When should you fire the founder?
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William Bains joined PA Consulting Group in 1988 after a career in science, and went on to join Merlin Ventures in 1996. He has co-founded four biotechnology companies, including Delta G Ltd, a company exploiting discoveries in the biology of ageing to develop new medicines. He also runs Rufus Scientific, helping entrepreneurs, universities and start-ups identify how to generate value from visionary science and technology.
Abstract This paper examines the effect of founder team removal on the success of a set of 77 UK venture-backed biotechnology companies. Five measurements of success of these (predominantly private) companies are used: achieving liquidity for its shareholders, attracting further investment and further investors, company size, and how many products it managed to take into clinical trials. For all measures, early removal of the founding New Venture Team is correlated with poorer performance than retaining the founding team’s skills. The best time to remove the founding team for this set of companies is after IPO. This suggests that venture capital investors’ tendency to routinely remove founders and change CEOs on investment is damaging to their own interests as well as those of the founders concerned, and that alternative, more cooperative ways should be sought to retain founders and early executives in meaningful, effective roles in their companies to continue to harness the value that they are observed to add.
Journal of Commercial Biotechnology (2007) 13, 139–149. doi:10.1057/palgrave.jcb.3050050 Keywords: founder, management, succession, biotechnology, IPO
INTRODUCTION The qualities that lead an entrepreneur to create a new business are often different from those that are needed for commercial management of that business. Because the attributes of founder and manager are different, practice-focused management literature holds that there comes a time in the growth of any company when the foundermanager must relinquish control over some key aspects of the company’s function if the company is to flourish.1–4 Theoretical explanations include divergence of the aims of the management and the shareholders,5 loss Correspondence: William Bains, Rufus Scientific, 37 The Moor, Melbourn, Royston, Herts SG8 6ED, UK Tel: + 44 (0)790 493 1369 E-mail: [email protected]
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of aspirations by the (often exhausted) management,6 or the inability of management to learn new skill sets fast enough to adapt to a fast-changing business environment. Empirically, this ‘succession crisis’ is a feature found in several studies of the evolution of new, growing companies.7,8 In line with this expectation, some studies show that companies that fail to manage management succession effectively perform less well (see, eg, Barth et al.,9 Cardullo,10 Smith and Amoako-Adu,11 McConaughty et al.,12 Barnes and Hershon13). Most studies of the management succession crisis have been on family businesses, where succession is triggered by the founder’s retirement or death.14 In hi
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