Why do many startup CEOs quit after their companies are acquired?

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JASON LEMKIN

Five reasons:

  • First, it’s very difficult for 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. 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. I didn’t. 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 this is tough, however). 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. 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.

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Published on August 3, 2016
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