Giving up the CEO role is one of the toughest challenges an entrepreneur will face, but doing it successfully will help their business to grow
When Swedish software developer Mattias Andersson first founded his own gaming company, he had no idea that he would one day become known as its ‘pirate CEO’.
Having built up Norrköping-based Proactive Gaming to employ around 15 people and achieve growth rates of 3,500% in just three years, Andersson found that the CEO role had become too challenging. It was time consuming and stretching him out of his comfort zone into areas such as finance and HR.
So to focus on what he loved best – developing software and working with clients – in 2012 Andersson appointed Pål Burman as the company’s new CEO.
Burman, a business school graduate who already had CEO experience, was tasked with bringing some order to the chaos induced by the company's rapid growth. But there was a problem: having built up and cared for the company day and night, Andersson struggled to stop himself from taking CEO-level decisions.
Burman says: “I told all the staff that we have a pirate coming in sometimes, trying to give orders. You’re not allowed to follow him. Mattias knew about this as well. I told him we considered him to be a 'pirate CEO'. I told him: ‘You’re not allowed to make these decisions, you have to go through me.’”
This sums up a common problem for private businesses: handing over the CEO’s reins is one of the toughest transitions an entrepreneur has to make. Failing to do so successfully can act as a brake on business growth.
Entrepreneurs are typically very focused on their core business – they are driven and work quickly, says Annika Hall, director of business advisory at Grant Thornton Sweden and author of several books on privately held businesses. Those qualities are great for spotting opportunities and starting businesses but entrepreneurs often keep tight control of their operations.
This can lead to employees failing to take the initiative or contributing to the development of the business because what’s expected of them is not made clear.
That’s fine up to a point, says Hall. “As soon as you get to 10-15 people, if you don’t then assume some kind of leadership or CEO role where you start to focus on building a team, getting people motivated and giving them a sense of direction, the business won’t grow,” she says. Decentralising control and devolving power to others is crucial to this process.
But entrepreneurs often find this difficult. Having founded and created their business, it becomes part of their identity. Owners sometimes talk about their business as one of their children.
“Many entrepreneurs severely underestimate how difficult this is on an emotional and psychological level,” says Hall. “Some say that it is the 'most difficult thing' they have ever done. Or that it was 'really painful'. They say: 'I really felt lonely and like I had lost my sense of identity'."
During that transition, entrepreneurs often unconsciously tread on the incoming CEO’s toes. “Mattias would come in and try to do things like take decisions about what we were supposed to build and how to build it,” Burman recalls. “It was brilliant that he was engaged and to have his knowledge. The tricky thing was that he couldn’t take those decisions; I had to take them.”
As a consequence of Andersson’s resistance to letting go, employees and clients were often confused about who was in charge. It also undermined Burman’s ability to do his job effectively.
“Working with someone that had a stronger position than me and knew more about things limited me,” he says. “I wasn’t as sure about my own decisions as I had been in previous jobs. We did work well together and having someone to discuss decisions with was good – at these times I was a stronger CEO. But at other times, I became hesitant.”
Burman was instrumental in helping Andersson let go of the CEO role. They talked about what was and wasn’t working in real time, defining their roles more clearly as their relationship progressed. Burman encouraged Andersson to step back from operational detail and assume the role of a strategic owner who could articulate a vision and direction for the company.
Hall says this CEO-to-owner transition is important. When the CEO role stops being enjoyable, many entrepreneurs feel that they have to sell the company and move on. Few realise that there is an important role for them to play as a good owner.
“The owner's role is about strategic and cultural framing,” says Hall. “A good owner is able to look at the business and say: ‘This is the vision and these are the guiding values of our business. This is where I want my business to be and this is how I want to get there.’”
Knowing how the roles of entrepreneur, CEO and owner differ is crucial to making a successful transition between each position. But it’s possible to remain an entrepreneur and become a good owner while bringing in an external CEO. Or you can retain the aspects of a CEO role that you enjoy while bringing in a deputy to take on the operational responsibilities.
To do that successfully, says Hall, you need to be aware of your strengths and interests to carve out your new role. Think about the job title that will be on your business card. Andersson opted for ‘founder and account manager’, which plays to his core competencies.
Hall advises against vague titles like ‘advisor’, which can blur the boundaries with the CEO role. Once you have a title, draw up clearly defined job descriptions for you and the CEO, ensuring that they don’t overlap.
This is an exercise Burman wishes he and Andersson had gone through before he joined Proactive Gaming. “Things would have worked much more smoothly if we had formalised it on paper,” he says.
Burman also thinks bringing in a consultant like Hall and a business mentor for Andersson to guide them through the role changes would have saved them a year. In the end, it took Andersson 18 months to finally let go and allow Burman to run the company.
Today, Burman and Andersson’s roles are clearly defined and that’s feeding through to better results: more profitable customers; more efficient systems and processes; greater trust from staff and clients; and a long-term vision for the company.
Importantly, Andersson has found a role of his very own within the business. “His enthusiasm around the product engages people,” Burman says. “His passion is so important for the brand.”