How do you decide who becomes the CEO from among the founders?

Well, there is no real logic that can be applied in addressing this question, but a person who understands the dynamics of business better, is good at sales, good at operations management and can be the face of the company to the outside world is a better choice and in the best interest of all, including other co-founders.

Of course, the person who is designated CEO should have what it takes to be a leader, and have the aptitude, the passion and the desire to steer the company in the direction agreed by everyone.

A co-founder who becomes the CEO needs to understand that he/she is NOT the boss who can have special privileges… and that he / she is merely the chief executive who has the responsibility to making critical decisions and making sure that the company is on track to meet/beat targets.

In a startup, a CEO should take up the ADDITIONAL responsibility as a CEO along with an area of the startups business that he/she should take ownership of. E.g. the CEO may take up the responsibility of handling the sales function or operations management or driving the technology piece, etc. But the responsibility of being the CEO is over and above that functional responsibility.

It is also important to designate one person as the CEO from among the founders, as the rest of the team as well as external stake-holders (investors, vendors, partners, etc.) need to know where the buck stops and who would be the decision maker when one needs to be made.

In most cases though, especially when a few friends get together to start a company, who will be the CEO is a tough decision. In such cases, it is best to have a healthy debate within the team and select a CEO. (Some startups, when faced with the task of deciding who the CEO should be have followed the strategy that the founder who will get to be the CEO will give 1% of his/her equity to the other founders i.e. if there are 4 founders, the equity structure will be 22% for the founder who becomes the CEO and 26% each for the other co-founder.

While it is a difficult question, often leading to stress among the team, it is critical to address that and take a decision. Especially if the startup is going to seek VC funding, there will have to be one CEO who is leading the team.

 

Building the founding team – finding co-founders

The success of failure of a startup is largely dependent on the quality of the founding team. Most investors would therefore make their decisions on investing depending on how confident they are about the team implementing the idea well.

 

Size of the founding team

While there is no ideal size of a founding team, 2 -3 founders is generally considered to be a good number for a variety of reasons.

Well, starting a venture on your own without a founding team is certainly possible. But it sure does get lonely. You need someone to give you company, especially during the stressful times which all startups will go through in some stage of their journey.

On the other hand, having more than 4 founders can often lead to chaos and overlap of competencies. [Though there are great examples of companies like Infosys which had 7 co-founders.]

 

Composition of a founding team

The ideal composition of a founding team is when the founders bring complementary skills to the venture. E.g. someone from marketing/brand management, someone from technology and someone from operations management/procurement will make an ideal founding team for an B2C e-commerce startup.

In my view, it is critical to find co-founders who have the same passion for the concept, and ideally who come from the same socio-economic background. This is necessary because when the startup is going through challenging times, it is most tempting with someone who is less passionate about the subject to step out. Also, if the founders come from different socio-economic background, the challenging times can be quite stressful too. Someone from a wealthy background my quit because the challenge is not worth the effort, and the returns. On the other hand, someone who is financially challenged may not have the ability to continue in a resource-constrained mode for longer than originally planned.

 

Founding Team members are different from founders

Remember, not everyone who joins at the beginning of your journey needs to be a founder. They can be called ‘Founding Team Member’, and it does carry some weight in a person’s profile.

Founding team members are often the ones who are willing to take a bet with you, and hence expect to be rewarded with some equity so that they also get to benefit from the upside when the startup succeeds. Often founding team members are the ones who would are passionate about the domain, or some folks you know and who join you because of their belief in you as a person and as a professional. Founding team members are special and need to be treated as such. They are the ones who help you define the culture, and to the external world, the personality of the organization.

Be very selective about whom you involve as part of the ‘founding team’ and who are just early employees. My suggestion is that only when you are confident that someone is as passionate about the opportunity as you are should you give the person the status of ‘founding team member’.