Reed Phillips's vision created Knowledge Systems. But vision alone couldn't sustain the $6-million company it had become. Day-to-day operations at the Cary, N.C., software business required managerial skills Phillips didn't have -- and couldn't learn fast enough. "I hadn't set up goals and objectives for employees, and the lack of structure made them nervous," he admits. After an intramural power struggle revealed employees' frustrations, Phillips realized the company needed a new CEO -- an impartial outsider.

Phillips's way of letting go shows how he hopes to avoid becoming a caricature of the interfering founder. To begin with, he absented himself from the final selection of a new CEO. After an independent recruiter had identified candidates, the board voted; Phillips abstained, to emphasize his impartiality. The board's choice -- industry veteran Bob Hinchey -- has assumed control of companies before, so he knows that "it's the hardest thing for a founder to back off."

Next Phillips gave up authority -- completely. He made Hinchey president, CEO, and chairman, he says, "so employees couldn't go any higher." And when Hinchey took over, in January, Phillips made himself scarce, taking a three-month sabbatical to give the new chief breathing room. Since then, the two meet weekly, and Phillips has stepped away completely from day-to-day operations.

Both men are satisfied so far. "I've done the best thing for the company," Phillips says, "and I've gained remarkable personal freedom." -- Reported by Phaedra Hise

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