A ferocious patriarch; three grasping children; a huge empire. We all know how this story ends. Whether it’s King Lear or Succession – the tale is drawn out and not short of strife. 

For founders working quadruple-time to build their world-changing business and set it up for a successful future, Roy-style family dramas may seem years away. Indeed, things rarely pan out as they do for Kendall, Shiv, et al. But succession is often still a contentious subject. The challenges are real, complex and best considered before it comes to the crunch.  

Last month we invited a group of CEOs, many from the Octopus Ventures portfolio, to openly discuss this typically ‘taboo’ subject and to consider how we can all play our part to make the eventuality of CEO succession as stress-free as possible for everyone involved. We hosted a panel discussion with three former founders, each of whom have transitioned away from the job of CEO. As such, they each represent a fount of knowledge in the challenges of succession planning, the importance of thinking about it – and the rewards of doing it right. But before we go any further, it feels important to offer a disclaimer. 

Founders reading this might be chilled to see the words ‘Succession planning’ issue forth from a VC. But I’ll take this opportunity to let you in on a secret: investors don’t want to lose a CEO. In fact, for various reasons, it is normally their strong preference not to. Typically, investors will only suggest bringing a new leader in to run a business as a last resort. 

This, in part, touches on the very reason we held this event – and why I think it’s important to share what we learned in this blog. Namely, that for both founders and investors alike, the question of succession remains a subject that is largely avoided. For entirely sympathetic reasons, founders feel uneasy about engaging with the possibility that, one day, they might not want to lead their business anymore. Investors, on the other hand, fear that making an inquiry into the founder’s long-term vision for their career risks setting the cat amongst the pigeons and causing needless anguish. 

But, as I hope to demonstrate by recounting learnings from the insightful discussion between the panel of former founder CEOs, while understandable or well-meaning, both of these positions are problematic in the longer term. Founders at any stage will benefit from thinking seriously and communicating openly about the possibility that they might not want to be CEO forever – and the businesses (and talent) in their care will be all the better for it. 

The problem of succession

As famously ruminated on by The Clash, the decision of whether it’s best to stay or go is not always an easy one. This is true in many areas of life, not least as a founder CEO who finds themselves exhausted after spending years pouring all their energy into bringing a vision and business to life. Many spend a lot of time questioning whether they’re at the end of the road as the leader of their current business or if, in fact, it’s ‘just a phase’ or something a good holiday could cure. 

A CEO standing down is disruptive – more so when the CEO is also the founder. Two of our panel speakers reported that the process of finding and bringing in their replacements took around two years, but it didn’t have to. 

The truth is that it’s highly likely there will come a time in a business’s growth journey when the person who started it is no longer the right figure to run it and lead it to the next stage of its growth. The qualities that reward a founder aren’t necessarily those that stand to benefit the CEO of a growth- or later-stage business. 

Founders require boundless agility and the capacity to move fast and operate effectively in a chaotic landscape as they find product-market fit. As a business grows, the responsibilities shift; creativity may give way to increased responsibility for driving steady growth. They have to sell – externally, of course, but also internally, while simultaneously building and maintaining momentum, and attracting, recruiting and retaining industry-leading talent.  

Popular wisdom tells us that a growing business should look different year-on-year. One panel speaker highlighted the company’s headcount as a consistent change milestone: the difference between 10, 50 and 100 employees is significant, and demands a different set of skills of their leader than those required to get a business up-and-running. 

Another stated that founders face a diverse set of challenges. Growth inevitably forces plans to change. Implicit in this is an acceptance of failure, and willingness to learn from it. This is the founder’s prerogative, but for those at the top of a more mature company, failure takes on a different inflection.  

All of this is to say that the problem of succession lies, in part, in the misperception of the founder/CEO as a distinct, and iconic, figure. Media is saturated with blueprints for this kind of leadership (just think of Elon Musk, Mark Zuckerberg or Steve Jobs) but it doesn’t reflect the lived truth of most business leaders.  

Someone who gets energy from the challenge of starting a business isn’t, necessarily, the person who gets energy from maintaining and growing it. And that’s ok.  What’s more, by staying in a role for longer than they should out of fear, guilt or a sense of loyalty, great founders may in fact be robbing themselves of time that could be spent on building their next successful company. 

Destigmatising succession planning

There are, of course, plenty of great reasons this doesn’t always feel acceptable. A founder might struggle to acknowledge this truth because they don’t want to act like they’re not committed. On the other side of the table, investors don’t want founders to start asking themselves if they’ve lost faith in their leadership.  

