Dear SaaStr: Why Do Many Startup CEOs Quit After Their Companies Are Acquired?
Five reasons:
- First, it’s very difficult for most founder-CEOs to work for someone else. They generally don’t mind working with others. They don’t even need to be “the boss”. But being told what to do, especially when it’s not clearly “right”? Tough. The only real answer here is to let the founder-CEO sort of run things AND …
- Economically, most acquirers get things wrong. And in all fairness, it’s hard to get things 100% right. There has to be at least a half-decent economic incentive to stay. When my companies were acquired, I had no economic incentive to stay, not really. So in the end, I did my very best, but … I didn’t stay all that long for zero incremental dollars. The balance here is super tricky, but you have to at least try. And it can’t be 100% punitive. Clawbacks, revesting, etc. make some sense. But there has to be a carrot with a stick. Founders hate a carrot-stick imbalance, even if they do stay. They will hate the company immediately thereafter. There has to be genuine, material upside.
- It’s hard, but not impossible, to work under someone else’s house rules. Even if you are left alone, and have some economic incentive to stay, it can be hard to be told you have to totally change the way you do some things. Most founders have hacked things, for a long time. These hacks cut corners, and are quirky, and are nonstandard. But they work. Now having to run every release through a 20-person committee? Having to use their sales team for future expansion, that also sells 4 other products? That can be tough.
- Even if it’s perfect, true creators often want to build another one again. And often, right now. I left my first startup after 20 days, post-acquisition. That was enough. But I would have stayed 3+ years in the second one.
- Just plain need a break. Acquirers often miss this. It’s hard to build a company from dirt, from nothing. Especially if the sale is around 5 years or so, that’s when everyone gets tired. Sometimes, all the fancy titles and retention packages won’t cure being tired. Acquirers should recognize this and turn the CEOs into 50%-time consultants and “non-executive chairpeople” of their startups, until the help isn’t needed anymore. Some acquirers do this well. Many do not.
But. I think if acquirers get it right, most CEOs will stay 2–3 years. And then, sometimes, longer, if they really can still do something amazing (and lucrative) after that. That should be the goal. 2+. Maybe More.
And finally, here’s my advice to almost all founders and execs post-acquisiton: chill a bill. And play another card. Just one more card, to see how it goes. Stay 6 months longer than you’ve planned. You’ll learn new things, if nothing else.
