Founder succession in new ventures: the human perspective

Abstract

Purpose

The aim of this paper is to provide board members, managers, and researchers of new ventures with insights into how to manage a first-time succession process successfully. Successful succession is defined, both in terms of the quality of the experience for the stakeholders involved – in other words, how the founder-CEO, the professional incoming CEO, the top management team, and board members experience the process regarding distrust, resentment, tensions, and intention to leave – and in terms of the effectiveness of the succession, meaning organizational performance levels such as sales growth and return on assets. Depending on the initiating forces of succession (i.e. emanating from founder-CEO, the top management team (TMT), and the board/venture capitalists), evidence is offered on how best to leverage the six factors to allow for a successful succession.

Design/methodology/approach

The research design is built on a case study conducted in 15 first-time successions in new ventures in the high-tech industry. Primary data (interviews, direct observation) and secondary data (archival and internal documents) were analyzed using mainly qualitative methods, enabling cross-comparison between the 15 cases under investigation.

Findings

Our cross-case data analysis uncovered six factors that shaped first-time successions in 15 new ventures. The analysis also revealed that the interplay between these factors, as well as their relative importance, differed depending on who initiated the succession (the founder, the TMT, or the board/venture capitalists). These different sets of interplays led to three patterns of factors that were managed differently in each case in order to ensure the success of a succession process: (1) in the “all hands-on-deck” pattern, a legitimate case for change and the inclusion of the TMT in the succession process are the factors in which to invest the most managerial efforts to ensure a successful succession process; (2) in the “hand-in-glove” pattern, the new CEO's soft skills and the relationship between the incoming and outgoing CEOs have to be leveraged for succession to succeed; and (3) in the “heavy hand” pattern, procedural fairness and succession timing have to be managed to ensure success. A total of six cases of unsuccessful succession were also analyzed. Based on this analysis, two types of malpractice are presented that compromise succession.

Research limitations/implications

The findings are based on a comparative case study of 15 new ventures in the high-tech industry that have experienced first-time succession within the last two years. Further empirical evidence would be required to generalize our results to the high-tech industry at large.

Practical implications

This paper provides founders, managers, and board members with practical recommendations on how best to manage first-time succession in a new venture depending on the initiating force of the succession.

Originality/value

This paper highlights what past literature has not yet revealed, namely that the interplay of factors contributing to a successful succession varies depending on the initiating force behind it, and each succession needs to be managed differently if it is to prove successful. This paper thus enriches existing theory by filling the unexplored links between success in first-time succession and the initiating force of the succession. Some insights into frequently occurring malpractice in the succession process are also presented.

Citation

Kaehr Serra, C. and Borzillo, S. (2013), "Founder succession in new ventures: the human perspective", Journal of Business Strategy, Vol. 34 No. 5, pp. 12-24. https://doi.org/10.1108/JBS-04-2013-0031