In the United States, ousting Founders from their own companies is often the norm. Starting with the Polaroid Corporation founded by Edwin H. Land in 1937 to Apple's Steve Jobs, to Cisco's Sandy Lerner, to Yahoo's Jerry Yang, to Twitter's Noah Glass, to Groupon's Andrew Mason, to Zynga's Mark Pincus, to Etsy's Rob Kalin, there is a long history of Founders being fired from their own companies.
The number one reason: Founders who have a disagreement in vision and management with the Board of Directors and their investors are fired. There is a tenuous balance between diplomacy, integrity and standing up for what Founders believe in vs. making shareholders and investors happy.
"Edwin H. Land often made technical and management decisions based on what he felt was right as both a scientist and a humanist, much to the chagrin of Wall Street and his investors. From the beginning of his professional career, he hired women and trained them to be research scientists. Following the assassination of Martin Luther King, Jr. in 1968, he led Polaroid to the forefront of the affirmative action movement."
His "unusual" management style and several disagreements with the Board of Directors ultimately lead to his dismissal as he certainly wasn't the typical CEO of his era, although he is something of an icon now.
In a similar vein, Etsy Founder Rob Kalin, the incredibly fascinating, outspoken and iconoclastic CEO was fired not once, but twice from his own company. He had a fundamental disagreement in preserving the original vision of Etsy, while his Board of Directors wanted to scale and open their business to big factories, he wanted to "rebalance capitalism and empower people and small businesses to have more sway on the global stage" something Kalin was very public about promoting. Unfortunately, he also made the mistake of publicly saying that "maximizing shareholder value was ridiculous" and that "shareholders weren't important at all". These comments, along with his public disagreement on preserving the vision of Etsy, not surprisingly, lead to his dismissal. On a related note, since Kalin's dismissal, Etsy has been floundering, and according to this recent businessinsider article, Etsy is in big trouble.
Here in the UK, Elizabeth Gooch, CEO of eg solutions, a company she founded in 1988 was ousted by a board she appointed in 2013, only to make a comeback as CEO and make the company profitable again by correcting the mistakes of her replacement who had made big promises to scale the business, but during his tenure, saw the value of the company drop.
The lesson here is that Founder CEOs often have that "one thing" that drive of leading their own companies because they love what they do. Replacement CEOs might have all the right business and university credentials, but they most likely don't have that "emotional drive" and "emotional investment" into making a startup a success. Most startups fail simply because people give up.
One of the Founders of the VC Group Passion Capital, Eileen Burbidge, an American who is soon to be a British citizen, writes that "there has to be something that is emotionally anchored, deep-rooted and which will drive that founder through their most difficult days."
Having that internal drive, but also being careful not to anger shareholders will probably help Founders in the long run.
The second most popular reason why Founders are fired from their own companies is when there are too many Co-Founders, and the Co-Founders do not get along and are competitive with each other.
When there is a founding team of 4-5, that can sometimes signal a red flag. Also Founders who don't know each other very well, and tend to have similar skill sets are often the ones who become competitive with each other (eg, Founders who are all MBAs or Founders who are all engineers or Founders who were all former analysts etc.)
Take this (rather amusing) Quora query of Co-Founders wanting to get rid of the CEO Founder:
"I'm working in a 5 team tech startup. We have come up with a product for Android all coded up and designed nicely, back-end server running with a rather poor right now but functional database and get's the job done for a start...And the bigger problem is, somehow, all the co-founders reached on their OWN, the conclusion that the founder/CEO is absolute horseshit. He knows all the buzz words, practices none. and the product literally came from 3 cofounders. [sic] All that the founder did was put together the team, convince one of the founders to contribute a good amount of cash and join him, and convinced the rest of the team that he knows what he's doing.
One idea is to kick him out, because most of us have invested too much in it to let it go like that. If we leave, he has no product, at all. 0. [sic] Because obviously we will take it with us. Thing is, how do we fix this hurricane in the nicest way possible while hopefully still keeping in touch as friends?"
The situation reads like a typical Twitter scenario, when several Co-Founders gang up on one Co-Founder and oust him/her out. This was also the case with Tesla, when Elon Musk decided the other Founder, Martin Eberhard needed to go.
After the initial infatuation of the startup launch, Founders might face the grim realities of being in a dysfunctional long-term relationship when the culture of the company they create leads to competitive behaviours. When Founders are fighting for positions, credit, projects and accounts, they are not working in conjunction with their strongest assets.
The third reason why Founders are fired from their own companies is when the company hires too many people in an attempt to scale prematurely, and negative net income starts to bleed investors dry. (This is also the second primary reason why startups fail.) Groupon and Zynga exemplify this, although Zynga's Mark Pincus has recently been re-instated to his CEO position just last month; however when a company fails to scale successfully, and the burn rate catches on like a house on fire, take a guess who the Board of Directors will decide to fire or rather point the finger to blame for the mistake; certainly not a fault of the Board of Directors, whose collective presence was probably there for every expansion decision made, but The Founder CEO of course.
An anonymous Founder has the following to say after being fired:
"Advice to other founders
This is every founder's nightmare. My advice: first, don't ever shortchange the time you spend with your board members. Build really good relationships with them.
And recruit for personality. My board would be perfect for a large foundation but it's the wrong board for a small entrepreneurial nonprofit. I admit that I had a big role in recruiting. Why did I recruit them? Because I didn't know what I was doing. They have no spine.
They chose to be unengaged and I let them do it. The finance committee did meet every month and we went over the finances in painful detail. This group of people didn't want to spend the time to be good board members. They were just interested in the once-a-month meeting.
I've changed my mind about being a voting member of the board. They couldn't have met without me if I had been a voting member. The dynamic was that they had all the power and I had none."
However, if you're a Founder who's been ousted from your own company, don't fret. Chances are, you will go on to do even better things and become Founders again of other companies as in the case of Cisco's Sandy Lerner who founded Urban Decay and Yahoo's Jerry Yang, who became an early angel investor in Alibaba; or, as in the case of Elizabeth Gooch and Steve Jobs et al, you might be asked to come back and take your rightful place as Founder CEO once again when the Board of Directors realise that the grass isn't greener after all.
By Sierra Choi, Director of Marketing
[disclosure: Sierra Choi is also currently a Co-Founder of a start-up, Quantumemory, who is building her Board of Directors]