Although effective leaders surround themselves with capable individuals, leadership is often said to be a lonely endeavor. Loneliness however is often not the challenge, rather it is the isolation that comes with being solely responsible for a select set of issues that no-one else is on the line to resolve. In my experience, few roles are more isolating than that of the founder. In early-stage businesses the struggle to drive traction, scaling product, teams and customers is a burden that founders are likely to never forget. In the later stages, carrying the weight of expectation of a team that has followed you through growth is what founders would often call a ‘founders’ privilege.’ The one consistent theme throughout the journey is that the buck ultimately stops with the founder.
Many of us at Potentia intimately understand the challenges of being a founder. Andrew Gray, Andrew Joyce, and I have all been on the founders’ journey; Tim Reed was the first incoming CEO to step into the founder’s shoes at MYOB. In 2015 I sold the business I founded, an engagement analytics platform. Bringing in a new equity owner was both liberating and challenging, the feeling of isolation however transitioned to feel very crowded, very quickly.
Reflecting on my experience as a founder and as an Operating Partner working with founders, there are several consistent challenges I have seen in the transition of ownership.
Scalability brings its challenges
While access to capital will often unlock avenues for growth, injecting new capital and bringing on a new capital partner will come with a new set of challenges. Increased scrutiny of decision-making will bring a level of governance or process that may have historically felt bureaucratic in a founder-led business. Expanded reporting and metric driven performance is often necessary in a Private Equity environment as investors are held to account for the fund’s performance. The challenge of building the operational scaffolding necessary for the organisation to scale is often an underestimated step in the organisation’s transition.
Bringing your team on the journey is often an afterthought
The frantic and confidential nature of M&A often means only a small circle of individuals are aware of the transaction and why the founder(s) have decided to undertake the transaction. Founders will have had ample time to rationalise the role they will play going forward. The journey for most of the organisation however will often start post the transaction. Bringing the team on the journey and managing through a myriad of reactions from excitement, bewilderment, to concern, is a difficult and important step in the organisation’s evolution. Taking a highly structured, transparent approach to communicating the transition and explaining the impact of the change as soon as possible, is an important part of managing the transition.
Finding alignment of accountability
As a founder, it is difficult to find others who will hold themselves and the organisation to the same level of ambition as you have. Finding the right capital partner, who will run at a pace that appropriately stretches the organisation yet allows the executive team to retain ownership of decisions is a difficult, but important balance.
Making hard decisions
Although there is an advantage to bringing in an outside perspective, for founders that have largely autonomously charted the path of the organisation for some time, challenging the organisation’s pre-conceived notions can be confronting. It is difficult to find organisations that truly assess opportunities on a first-principles basis. It is somewhat inevitable as an organisation evolves that ‘sacred cows’ either consciously or sub-consciously slip into the organisation’s psyche. In a transition of ownership addressing difficult decisions are inevitable, this may range from reassessing products, organisation structure, markets or customers that are served. Whilst these decisions may at times be uncomfortable, the reality is they are often underlying challenges that have subsisted for some time, and it is only through an outside agent for change that a decision is driven to a conclusion.
To date, all of our portfolio companies have been founder-led prior to our investment. Managing the transition from a founder-led organisation to a Private Equity portfolio business is core to the work we do, and fundamental to our portfolio’s success. Every founder’s story is different. Over the next few months, we will be spending time with our founder CEOs sharing their stories of not only the organisation’s transition but also their personal journey.
Cheyne Tan,
Potentia