Making the Decision to Replace Yourself

This article was originally published by the New York Times on Thursday, Dec. 23, 2010.

In early 2008, Matt Dorey, founder and chief executive of Curve Dental, was at a loss. Three years into building a comprehensive Web-based software package for dentists, he felt the product was ready, but he was not sure how to make Curve a market leader. “The company was getting complicated,” Mr. Dorey said. “I was starting to become conscious of what I didn’t know. It was almost a feeling of loneliness.”

Then he learned of a chief executive, Jim Pack, who was looking for new opportunities after a private equity firm bought his medical-billing software company, AdvancedMD. Mr. Dorey reached out with a LinkedIn invitation. “This was someone I had been following for four years,” he recalled. “He was really open about sharing knowledge and letting us know about the challenges we face. I immediately knew there was nobody better to be the C.E.O. of this company.”

Mr. Dorey enlisted his board and top executives in a monthslong campaign to woo Mr. Pack, who ultimately agreed. Since Mr. Pack took over as chief executive in January 2009, Curve Dental has more than doubled its staff and has introduced its software to the American market, gaining share in more than 40 states and increasing its customer base fivefold. Picking the right replacement, Mr. Dorey said, “was the most important decision I’ve ever made at Curve and probably will ever make.”

Turning over your company to a successor is not to be taken lightly. And in many cases, sticking it out might be the better option, especially if you can delegate those parts of your job that have become unmanageable. But in some instances replacing yourself at the helm makes sense. Based on the experiences of small-business owners, this guide offers suggestions on how to make that decision and accomplish the transition as painlessly as possible.

HOW DO YOU KNOW? Ironically, the qualities that help you succeed as an entrepreneur — relentless optimism, willingness to tackle any challenge, a stubborn belief in yourself and your business — also make it hard to assess your own weaknesses dispassionately. But one individual rarely possesses all the varied skills and experiences needed to take a company from idea to product introduction to sales growth to institutionalizing operations. When you hit your limit, you and your company may benefit from a leader with a fresh set of eyes and a different skill set.

Sequential sleepless nights can be an important warning sign, said Bo Fishback, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation — especially if you are worrying about the same problem and unable to make headway. Other red flags include a loss of excitement when entering the workplace, or suggestions from people close to you that it might be time to scale back.

When questions arise, not all owners have a choice. If you have taken venture capital money and your investors want a change, they are likely to get it. That is what happened at eBags, an online retailer based in Denver, when the board decided in April 2008 to replace the co-founder, Jon Nordmark, with an outside chief executive. “It was personally very difficult because this is your baby,” said Peter Cobb, an eBags senior vice president who had founded the business along with Mr. Nordmark. “You care about it so much and you feel like nobody else will care about it as much.”

Mr. Nordmark was replaced by Vince Jones, part of a team that helped reach $1 billion in sales. After watching Mr. Jones bring in talented new executives and steer the company through the recession, Mr. Cobb is convinced that replacing his business partner was the right step, noting that revenue grew even during the recession. “We were able to grow single digits,” he said. “That’s almost like growing 30 percent in boom times.”

FINDING A REPLACEMENT When seeking a replacement, start with people already emotionally invested in your company. If possible, “try before you buy,” with a consulting or temporary role that is easier to reverse, suggested Noam T. Wasserman, an associate professor at Harvard Business School. If someone must be hired from outside, make sure you and your board have repeated and extended contact with the candidate. Take your time and vet the person thoroughly.

Charley Moore, founder of the legal services Web site Rocket Lawyer, was not looking for a replacement when he brought on Dan Nye, a former LinkedIn chief executive, as a board member. Over the course of a few passionate conversations, Mr. Moore said, “it became clear he was falling in love with the business.” The pair decided that Mr. Nye would join the company as executive director to evaluate daily interactions and think about how he might fit within the team.

Mr. Nye brought an intense focus on customer service and an analytical approach to new products. For instance, he suggested letting customers create a free legal document before entering a credit card number to sign up for a free trial of the service. The data that followed that decision was definitive: new accounts leapt from tens of thousands a month to more than 100,000 a month.

In the end, Mr. Moore was relieved to turn over day-to-day management as chief executive to Mr. Nye so he could close his door for long stretches of thinking and writing. Concentrating on both active leadership and deep analysis, Mr. Moore said, is “almost impossible.”

OUTLINING YOUR ROLE It may be almost impossible to find a successor who will care as much as you do, make the same decisions you would and fulfill your expectations. Ask yourself whether you can resist meddling while someone else makes critical choices for the business you built. It may be better for you to make a clean break from the company. But if you decide to stay, avoid undermining your replacement’s authority by agreeing on what your new role will be and ensuring it maximizes your abilities.

It is also important to understand that you may not be able to land the best talent unless you give up the reins. Farbood Nivi, founder of Grockit, says he could not attract candidates he thought were good enough to run his education technology company until he started searching for a chief executive. “They wouldn’t talk to me if I was doing a C.O.O. search,” said Mr. Nivi, who turned over the chief executive’s office to Roy Gilbert, a former Google executive, in September.

A HEALTHY TRANSITION Once you have made your choice, the next challenge is to retain the successful aspects of the company’s history and culture, while injecting new energy and tackling new goals. A transition period can help the new leader learn the ropes while giving you the comfort level you need to let go.

At a hair care company, Ouidad Holdings, the founder, Ouidad, who grew up in Lebanon and goes by one name, worked hand-in-hand with the new president, Hillary Solomon, for the first three years Ms. Solomon held the post. This August, Ouidad took her first monthlong family vacation since starting her salon in 1984 — a long-awaited respite that prompted her to agree to outside investment and hiring a president in the first place.

“What I want to tell other entrepreneurs is that it’s a very, very tough thing to do,” Ouidad said. “It is a partnership. You build it and when you feel comfortable, it’s just like your husband.”

Quick Tips:

Try before you buy by offering a consulting or non-C.E.O. role.

Look or someone who is already “invested” in your company.

Take the time you need to make the right choice.

If you can’t let go, consider selling the company outright.

Suggested Resources:

A story about succession by Inc. magazine’s Bo Burlingham.

A Score guide to succession planning.

Founder Frustrations blog offers research on founder-C.E.O. succession, start-up valuation, founders' compensation and other entrepreneurial topics.