Fired from the company you founded?!

Some of the worlds biggest companies original founders don’t last…

In any business there comes a time where investment is required, whereby portions of equity have to be exchanged for cash investments. As a result, founders of companies instantly become more accountable to those who have invested. Pressure and expectations rise as targets have to be met and a failure to meet these, or disagreements as to the direction that should be taken, can prove detrimental to the founders of companies.

Pushing out young CEOs or founders from a growing company is hardly a new tactic. I will therefore examine two examples to illustrate this point. I will look at the late Steve Jobs and his history with Apple and also last week’s removal of the CEO and co-founder of Tinder, Sean Rad.

Sean Rad – Ex-CEO and Co-Founder of Tinder

It was surprisingly announced in the last week that Tinder are currently on the search for a new CEO to head the matchmaking mobile app start up. Under Rad’s lead Tinder’s growth has been explosive, with its estimated worth well over a billion dollars. However, IAC (Tinder’s majority stakeholder) owns a wide range of companies such as match.com and Vimeo. IAC is listed on the NASDAQ with a market cap of $5.54 billion meaning that there is plenty at stake for them if something was to go wrong at Tinder. With valuations of Tinder being ranging from $1 billion to $5 billion, it seems that Barry Driller (Chairman and Senior Executive of IAC) simply does not want to risk Tinder’s potential on the unproven Sean Rad, especially now as they are finally monetised through Tinder +, see the video here.

As majority shareholders in Tinder, IAC hold the power to hire and fire as they please, especially in these top management positions. With Rad’s inexperience, coupled with the cloud of uncertainty over the out of court settlement with ex-Tinder VP of Marketing Whitney Wolfe, IAC viewed Rad’s position as CEO untenable. Although this is bitterly disappointing for Rad he will still serve as President and Board Member, and remain as CEO until they find a replacement. He of course cannot be stripped of his title as founder and with his estimated 10% of equity in the company, this makes him a very wealthy 29 year old!

Steve Jobs – Co-Founder Apple Inc

The growth of Apple was astronomical and by the time Jobs hit 30, the company was worth well over a billion dollars. In seeking to grow even bigger, Jobs then went on the hunt for a high profile figure to take the company to the next level. The man he chose was Pepsi Co president John Sculley, who was recognised as a marketing specialist. However, this didn’t go all to plan and after a power struggle with Sculley, Jobs was seen as too problematic and product focussed by the Board and was ousted from the company.

Jobs wasted no time in founding another computer company NeXT. However, in 1996 Apple made a U-turn and decided to acquire NeXt , which gave Jobs the opportunity to return as CEO to his beloved Apple. This turned out to be a spectacular decision by the Board as Jobs revolutionised what was a declining Apple brand. He innovated and brought out products such as the iPod and iPhone. And as we all know – the rest, as they say, is history.

To conclude, I will talk a little about the findings of Harvard Business Professor Noam Wasserman who published a paper called “Founder-CEO Succession and the Paradox of Entrepreneurial Success”. In the paper he states that there is actually a very low percentage of founders which stay on for extended periods as CEO’s, especially in high potential ventures. Founders and CEO’s such as Bill Gates at Microsoft and Larry Ellison at Oracle are very rare, which is testament to their abilities. Whilst founders will often have the passion and desire to succeed, their all-round managerial skills and lack of business experience can be lacking. It is therefore no surprise that investors, who want to see company revenues increase from $10 million to $100 million in a short span of time, are quick to pull the trigger on founders.