Editor’s note: Bill Warner is managing partner of Paladin and Associates.The business and personal behavior of a company’s founder will, at any time in the history of a company, determine whether a company will succeed or fail.

Venture firms know that. Banks know that. Public grant associations know that. Attorney and accounting firms know that. Most well informed private investors know that.

As a company matures, there are many transition points that require the founder to make key decisions:

  • Selecting the founding team

  • Picking advisors

  • Funding the company

  • Selecting the management team

  • Deciding when to step aside or give up ownership

  • Selling the company

    • If the founder handles these decisions intelligently, the chances for success are much higher. If not, the company will experience a quick demise. I call this ailment “Founder Block.”

    Roadblocks

    Major roadblocks to success occur when:

  • Founders pick incompatible founding team members who don’t share the vision and buy into the business proposition

  • Inexperienced and irrelevant advisors are picked to assist with the business

  • Founders display inappropriate business behavior that shakes investor confidence that the founder has the required maturity

  • The management team is put in place and the founder does not relinquish management control

  • They don’t step aside when more qualified people are needed to run the company

  • Founders balk when share ownership changes occur and when the company is going to be sold

    • Let’s start at the very beginning of a company’s life. The founder has a vision and an idea for a company. The founder does the research and creates a business plan to flesh out the idea and determine if a viable business can be created. Depending on the type of business, the founder may need other people of different skills to join in the early formation of the company to complete the business plan and actually get the company started. This founding team has to be put together considering the following essential principles:

  • Every founder has the passion for the vision and is willing to make incredible personal sacrifices to accomplish it

  • They all agree on the business plan

  • The founders create the culture of the company and have compatible business and personal principles

  • Everyone is an “A” player, and their skills are complementary and necessary to create the company

  • They work well together

    • Advisory board

    Every successful company has had solid business and technical advice from a small group of highly qualified advisors. A board of advisors can help a struggling founder avoid a lot of early pitfalls. Considerable thought is required to pick them, making sure the advisor team consists of:

  • Relevant technical expertise within the company’s selected industries

  • Business development experience and a broad array of contacts in the company’s market arena

  • People with a broad range of experiences in business finance and management

  • People with complementary product or services experiences who can assist with determining alliance partners

    • Sticker shock

    The founder’s first jolt of harsh reality occurs at the time the company is financed. Whether it be a personal obligation to a family member who provides funding, debt that has to be personally guaranteed to a commercial bank, a grant requiring research results, or the obligation to shareholders taking private equity, the founder owes somebody something from the beginning. Successful founders will handle this set of transactions by:

  • Treating the financing partners with business respect

  • Managing the money with appropriate professional judgment

  • Keeping them informed of progress and

  • Visibly, and with thoughtful action, committing to the fulfillment of the obligation

    • If financing isn’t enough pressure, adding to that pressure is the selection of the management team. For the first time, the founders have to decide where they really belong in the company, based on their personal skills and abilities. The new members of the management team have to fill the gaps that the founders cannot fill. Quite often, the founders need an experienced CEO to run the company. Experienced executives need to be brought into to accomplish the first set of milestones whether they are product research, product development, marketing introduction, early sales or manufacturing operations. Therefore, management team selection is not a one-time event. It has to be done throughout the life of the company. This is a difficult task for founders, and should be facilitated by experienced business executives. The keys to making the right selections are:

  • Accurately and honestly assessing the skills and abilities of the current team; thereby determining what additional executive skills that are needed

  • Openly admit where help is needed by leaving no problem without thorough consideration

  • Crisply defining the roles and responsibilities for the new members of the team

  • Rigorously and intelligently selecting the people to fill the positions

    • As a business matures, many things can happen to cause a founder to change their involvement in the company. Typical examples of this are: realizing a founder is not contributing or is a disruptive force, the founder in not required for future success when the company’s business direction changes, additional funding dilutes the founder to a minority shareholder, personnel conflicts occur that require a founder to leave the business, or a company is put up for sale. These are difficult times for a founder and have to be dealt with from the point of view of what is best for the shareholders of the company. When personal issues creep into the discussions, these situations can become very debilitating and actually destroy a company in its tracks. To successfully pull through these:

  • The founder has to put the needs of the business ahead of personal issues; it’s all about business

  • As when a founder had great business advice when starting the company, listen to trusted business advisors through these issues as well

  • Be a constructive participant in doing what has to be done, embracing the change and making the transition successful

  • Continue to support the vision of the business and be role model for the entire team by leading the way for necessary change

    • Dealing with the sale or merger of the company is equally as difficult, and has to be dealt with, by the founder, in the same manner. The sale is a final departing point and represents the day the founder’s company reaches adulthood. Lot’s of questions arise about selling or not selling the business: the right price, who stays, who goes, and many more gut wrenching questions. Getting cold feet is the last thing you want to have happen on either side of the transaction. Before a founder even entertains a sale or merger they must:

  • Know what they want in the transaction and what the “walk away” terms are

  • Think through and accept the implications of the transaction once the deal is signed

  • Negotiate in good faith and from a clearly communicated set of deal principles

  • Again, lead the way to making the transition successful

    • All potential alliance partners of a company, whether they provide funding, development, marketing, sales or operations, will want to see the right business and personal behavior of the founder before they proceed. If a founder shows inappropriate behavior, the best of deals will be cut off very quickly. If the founder exhibits mature behavior, in the most difficult of business situations, the partnership will benefit and the company will be on a path to success.

    Bill Warner is managing partner of Paladin and Associates. You can reach him via e-mail (paladin@paladinandassociates.com) or phone (919 570-1023).