The Scaleup Journey: Dealing with Founder-CEO Burnout
December 6, 2019
Among the thirty founder-CEOs of tech scaleups with whom I have worked over the past year or so, I’ve noticed that a disturbingly high percentage are experiencing or exhibiting signs of burnout, sufficient in some cases to place the continued growth of their respective businesses at serious risk.
The companies in my informal “survey” range from $3m to $40m in ARR, with growth rates anywhere between 15% and 100% plus. The vast majority were founded in the 2009–2013 timeframe, so they are between six and ten years old. The majority have been financed through three or as many as four or five rounds of VC/PE funding. Many of them have developed a second and third product offering, and thus may already be veterans of more than one hazardous and nerve-wracking “chasm-crossing” experience, which can severely test the most resilient of founding and executive teams.
All of the CEOs in this cohort except two were founders or co-founders of their respective companies; of the two hired-in CEOs, they’ve been in the job for six years and seven years respectively. Most of these individuals are first-time CEOs who, in light of the instant gratification culture in tech these days, may have thought that they’d get to where they are today in half the time. So it is no surprise that six or more years later the entrepreneur can feel exhausted and frustrated. There’s a strong correlation between company growth stalling and the onset of CEO burnout – rather like when playing football or rugby, chasing the ball feels much more tiring than running with it.
Looking through the list, I counted six founder-CEOs who for all intents and purposes are either owning up to being burned out or showing clear signs of serious metal (and mental) fatigue. Another four chief executives — and their businesses — are clearly struggling, which cannot be much fun. The total of ten executives who are operating well below peak effectiveness amounts to no less than one third of my sample group, a worryingly high percentage no matter how you look at it. Let’s also keep in mind some concern for the well-being of these individuals. Even though you can argue that entrepreneurs tend to be pretty resilient to — and even stimulated by — the steep challenges they face, there is always a limit to what each person can take.
Actual Cases of CEO Burnout
For example, one of the founder-CEOs recently informed their board that they are completely tapped out and want to move on. After three years of 50%+ annual growth since 2016, the company’s growth has stalled at 15% and customer churn has spiked to 20% per annum. The CEO and their co-founders and executive team are at their wits end regarding how to regenerate growth within their current financial runway. One or two of their institutional investors from earlier rounds are refusing to re-up, insisting that they either get back to growth in the next two quarters or put the company up for sale.
Two other CEOs have been somewhat distracted by potential acquisitions that fell through after many months of intense negotiations, each for different reasons. As Pete Daffern, a seasoned three-time CEO, told me:”Most CEOs go into these sale processes without a full set of cards, and with incredibly delusional expectations. This helps to set the stage for crushing disappointment, from which some never fully recover.” Indeed, founders, executives and board members all tend to react badly when a pending acquisition falls through, and most find it difficult to get their heads back in the game.
Another two of the burn-out cases are just physically and mentally drained after experiencing repeated ups and downs in the business, and drawn-out fund-raises. I’ve taken to referring to this phenomenon as “The Seven-Year Glitch”. In this age of enhanced awareness about the cost of neglecting mental as well as physical well-being at work, I encourage boards, co-founders, and executives reporting to the CEO to watch out for warning signs of burnout in their leader. This can help to head off the worst leadership crises and prevent the wheels from coming off the wagon.
Causes and Early Warning Signs of Burnout
As I’ve observed in earlier posts, the software business tends to be an unfolding crisis on a daily basis. This can be as true when your company is growing like gangbusters as when it is struggling. Typically, the company is trying achieve something that’s never been done before. Today it’s commonly accepted wisdom that among the 5% or so of startups that manage to achieve product/market fit, 90% or more fail to achieve the first stage of scaleup - i.e., to actually cross the chasm into the mainstream. There’s almost never enough reliable data on which to base a critical decision. Consequently, the CEO is forced to act on gut feel for much of the time. And the sheer number and speed of decisions required in an average day can stress or exhaust the most up-beat of founders as well as any seasoned CEO.
According to Daffern, who today provides advice to CEOs and sits on various boards, burnout occurs because “there are expectations from everywhere about how to take the business from $0 to $500m. Of course, CEOs can filter out the less credible advice they receive – and there’s a lot of bad advice out there from people who mean well but don’t fully understand what you’re dealing with.” When first-time CEOs start feeling the pressure, they tend to make the mistake of listening to too many opinions rather than trusting their gut and making a call sooner rather than later. Not surprisingly, this can paralyze the organization – and, of course, time is the scarcest resource for a young company.
