Resolving the Founder – Private Equity Dilemma

Many of the restaurant industry’s brightest young brands are seeking private equity partners in a search for rapid growth. Led by a founder’s passion and capital commitment by private equity, this partnership has allowed for unprecedented growth with many brands serving as disruptors to the major chains. Done well, this dynamic duo can offer unprecedented results, but regrettably many founder-private equity relationships are turning adversarial due to a lack of clarity concerning how and when a founder should let go of the leadership reigns.

Regardless of industry, research reveals that over 85% of founders are “forced” to step down as CEO at a certain point in time. Watching this unfold first-hand we can tell you that often negative effects infect both the cohesiveness and effectiveness of senior leadership as well as the broader organizational culture when the transition is not handled with finesse. Without due consideration and tact, the atmosphere degrades from collaborative and optimistic to territorial and emotionally-charged – all leading to conflict, poor decision-making and stunted growth. To better understand and address the dilemma it is necessary for all senior team members and capital investors to recognize the very distinct competencies of a founder versus seasoned CEO.

The “Right Brain” Founder Mindset
The mentality of a founder is similar to that of an artist striving to articulate and share their personal dreams and visions with others. Such creative types exude passion but also a host of other traits that can induce conflict. For instance, Professor Øyvind L. Martinsen at BI Norwegian Business School recently published a study in the Creativity Research Journal that validates the attributes we have seen in Founders during the course of our advisory work. This study found seven key traits of creative personalities:

• Associative orientation: Imaginative, playful, have a wealth of ideas, ability to be committed, sliding transitions between fact and fiction.
• Need for originality: Resists rules and conventions. Have a rebellious attitude because of a need to do things no one else does.
• Motivation: Have a need to perform, goal- oriented, innovative attitude, stamina to tackle difficult issues.
• Ambition: Have a need to be influential, attract attention and recognition.
• Flexibility: Have the ability to see different aspects of issues and come up with optimal solutions.
• Low emotional stability: Have a tendency to experience negative emotions, greater fluctuations in moods and emotional state, failing self-confidence.
• Low sociability: Have a tendency not to be very considerate, are obstinate and find faults and flaws in ideas and people.

Also similar to what we have frequently observed with Founders, Professor Martinsen further noted that, “creative people are not always equally practical and performance-oriented.” Fortunately, this is where professional CEOs can add value.

The “Left Brain” CEO Mindset
Based on the latest psychometric findings in Aethos’ book, The Loneliness of Leadership, it is clear that the CEO mindset markedly differs from that of a founder. It is tempting to characterize CEOs as purely left brain in their attitude and demeanor, but the reality is more nuanced. Today’s CEOs are strong generalists and intellectual bridge-builders. This competency set promotes multi-tier thinking via an ability to appreciate and simultaneous mesh together big-picture strategy and critical details in execution and implementation. We believe top leaders show general competency across People, Execution and Cognitive skills, with noteworthy spikes in scores specific to Creativity and Sense of Humor.” This translates to strengths in “Vision and Perspective.”

Effective leaders today set a common mission, and combine that with optimism, charisma and playfulness – a leadership profile grounded in high emotional intelligence and an inclusive people perspective. Indeed, CEOs can be aspirational but usually with focused through the lens of ROI. Stated more plainly, “founders dream, while CEOs scheme.”

The Solution – Operating as Two Halves of One Brain
Organizations in high-growth transition don’t necessarily have to make the black-or-white decision of “moving forward or not with a founder.” Instead, many case studies prove the theory that the big winners are companies that successfully appreciate and integrate the two mentalities to gain internal alignment, maximize resources, sharpen brand definition, and drive enterprise value. In the example of Chop’t Creative Salad Company, Tony Shure and Colin McCabe were the founders and creative force and soul of the organization (right brain), while Nick Marsh joined them to be the strategic force of the organization and authority to execute the growth strategy (left brain). While implementation of this strategy can seem straight-forward, nothing is simple when the seemingly competing forces of passion, ego, intellect and intuition all collide.

It will be interesting to see how quickly and effectively the industry adapts to this unspoken dilemma between Founders and CEO mentalities. Many organizations facing this challenge will achieve alignment only via sharp injections of sobering reflections and frank conversations among founders, Boards and other senior leadership. This means that all stakeholders need to be self-aware, humble, transparent and empathetic. This is where most organizations currently fail without guidance and collective dedication around the simple and core principle of role allotment: Founders are the creative force and soul of organizations (right brain), while CEOs are the strategic force and authority of organizations (left brain).