Yury Molodtsov

COO and Partner @ MA Family where we help tech companies get into the news

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What Are The Chances They Will Replace You As The CEO?

I looked at the list of US-based tech unicorns and tried to find the ones who replaced the founding CEO with an external hire.

June 10, 2019

What are your thoughts on hired CEOs replacing the startups’ founders? This is an extremely sensitive topic but let’s face it — it happens. Sometimes the founders are way too technical and look for the business person to replace themselves, sometimes they leave for personal reasons, and sometimes the investors push them out (yikes, I know).

The interesting question is how do these changes affect the company’s performance. In the end, the founders are the people who came up with the original vision and the courage necessary to risk a more stable lifestyle in lieu of a bumpy startup road. Recently we had a discussion about this at Day One Ventures. If you want to talk about something like this the good idea is to rely on facts and not just your perception.

Data

I took the list of all US unicorn tech companies (courtesy of CB Insights) and collected the data necessary to answer a few questions about each of them:

  1. Are they still run by their founders?
  2. If they aren’t, when did the management change?

Chart

As it turns out around 82% of the US unicorns are still led by their original founders. This number closely matches the one discovered by Harvard Business Review which is interesting as they had a more normalized sample and not just unicorns. Let’s look more closely at the other 18%. The most interesting question right now is when did the management change compared to the moment these companies became unicorns. Thankfully the history of the CEO role is not that hard to get, to the point of the exact month at least. Below is the chart for all these unicorns where the CEO was replaced at some point. The zero point on the graph represents the moment when the company becomes a unicorn. Chart

Highlights

As you can see, in the most of these cases an external CEO was usually hired even before the company attained that desired Silicon Valley status, with some very notable exceptions of course.

• JUUL, the infamous company that makes teens smoke but was definitely an upgrade for my smoking older friends, is present in their list but those moments in time are absurdly close.

• Uber, probably the loudest example that everybody knows. Travis has been aggressively building the company and ensured its global dominance (well, they had to withdraw from a lot of places), but in the meantime, they forgot how to play nice and ruined the company’s culture. So Benchmark, worrying about their stake, wanted a change in the management and a clear path to liquidity.

• LegalZoom is a technology platform for legal advice founded in 1999(!) and the company with the longest bar on the left side. Took a long road to that exciting status, and the CEO who did that took the role in 2007, 11 years prior.

This is obviously not a full-blown research aiming to give you a perfect understanding of these processes and whether it’s helpful or not to repalce CEOs. In the end, it might be just a good example of survivorship bias at its best, as we only looked at the companies that made it that far which is always impressive on its own. Survivor’s Bias

You can have a look at the original data sheet here. I’d appreciate any comments or questions.

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