Creating a company is not the same as scaling one: As Pete Daffern emphasizes, the skills it takes to create a company are quite different from the skills required to scale it. While many founder-CEOs relish the creation part — often to a fault — most do not handle the scaling part nearly as well. This is why, when assessing a possible Series B or C investment, U.S. VC firms will have no compunction about informing the founder-CEO that they should not expect to remain in the role for much longer. In fact, it’s not at all unheard of for the founder to be replaced before the round is finalized. Traditionally, investors in Europe, Asia, and other regions are more deferential to founder-CEOs, but this is changing as companies attract a mix of investors from different cultures.
Adjusting your sights and style to fit the demands of scaling up: Those CEOs who attempt to scale with the business have a choice to make, and most struggle with this to some degree. Instead of morphing gradually into able operators, they tend to remain stuck in their earlier ‘evangelist’ mode. They get carried away by the new shiny object (for example, a next-gen technology or a brand-new product idea) instead of focusing on growing the existing business that is paying all the bills. Then they throw the new product over the wall to sales and marketing and scratch their heads six months later, wondering why customers haven’t adopted it. This type of hurried and poorly planned misfire can quickly cause the business to fall out of balance, jeopardizing the organization’s ability to make its quarterly numbers. Not surprisingly, the board then pressure the CEO to cut costs, which can quickly turn into a nightmare.
The impossible job? CEOs are responsible for championing the company’s vision, strategy and culture. They set the tone in the organization for fulfilling commitments. They are responsible for growing the customer base and revenues, delivering on product and other commitments, building a strong executive team, attracting and developing talent throughout the organization, and ensuring the viability of the business. Of course, as the company scales up, they shouldn’t be expected to manage all of these activities. But they are ultimately accountable for these priorities being addressed effectively. Viewed from a certain perspective, it’s an impossible job. One founder recently admitted candidly: “If I applied for my job today, I wouldn’t stand a chance of getting it because I’m so clearly not qualified for it.” Today there is still no effective boot camp for CEOs — it’s still a high wire act without a safety net. Being practically an all-consuming 24/7 occupation, it demands depth and breadth of thought and discipline regarding execution. No matter how high-powered and enthusiastic a person you are, this can be both physically and mentally draining. As the saying goes, you don’t have to be a masochist, but it helps!
Limited experience equals limited pattern recognition: Another factor contributing to burnout includes the fact that many of these individuals had limited business/management experience before they embarked on their entrepreneurial journey. Not having seen many rodeos, they haven’t had time to build up sufficient pattern recognition to help them take the inevitable ups and downs in their stride. When some emergency crops up – a major customer cancels their contract, or a key executive suddenly leaves – they are more likely to panic and resort to desperate measures.
The board — effective support system or pain in the neck?: A major issue here is that most Series B, C, and D boards are populated by venture investors. If you’re really lucky, one of the directors (most likely the chairperson) has done the CEO job before. Almost all the other directors and observers are inexperienced in the ins and outs of growing a business. Until you’ve done the job yourself, any CEO will tell you that you don’t really understand the ins and outs of it. So, many board members, whose main duty apart from financial oversight and legal compliance is to set expectations on executive performance and compensation with the CEO and where necessary hire or fire the CEO, generally find it hard to see the warning signs that their CEO is about to crash and burn. Therefore, they don’t know how or when to help or intervene effectively. Unfortunately, when more mature scaleups are able to recruit one or two former CEOs to augment the board, it’s usually too late for them to materially influence the direction of the business.
You’re the CEO: How Can You Spot the Early Warning Signs?
As a CEO, so much stuff comes at you every day, at high speed, that you can quickly feel overwhelmed. And at times the pressure just keeps accumulating. The “loneliness” factor means that you’re not always sure whom you can confide in. You might also find it tricky to articulate or share your most intimate concerns in a manner or forum that won’t come back to haunt you. At moments of greatest doubt, you may well not know what to do next. Pete Daffern talks about it feeling like snow blindness for a skier. One of the CEOs in our sample grouping, exhibiting incipient signs of extreme stress, has taken to asking a dozen of fifteen people for their opinion. And still they are unable to make a decision and stick to it. This is what thrashing looks like. It’s what happens when reliable data is lacking, and can be worst when the things you’re trying now aren’t working as they once did.
Along with these symptoms, your direct reports might start to show some resentment or puzzlement when you start selectively micro-managing activities in their functional areas,such as sales pipeline management, or product development prioritization. Before long, if you’re not careful you start to work on everything except what you’re supposed to be doing – in other words, focusing on urgent operational activities instead of important strategic priorities. The tyranny of the urgent, in other words.
This tendency to intervene everywhere becomes particularly acute — although to some degree understandable — when there are critical gaps in the executive team. One CEO in my sample set recently let their CRO go and is now interim CRO as well as continuing to perform their normal duties. This can be stressful for everyone in the field organization including, sales, systems engineering, professional services, and customer success. However, this can also provide an excellent opportunity for you to re-acquaint yourself with how your sales organization and related functions are managing sales opportunities and fulfilling customer expectations. I’ve lost count of the number of CEOs who’ve told me something along these lines: “I just had to fire my head of sales, which is an additional burden I didn’t need. However, I must admit that it’s been a blessing in disguise for me to be forced to dig into the organization and solve the mystery of why we were losing so many deals (or experiencing so much unexpected churn).”
