Entrepreneurs

Should You Make Way For A Professional CEO: 4 Rules To Decide

In the wake of Sam Bankman-Fried’s kamikaze dive, there are some questions about whiz-kids who start unicorns with some gurus opining in the Harvard Business Review that perhaps Founder-CEOs should consider making way for Professional-CEOs. Should they now?

Whiz-kid Sam Bankman-Fried started his crypto business at age 25. He built a global venture that attracted billions in capital from some of the world’s most successful investors. Then his business crumbled in a few days. Other whiz-“kids” who came to ignominious ends included Elizabeth Holmes (Theranos), Travis Kalanick (Uber) and Adam Neumann (WeWork). So yes, some should go to pasture.

On the other hand: Sam Walton started with a small store in Arkansas when he was 27. From this start, he pivoted and built Walmart, one of the giants of global business. Walton died in 1992 and his company is still making billions for his heirs. Some other entrepreneurs who started and built billion-dollar ventures without flaming out include Bill Gates, Steve Jobs (who had to return as an “elder statesman” to save the company he started), Michael Dell, Jeff Bezos, Michael Bloomberg, Brian Chesky, Bob Kierlin, Dick Schulze, and Richard Burke. All built successful giants.

Among 122 U.S. unicorn-entrepreneurs, more than 94% stayed as CEO to build their companies. Suggesting that these entrepreneurs make way for a Professional-CEO based on a few who flamed out is no reason to tarnish all with the same brush. It also raises questions about professional CEOs given the track records of Jeff Immelt, Ken Lay, and numerous other CEOs who flamed out.

There were 4 primary types of unicorn-entrepreneurs and four rules to stay or leave.

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Rule #1. Get VC and a Professional-CEO after the science is developed – if you are ‘only’ a genius scientist

The genius scientist develops a ground-breaking technology with strong intellectual property. In my study, the genius-scientist-based unicorn created about 1% of unicorns. Herb Boyer split the gene and co-founded Genentech, which was led by a Professional-CEO.

Rule #2. Get VC and a Professional-CEO after proving the unicorn-opportunity – if you are ‘only’ a strategy whiz-kid

The next category of unicorn-entrepreneurs are the strategy whiz kids who are at the vanguard of an emerging industry. They use new strategies that are appropriate to the emerging trends and destroy industry giants who are usually late to the trend like a Sears, Borders, or Wards. Usually many new ventures enter an emerging industry, and the winners are the few who develop the right strategy to control the emerging industry.

· Pierre Omidyar used the emerging Internet to auction products and services and built eBay.

· Earl Bakken (Medtronic) developed the cardiac pacemaker and launched the medical electronics industry.

Rule #3: Raise VC and stay on as CEO — if you are a leader and need VC to use Capital-as-a-Weapon

The capital-intensive unicorn-leader gets in on an emerging trend, finds the right strategy to dominate the emerging industry, and then takes off to prove his/her leadership skills. 18% of the unicorn-entrepreneurs fit this category. They get their long-term advantage from a great strategy, capital-as-a-weapon, and their own skills.

· Bill Gates stayed and built Microsoft

· Jeff Bezos stayed and built Amazon.com

· Brian Chesky stayed and built Airbnb.

· And there are many more.

Rule #4: Avoid VC and build the unicorn with Skills-as-a-Weapon­­­ — if you are a Unicorn-Entrepreneur

Finance-smart unicorn-entrepreneurs develop a unicorn opportunity and a finance-smart business strategy, finance the unicorn without VC, and use finance-smart skills to build the venture into a giant. 76% of America’s greatest, and often least publicized entrepreneurs fit this mold, including Schulze (Best Buy), Kierlin (Fastenal), Burke (UnitedHealthcare), and Shah (Wayfair).

· Sam Walton built his big box stores in small towns before dominating the rest of America

· Michael Dell focused on selling PCs direct-to-the-consumer before expanding.

MY TAKE: No, it is not essential that unicorn-entrepreneurs leave the building of the unicorn to the adults. Some whiz kids do grow up to become elder statesmen. Based on the fact that 94% of unicorn-entrepreneurs built their ventures, it may be safer to favor the ‘whiz-kids’ if they can grow with their ventures in skills and maturity. Besides, if they own a controlling interest in their venture, who’s is going to remove them — even if they do not grow?

Harvard Business ReviewResearch: How Long Should a Founder Remain CEO?
NytimesOpinion | Why Did We Put So Much Faith in the Crypto Whiz Kid?

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