For founders, there’s also emotion involved. Guilt and shame, a fear of letting down the talent who have bought into their vision and taken a chance on them. But still, the fact is, most founders do, eventually, transition out.

All three of our guests agreed that their transition out of a day-to-day leadership role was a positive step. Good for them – and good for the business. But they also agreed that it was harder than it had to be, thanks in no small part to the charged nature of conversations surrounding succession. 

By engaging with the problem when times are good, when hopes for the business are high and the question of succession seems distant, stakeholders give themselves an advantage. This form of engagement carries the added benefit of setting a culture of openness and trust, particularly between the founder and investors.  

Breaking the stigma and pre-empting the universal truth of change gives everyone involved clarity – which can only ever be good for the business. 

Keeping it healthy

In my role in the Octopus Ventures Portfolio People and Talent team, I speak to a lot of founders. If, amongst their diversity, they share one core feature it’s that they all, without exception, operate at an extremely high frequency of intensity. 

Amongst founders, stress levels are high. At Octopus Ventures we’ve tried to do our bit to help the founders we support manage their stress; we’re evangelical about coaching (it’s even written into our term sheet) and we’re proactive in building networks amongst our founders that allow them to address some of their struggles without us poking our noses in.  

But the fact is, a certain level of energy depletion is unavoidable. Just how much and for how long is tolerable becomes the question. While friends, family and colleagues can often build up a decent picture of what a founder is going through, no one but the founder themselves knows the whole truth.  One panel speaker highlighted the importance of monitoring oneself, tracking long-term trends to ensure that the personal energy that scaling a start-up costs is repaid – or at least balanced. If the long-term trend shows a decrease in energy, it may be time for a change.  

Clearly, this change is easier said than done. The emotional (and financial) implications of a founder’s doubts about their role are daunting. This is why, one guest suggested, the key question a founder should ask themselves at any decision-making moment is, ‘What does the company need?’ 

Yes, a founder’s intimate knowledge of its workings, relationship with talent and clients, black book, drive and vision are hard to replace; but equally, a business suffers when the person at the top no longer has their heart in it. At this point, those succession planning conversations undertaken during the founder’s peak start to come in useful, as all parties recognise the benefits of cycling in a leader who’s better suited, and perhaps feeling more energetic, to meet the challenges the business faces.  

It might be true that the best-case scenario is that many years in, after successful funding rounds or when the business reaches that milestone of 100 employees, the founder/CEO remains as motivated, engaged and committed as they were on day one. But for that to happen, a culture of trust and open conversation needs to be fostered. 

This means talking without emotion about the possibility of succession, removing the negatives associated with a founder CEO moving on and destigmatising the conversation between a business’s leadership and investors.  

With this culture of openness established, it’s possible that succession won’t, after all, be something that needs to be engaged with. As one panel speaker reminded us, received wisdom has it that couples who never talk about their problems are the ones that end up breaking up. Dealing with issues as they arise, creating opportunities to upskill and develop CEOs to meet the morphing needs of a company, is a surer path to success as a founder-turned-CEO than brushing it all under the carpet. And if it doesn’t work out? Then the ground has been laid for a happy and harmonious replacement, to the benefit of the business, talent and CEO themselves. 

And what can we do?

It takes two to tango and, as I’ve highlighted, there are a number of obstacles to succession dialogue that investors are accountable for. If founders are going to feel secure in airing their concerns with their board, investors sitting on it have a part to play. In an ideal world, founders could comfortably express their doubts and uncertainties in a safe and open board environment without any pressure or prejudice from investors. As our panel speakers agreed, this isn’t always the case. Often, founders feel like they always need to be selling to their investors in board meetings instead of using that space for frank discussions and problem-solving.   

Ultimately, when founders engage with succession planning far in advance, everyone benefits. Aside from streamlining the process when and if it comes, it also gives founders a chance to strategise – to engage openly with what might lead them to transition out of the CEO role years in advance, and, with this insight, avoid painting themselves into a corner.  

The saga of Logan Roy wrung four-seasons’ worth of thrills out of the question of who was going to replace him, but by engaging with it early leaders can avoid the drama. 

The problem of succession is solved through open dialogue. Far-sighted thinking, decoupled from outdated associations of standing down with guilt, shame or failure, gives founders the tools to make the right decision – whether it’s stepping down or staying.  

At Octopus Ventures we’re committed to supporting all the founders we back through their toughest decisions. Our People + Talent team connects leaders with coaches and offers advice and guidance as they build their businesses. Learn more about what we do here.  

Jeevs Mahil

People + Talent

Fintech