Replacing Founders with CEOs: A Discussion with Paul Doscher, CEO, Lucid Imagination (Part 5)

Sramana: It sounds like the first two scenarios were pretty much exact opposites of each other. What was the third experience of replacing the founder as CEO like?

Paul Doscher: The third scenario was, unfortunately, a bit of a train wreck. A new CEO role was mandated by the board. There was no passive-aggressive behavior by the founder; he was very forthcoming about his thoughts that my coming on board was unnecessary. He was also upfront and said that he was most interested in moving the company forward. He told me that he would do what he was asked to do, but he told me that he wanted me to know that he would be making an effort to transition out.

Again, that scenario works out fairly well in the end. The founder said he had accepted the role and moved into a hybrid CTO and VP of engineering role with the understanding that within six months, we would move out. The issue was that he never really let go of the reins, and six months turned into a year or longer. Over time, it became obvious that the situation was becoming dysfunctional, so the founder decided to be proactive and took himself out of the game.

The important element there is to figure out how important the founder is to the next round of fundraising. Companies need money to move forward, and as long as the fundraising is not going to be negatively impacted by the founder’s departure, you can effect a reasonable transition.

Sramana: I’m going to give you a scenario from my experience, and we can then can compare our scenarios to see if we can come up with recommendations for entrepreneurs who are trying to navigate this situation. I was on the opposite side of the table. I was a founder, and we brought in a CEO for my second company. I am on my fourth company right now, but in the 1990s I did three startups. I was very young at the time, and we brought in someone in their fifties who had a lot of sales experience. I was fully on board with bringing in a CEO. I was OK accepting somebody who I thought would help mentor me. My very first job was a CEO job because I was the founder, and I had to navigate all of the funding and acquisition issues that came up. By the time I started my second company, I had a bit more experience. I was the heart and soul of that company, I had 30 employees who really looked up to me. I am also a very powerful personality. The incoming CEO gave me the impression that he understood what we were trying to do and that he respected what we were trying to achieve. He was considerably less charismatic, and he did not have a real understanding of the product that we were building and never developed that understanding. Within a month of his joining, it became clear that he was a political guy. All he did was try to win a power game with me. I had no experience with organizational politics and I had limited maturity from an age point of view. I had limited self-awareness. I did not know how to navigate that experience. I am also not a person who can easily be dominated or intimidated. It became a stressful situation to the extent that it was very silly. I had raised funding from NEA. NEA invited me to a dinner and I was allowed to bring a guest, so I invited the CEO to join me for dinner. He turned around and said that if he were to go to a CEO dinner at NEA that he would bring his wife, not me. I said fine, so I invited one of the board members who had helped me through this process. I learned two things from that process. One, I am not a replaceable founder. I can’t be slotted to a limited role, and I never did after that. On the other hand, I learned a lot of things about the person coming in. Let me put this question back to you: If we were to synthesize what we have learned from the process, what are the best practices on the two sides of the table? What situations will never work?

Paul Doscher: I would suggest you have to take personalities out of it. The only reason I was ever brought in by the board as a CEO is that the company was broken, meaning that it was not meeting its objectives. If you, as CEO and founder, are executing the business plan to the expectations of the board, you never need me. As a founder, I would suggest that you make sure you are always hiring people who are as strong as you are in the discipline that you need to fill your company up with experience. You need a group that is complementary.

Sramana: This industry is full of very young founders. They are succeeding, and the situation that Facebook created is rare. It is not that Mark Zuckerberg is not executing, but that he realized that he was not going to be able to scale the organization without help. I don’t think that company would have been as successful without Sheryl Sandberg in the picture.

Paul Doscher: I see the same thing at Google. The founders did a great job getting the company up and running, but eventually it was acknowledged that they needed Eric Schmidt to come in and run the company.

Sramana: I don’t think Eric Schmidt is the reason for success. That is a scenario where Sergey Brin and Larry Page were really running the company and Eric ran a cosmetic role.

Paul Doscher: Let’s abstract from the specifics. Roles are there for a reason, and a good CEO will acknowledge what roles need to be filled for things to work. All too often I see founders who are very good in one discipline and they let their ego run away from them. They believe that they have more capability in other areas than they actually have, and that is when things get broken. They bring in people who are not qualified for their roles.

This segment is part 5 in the series : Replacing Founders with CEOs: A Discussion with Paul Doscher, CEO, Lucid Imagination
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