Every founder/owner reaches a point in the development of their business when they begin to feel stretched by the demands of their growing and increasingly complex organization.
Because of this growing complexity, important decisions can no longer be made on the fly; pure gut instinct is no longer invariably correct; and past indicators of success no longer hold true.
At this point, the founder/owner has two choices: either press pause on growth, keeping the business at a manageably simple level, or change the way they manage.
Here are the four main challenges I see founder/owners face in taking the second route:
1. Build a truly empowered senior management team. Until this point, while the founder/owner may have had a senior team in theory, the reality is that typically the team exists only as a conduit between the founder/owner and the functional silos they represent. The sales manager is there representing the sales function. The ops manager is there to report on operations. The admin person is there to talk about finance. While each has a one-way relationship with the founder/owner, and in turn, with the people who report to them, the real decision-making power rests with the founder/owner.
A key part of the transition to CEO is the transformation of this group of individuals into a true team--a group that communicates primarily laterally, with each other, rather than just vertically, with their own team. It needs to be a group that makes real decisions and can manage the business, albeit under the oversight of the CEO.
2. Embrace systems and processes. The primary reason entrepreneurs start their own business is for autonomy--the freedom to do what they want, how they want.
Because of this need for autonomy, many founder/owners exempt themselves from compliance. In other words, as far as they're concerned, the systems and processes exist for everyone else in the organization.
One of the biggest challenges a founder/owner faces in the transition to being an effective CEO of their now-larger, growing business is to suppress this urge to exempt themselves from needed process. Whether it's strolling late into meetings and hijacking the agenda, or changing strategic direction on a whim without consultation, or a host of other ways they can express their need for autonomy and independence. It's vital to recognize that 'what got you here won't get you there': the old, visceral, independent way of managing isn't right for the next stage in organizational growth.
3. Let go a big dog (or two). Perhaps the hardest thing for any founder/owner to accept is when one or more of their superstar 'big dogs' are no longer a huge asset for the organization, and have become a barrier to its further growth. And this inflection point--when the smaller business managed by the founder/owner becomes a larger organization needing CEO-style management--is precisely when that change in the big dog's status occurs.
As the founder/owner embraces systems and processes and builds a truly effective senior management team, the superstar big dogs see their sweat equity erode. Their relationship to the founder/owner-turned-CEO is no longer as close; they are less able to work independently outside accepted systems and processes; and their perceived influence and status in the organization wanes.
In the worst case, a big dog longing for a return to the previously free-wheeling, loosely managed environment will try to undermine the shift to the new CEO-style management.
Eventually, the founder/owner-turning-CEO faces a challenge: let go of one or more big dogs who don't share the vision for the next stage in growth, or change direction and return to being a smaller-sized business in which the big dogs regain pre-eminence.
4. Institutionalize vision. Finally, there is the challenge which most cuts at the heart of the founder/owner's sense of identity: de-personalizing the organization's vision. Until this point, the founder/owner is typically the personification of the businesses vision--they are the business.
Moving from a founder/owner to a CEO-style of management means separating the two: recognizing that the business is now an entity in its own right. The founder/owner must develop a vision for the business (primarily through the newly empowered senior management team) which is separate from, and independent of, the CEO as an individual. (Think of Howard Schultz at Starbucks, Michael Dell at Dell, Ted Waitt at Gateway and Steve Jobs at Apple, all of whom left their business at one point, only to realize that they had failed to institutionalize a vision for the company. All of them returned to de-personalize their business's vision.)