Can an entrepreneur transition to CEO?

By Mike Roberts

Many entrepreneurs envision themselves as the eventual CEO of the organization they built from scratch. It’s often this vision that drives the entrepreneur to accept the risks and responsibilities of entrepreneurship and keeps him/her fighting through all the hurdles and apparent roadblocks so common to entrepreneurship. It’s been established, however, that the vast majority of entrepreneurs struggle to survive, let alone get beyond the entrepreneurial level of sustainability grow in to a large corporation. Why should that be the case so predictably? 

I was once at a luncheon where the keynote speaker was the head of a respected venture capital firm. His remarks were based upon the process of evaluation he went through when assessing opportunities for investment. He spoke about products, markets, and a few other things. Primarily, however, he spoke about the executive management teams of the projects they invested in. He detailed the rigorous evaluation of the founders and key decisions makers, knowing that a good team could be successful, even with a less than stellar product, but that a poor executive team would fail even with the greatest product and opportunity. He then lamented that fact that, even after all their diligence they still fired and replaced the company founder/president over 65% of the time. He also contended that swapping out an entrepreneur for a CEO is nearly always required for a company to grow beyond the entrepreneurial stage. 

This 65% number seems to be consistent across the investment funding landscape and indeed I have witnessed the firing of a founder more than a few times. Statistics show the transition from entrepreneur to CEO to be essential to growth and success. Even those entrepreneurs who do not get outside funding, who maintain 100% ownership and control will mostly likely remain the head of an entrepreneurial enterprise through the life of the organization, and never grow the organization beyond the entrepreneurial level of sustainability unless they can develop the CEO characteristics and transition into that role. 

The looming question becomes: can an entrepreneur make the transition to CEO?

How is an Entrepreneur Unique?

There is much to be admired about entrepreneurs. A true entrepreneurial mindset, coupled with the courage to make the leap, are among the most rare of business qualities, easily making up much less than 1/10 of 1% of those in the business world. In my opinion, those rare few who have the courage to assume the risks and responsibilities of entrepreneurship don’t get near the credit and admiration they deserve, even in failure. They had the courage to take the leap that most never dare. 

Difference between an Entrepreneur and a CEO

Being a successful entrepreneur requires not just a rare mindset, but rare skill-set as well; a set of unique characteristics not often found in company presidents and CEO’s. In fact, while it is their particular capabilities that create entrepreneurial success, it is those same characteristics that prevent growth to higher levels of sustainability, leaving their growth plateau well within the precarious entrepreneur level.

Metaphorically, an entrepreneur is an explorer, going where no one has been before, blazing a trail where there was not one before, he goes over mountains, around rocks and trees, and figures out the best and fastest way to get across rivers and streams. He may have a direction, destination or deadline in mind, but needs to be flexible with all three and adjust to the circumstances as they present themselves. He also a self-contained generalist; he knows how to hunt, fish, find water, navigate treacherous terrain and carries his own tent, bed and cooking utensils. 

A CEO, however, is not an explorer. He is a leader of large group of people, some of whom are with him, most of whom will follow after him. He does not take unknown paths, he identifies the best path to his destination, which does not change. He brings with him specialists who can blast a highway through the mountains, knocking down trees and rocks, and build bridges over rivers. He brings hunters and cooks, herdsman, and medical staff. He knows that many will follow and he cannot risk the failure of those followers who are not explorers, so he adds signage and other things to keep followers on the clearly designated path. Where it does not make sense for an explorer (entrepreneur) to stop and build a highway or a bridge, this is exactly what is required of a CEO. 

Ford vs Ferrari

In 2017, Ferrari made about 8,000 cars. Ferrari builds these cars with just less than 3,000 employees, which is about 2.6 cars per employee per year. Each car is built with the kind of individual attention to precision so often found in entrepreneurs. The average cost of a Ferrari is around $300,000. 

In contrast, Ford made about 6,600,000 cars in 2017 with an average price of around $35,000. Fords over 200,000 employees produce 33 cars per employee per year. In a single month, more cars are produced per employee at Ford than in a year at Ferrari. Can you imagine if each employee was able to leverage their own creativity and flexibility, or standards of quality while producing that many cars? Scaling requires quality systems that are adhered to by everyone automatically, systematically, and does not require the kind of individual attention that an entrepreneur thrives on. 

What are the CEO Strengths?

Entrepreneurs often have visions of themselves in the CEO roll, but not only are the skill sets of an entrepreneur and a CEO completely different, they are not even compatible, in fact, they are quite opposite or contrasting skill sets. Further, the very reason companies struggle to get past the entrepreneurial level of sustainability is that the leader is an entrepreneur, operating as an entrepreneur, not as a company president or a CEO. 

• Where an entrepreneurs strengths need to be creativity, flexibility and faith in self, a CEO’s strengths needs to be structure, organization and delegation to a strong team. 
• Where an entrepreneur thrives in an organization where there are few rules, a CEO needs to create rules and standards and ensure adherence, otherwise quality, efficiency and productivity suffer. 
• Since an entrepreneur may be, at most, one level removed from the product and the customer, communication is personal, verbal, and informal. This can work in very small firms but is impossible, even disastrous as quantities increase and companies try to scale.  A CEO is able to create systems and procedures that ensure consistent quality and customer satisfaction without direct oversight or supervision.

Can an Entrepreneur Transition to a CEO?

While an entrepreneur making the transition to a CEO is rare, it does happen, often very successfully. It is, however, a very cognitive, proactive and deliberate process. It requires learning new skills, adoption of systems and a new ability to trust others to make critical decisions. It requires a desire to no longer be the smartest person in the room on any given critical function, and an ability to create a team of players who are more capable in their area of expertise than is the entrepreneur. 

Those who successfully grow from entrepreneur to CEO experience the joy of participating in the growth of their enterprise into the successful company they always dreamed it would be. But it does require a seismic shift in both mindset and skill-set.