Having been co-founder and CEO of a security software company for eight years in a former life, I’ve found that the more you take time to properly listen to your thoughts and feelings and think more deeply about the consequences of your words and actions, the earlier you will notice that you’re losing your edge along with some of your enthusiasm and effectiveness. Although this point must sound obvious, it can often be outweighed by the tendency of many CEOs to deny to themselves that they aren’t coping as well as they’d like to think. It’s hard to be the coper-in-chief who all of a sudden finds themselves struggling to cope. Furthermore, many CEOs fear that if they show vulnerability, they’ll sacrifice their leadership cred. But it’s okay to say “I don’t know”, or “I’m nervous about our ability to keep growing in the current environment, we must figure out what to do about it”. Showing that you’re comfortable with facing key issues despite the lack of immediate certainty about how to solve them makes a powerful statement to your employees.
What Can You Do to Prevent or Combat Burnout?
Discourage “heroism” in order to scale your business. Besides confronting the considerable challenge of building your business, the biggest internal challenge for scaleups is to transition from the normal heroism of the startup to a more methodical model required to deal with growth. Many founders remain stuck in their improvisational, whatever-it-takes response to every situation. The inability to embrace collective, systematic processes to replace individual heroism — for example, continuing to deliver one-off custom projects and refusing to document best practices when your customers are pleading for repeatable, standardized solutions — causes untold stress on everyone: customers, partners, colleagues, and others. Worse, it really slows the growth of your company.
Be quite clear to yourself and your staff about your strengths and weaknesses. Are you an entrepreneur or an operator? Are you comfortable starting with a blank sheet to conceive a new business or design a new product, or is your main talent to take a technology or product that already exists and build a sustainable business around it? It’s important to know what your strengths are, and what they are not. My must-do rule for CEOs is to double-down on your strong points and hire to fill your gaps, rather than trying to become an accomplished all-rounder. This is why I believe it to be better, on balance, to bring in a seasoned COO before you really need one, rather than wait until after you’ve entered an operational crisis.
Do you have a suitable skills balance between the founders? Let’s face it, most CEOs rise to the job from experience in one or at most two disciplines such as product or sales and they aren’t comfortable in the areas they are least familiar with. And certain types of personality gravitate to the role more than others. In my case, I had deep experience in enterprise sales but I was a net zero in product development and engineering. So I made sure to partner with co-founder who had deep technology and engineering experience, which was crucial in enabling us to build a successful enterprise software business. That said, as CEO you have to get your head around how every line or staff function is supposed to operate, what results you expect from them, and how to deal with surprises (i.e., crises) when they occur. Asking penetrating common-sense questions are important here, to ensure that you can see through any unrealistic information you are given regarding product release dates met, new contracts signed, new funding approved, and so on.
Impostor syndrome: At times you may even feel that you’re just not quite up to the job — a form of what people sometimes refer to as impostor syndrome. You might at times be afflicted with doubt, wondering when you are going to be found out for the fraud you are? Once you realize that most other CEOs are learning on the job and have their own weaknesses, you learn to calm down, trust yourself, and focus on getting the best out of every situation. Almost every successful leader has experienced the feelings of not quite being up to the job at certain times.
Change gears: My most basic recommendation to founders who are concerned about their decreasing effectiveness is to find a way to switch gears and get out of the rut that you are in. Almost invariably it’s beneficial to review your vision and strategy, and apply fixes to critical execution problems that have been creating a drag on the organization for a while.
Below are some additional ideas in how to get out of a malaise and onto a new growth path. No need to adopt all of these measures, but maybe run your eye down the list to see which ones might apply to your situation.
Is your inner circle functioning effectively? Every CEO has an inner circle of one or two confidants. The key role of this small group is to provide you with a safe zone in which to delve into sensitive issues and brainstorm approaches to solving them. The inner circle should avoid being a clique because that can alienate other executives and impact employees too. But it does have a definite role to play and as CEO you owe it to yourself to try out ideas in this small forum.
Make changes to your executive team. Besides reviewing the company’s vision and strategy — a critical priority when things feel a bit stale — it’s important to be sure that you have a solid management team capable of running the business going forward. Do you have the right people on your team? More often than not, there are one or two key gaps to fill. The point is that making just one significant change in your executive team — bringing a new executive on board who’s “been there and done that”, or switching responsibilities between yourself and other executives — can change the dynamic and significantly enhance the team’s effectiveness.
