder to leave the business, or the company is put up for sale. These are difficult times for the founder and have to be dealt with from the point of view of what is best for the shareholders of the company. When personal issues creep into the discussions, these situations can become very debilitating and actually destroy the company in its tracks. To successfully pull through these issues:

  • The founder has to put the needs of the business ahead of personal issues; it’s all about business
  • As when the founder had great business advice when starting the company, listen to trusted business advisors through these issues as well
  • Be a constructive participant in doing what has to be done, embracing the change and making the transition successful
  • Continue to support the vision of the business and be role model for the entire team by leading the way for necessary change

Business exit

Dealing with the sale or merger of the company is equally as difficult, and the founder has to be deal with it in the same manner. The sale is a final departing point and represents the day the founder’s company reaches adulthood. Lots of questions arise about selling or not selling the business: the right price, who stays, who goes, and many more gut wrenching questions. Getting cold feet is the last thing you want to have happen on either side of the transaction. Before a founder even entertains a sale or merger they must:

  • Know what they want in the transaction and what the “walk away” terms are
  • Think through and accept the implications of the transaction once the deal is signed
  • Negotiate in good faith and from a clearly communicated set of deal principles
  • Again, lead the way to making the transition successful

Exhibit mature business behavior

All potential alliance partners of a company, whether they provide funding, development, marketing, sales or operations, will want to see the right business and personal behavior of the founder before they proceed. If a founder shows inappropriate behavior, the best of deals will be cut off very quickly. If the founder exhibits mature behavior, in the most difficult of business situations, the partnership will benefit and the company will be on a path to success.

Filed Under: Business Operations, Business Coaching & Leadership Skills



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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