FOUNDER VS CEO: WHAT’S THE DIFFERENCE?
Why Technical Founders Should Consider The Distinction
Inventors often assume the CEO role in the companies they form to commercialize their inventions. While they are often brilliant scientists, engineers, or technical experts, those attributes do not naturally translate into the business skills required to lead a company to commercial success.
This article outlines the differences between technical founders (Inventors) and CEOs. It also covers the implications and benefits of engaging an experienced business leader as CEO early in the life of a startup.
Inventors Play a Critical Role
Inventors are vital for their passion for their innovations and their focus on technology and product development. Most great products emerge because of the inventor’s drive and determination to design, implement, test, and refine their technology.
Inventors bring deep insight and knowledge about the original purpose of their innovations. Their ongoing technical contributions are usually crucial to developing and improving a commercial product.
The inventor’s job is to develop technology and products that solve a market problem.
While these contributions are essential to technology and product development, they represent only one side of the equation. The other side requires a focus on what the business needs to succeed commercially. These two dimensions require entirely different skills, contacts, experience and areas of focus.
It is possible to be both tech founder and CEO, but it is exceedingly challenging, and there can be personal and opportunity costs incurred by trying to do both. A split focus and a steep learning curve often hinder startup success.
CEOs Focus on Commercial Activities
CEOs are fundamentally responsible for the growth strategy of a company. They are accountable for putting the required human and financial resources in place to execute their plans successfully.
The role of a startup CEO is even more challenging. They must establish the initial business plan and convince investors and team members to join the journey while advancing the technology and developing the market. Their priorities include:
- Building and executing strategic plans,
- Managing the finances of the company,
- Team formation and leadership,
- Managing relationships with all external stakeholders, and
- Governance and liaising with the company’s board of directors.
The CEO’s job is to create commercial value and build a profitable business.
Over time, as the company grows, the CEO’s role will change as they bring in other leaders to focus on specific functions such as finance, people, and sales. However, being a public spokesperson, overseeing operations, being accountable for company performance, and maintaining a relationship with the board of directors will always be central to their role.
Developing the suite of skills required to excel in the CEO role takes time and experience. Business skills are generally built through experience in successive senior leadership positions. Although many founders can and do acquire these skills while building their startups, the learning curve is steep, and missteps should be expected.
Many great technologies have missed their chance at commercial success due to avoidable leadership-related challenges.
Warning Signs of Role Misalignment
The following challenges are common among inventor-led startups:
- A poorly defined value proposition,
- An unclear product-market fit,
- Challenges in raising capital, and
- Struggling to build a customer base.
These struggles are often clear symptoms indicating the need for an experienced business leader in the CEO role.
An Important Decision: Where is Your Attention Best Applied?
If you’re an inventor ready to launch a company to commercialize your technology, you have important decisions to make around the leadership team. Key questions to consider include:
- What would an ideal business leadership team look like?
- Do I have the skills, network, and drive to pull this team together quickly?
- What role am I best able to fulfil in the venture?
- What work is most fulfilling for me personally?
Defining the CEO Role
A CEO typically invests most of their time in strategic, commercial and company-building activities.
The CEO of a startup company is also heavily tasked with communicating and negotiating with stakeholders. These can include shareholders, banks, granting agencies, legal services, government agencies, landlords, suppliers, customers, advisors, service providers and many more.
Given how much time is consumed juggling these external relationships, focusing on developing, productizing and commercializing the technology at the same time would be a difficult balance to strike for a technical founder.
The CEO role may still be the right direction for an inventor to take, but it’s important to be mindful of the realities of the role and the personal and business implications of your decision.
What About Investors?
When evaluating whether to invest in an early-stage technology company, venture capital firms heavily weigh their evaluation of an opportunity on the CEO and the leadership team. They must be convinced that the team has the breadth of both technical and business skills to execute.
Investors will often pass on compelling technology because they don’t believe the company has the right team to bring the opportunity to market.
Even if they invest in a technical team, it is common for venture capitalists to replace the CEO in portfolio companies if they are underperforming, and that is more likely to happen with less experienced leaders.
Firms like Carrot Ventures that operate a venture studio model can play a key role in helping to identify the right CEO for a startup before company formation.
Options for Finding the Right CEO
If an inventor decides to bring in a CEO to lead the startup, the next step is determining how best to find and engage the right person. One option is to recruit a CEO directly and bring them into the company before raising capital. Another option is working with a venture studio to streamline the startup process.
If an inventor considers the venture studio path, they benefit from the studio’s expertise and capital to source a CEO ideally suited to lead the venture.
In either case, founders will likely have to entice the CEO with significant ownership in the business. While this may seem like an unnecessary dilution of share capital, a company can gain substantial value by increasing business focus and speed to market. The other way to attract an experienced CEO is to have a strong balance sheet so the CEO is paid a “market” salary. That means raising capital, which goes right back to the challenges described above.
Alignment Around Value Creation
When key parties have ownership positions in a company, they are aligned in their motivation to maximize the company’s value.
This alignment helps ensure that all parties commit to the venture’s success and that the inventor’s knowledge and expertise continue to be valued and utilized.
Introducing Carrot Ventures
Carrot Ventures is a form of venture studio focused exclusively on commercializing agricultural technologies.
Central to the Carrot model is setting the stage for success by eliminating the most common startup challenges at the point of company formation.
While there are many common startup challenges, the most pronounced is getting the right people into the right roles from the start. The most important example is what this article is about, the distinction between technical founders and CEOs.
When Carrot Ventures launches a new startup company, we invest significant resources in a broad search for the best possible candidate to fill the CEO role.
Carrot looks for someone with domain expertise, commercial experience, and company building and capital raising success in their history. Someone who is highly motivated by value creation, which is for the benefit of all shareholders.
A global executive search is expensive, but it is a key value-add Carrot makes to its portfolio companies. Given the high costs, it would be difficult for individual inventors to expend that amount of resources without the support of a venture studio.
In the Carrot Ventures model, the inventor and the CEO are the two largest shareholders of the newly formed company. This shared ownership aligns the interest of all parties to support the new venture. It rewards both parties for their contributions towards first inventing and then successfully commercializing the innovation.
Carrot Ventures specializes in putting all the key pieces in place to successfully commercialize new technologies. This includes finding highly experienced CEOs to lead the ventures. If you own or know of technology that could be a fit for Carrot Ventures’ company formation model, contact us, or download our eBook to learn more.