Transition from CEO to Chief Evangelist or another operational role: Agree with the board that you’re going to assume a new role, help them to recruit a new CEO, and become the chief evangelist for the company — or the CTO or CSO, or just operate as a board member. This is an important adult conversation to have sooner rather than later. Keep in mind that less than one in twenty founder-CEO turn out to have the right skillset to operate a scaleup, especially in advanced scaleup mode. It can be a great relief and a breath of fresh air for the founding CEO to take on a role where your span of control is no longer the company’s employees; instead you can refocus on thinking about new customer problems to solve. The best companies all confront the need to make this change at some point, so don’t think there’s something wrong with you if you’re the entrepreneur who’s becoming frustrated by having to spend a lot of your time on operational issues like engineering deadlines, sales ops, implementation issues, the admin part of recruiting, compensation problems, etc.
Make a change to the board. Many Seven-Year Glitch situations have boards that most likely would benefit from a new chairman, director, or observer. Boards are notorious for forming (bad) habits, becoming stale and unproductive. Bringing in a new chairman or director who’s been a successful CEO inevitably changes the dynamic — apart from leveraging their own network of customer and other relationships for the benefit of the company, this individual can help the CEO to feel they have a kindred spirit on the board.
Consider hiring (or promoting) a fast-track MBA type to be your eyes and ears. If, as is often the case, you have become the main decision-making bottleneck in the growing company, you might want to consider this step, at least for a period of time. The job of this fast-tracker will be to shadow you in key meetings, follow up promptly on commitments you make to avoid delayed action, assist you with key communications, and even sub for you at meetings that you are unable to attend. Apart from accelerating responsiveness to customer and employee requests, this can free up some of your time for activities that you find more rewarding. And if it works out well you’ll be accelerating the younger person’s path to a future entrepreneurial or executive role.
Take a short sabbatical. No, the company won’t crash and burn without you around. If you’ve been operating close to burnout, chances are you’ve been hurting the business in some way or other. Everyone around you will have noticed your crankiness or lower than usual enthusiasm for the business. Best to get out of the way for a while in order to recharge your batteries so that when you return it’s with new impetus. If your executive team isn’t quite up to the task, ask your chairman or another director to step in as a hands-on mentor for a short while. I recommend an actual sabbatical where you define a specific educational or community project to help you to wake up and smell the roses. When you put some interim responsibilities on the shoulders of one or more of your co-founders, the COO, or other executives, you’ll see who steps up while you’re gone, and maybe even who has the ability to replace you when you’re ready to definitively exit the day-to-day running of the business.
Write a blog or teach a business-school class. This can be one way of refreshing your mind, and indirectly provide you with a new burst of energy and enthusiasm for when you return in full to your day-to-day activities. Expressing your point of view and developing a following can also enrich your company’s image and reconnect you with customers and other market participants. Teaching a course at business school can be valuable for recruiting future employees. Ideas like this may seem to be an impossible luxury for a hard-pressed entrepreneur who hasn’t achieved their growth objectives, but can you afford not to do something to change things up when you’re getting stale and losing motivation?
In summary, for one reason or another most founder-CEOs and executives in scaleups experience measurable fatigue and staleness by the seven-year mark — the Seven Year Glitch. It can be quite alarming to the board when the CEO suddenly announces that they have nothing more to give, that they need to hand off to a new CEO and leave the company. And it’s also alarming to the CEO if the board abruptly calls time on them because they’re seeing a sustained loss of the leader’s effectiveness and have decided that enough is enough. Everyone is better off if you can avoid either or both of these “ultimatum” scenarios. As everyone knows, looking for a new CEO takes time and is best done with some strategic thought rather than on the rebound.
Recognizing that the vast majority of startups don’t manage to scale up successfully, and a similar majority of scaleups fail to achieve their objectives, I see this burnout problem as something that needs to be addressed in more directly and sooner than typically happens. It’s part of the board’s and the CEO’s job to make sure that the latter has support from someone who has been through the wars in that role, and can help them deal effectively with the onset of saturation or burnout.
Co-founders who are in challenging functional management roles, as well as other executives and employees can also experience burnout. I’ve focused my remarks here on the CEO because the risk of their burnout is likely to have the greatest impact on the company’s growth and viability if it goes unchecked.
By way of a footnote, one or two of the founders in the group I cited here as experiencing burnout are doing a creditable job of getting back into the groove. They have taken steps to reorganize their executive team or another part of the company and are now in the process of redefining their vision and strategy for the business.
Another has gained a jolt of new enthusiasm for the business by fixing a couple of critical problems in their customer engagement process and have noted an uptick in customers expanding their commitments, a sharp reduction in churn and also higher NPS scores. Provided that you remain vigilant to the risk of burnout, and don’t kid yourself that it can’t happen to you, then you can mitigate the effects of any such stress.
NOTE: I am greatly indebted to Pete Daffern for his invaluable comments and feedback during the research, drafting and editing of this article.