Managing Founder Departures at Startups
Nicole Glaros, Former Partner and Chief Investment Strategy Officer, Techstars
By their nature, startups and scaleups are dynamic forms of businesses, where change is constant. As business needs shift and the org morphs there’s frequent change, including the leadership team. Leader departures often have a ripple effect across the organization, especially when it’s a founder. To bring more depth to this topic, I spoke with Nicole Glaros who I know from my days in the Boulder startup community. As a former Partner and Chief Investment Strategy Officer at Techstars, Nicole has a wealth of experience with startup co-founders after working with thousands of founders. I’m so thrilled to Nicole was willing to share her insights on what can be a tricky time for organizations.
During our conversation, we talked about:
Similarities between athletes and founders
The qualities and dynamics Nicole looks for in founding teams
Some of the reasons founders leave
How orgs are impacted by a founder's departure
The importance of communicating the change
Three things to consider when a founder is departing
Can you introduce yourself to those who don’t know you?
I started my first company when I was in college as a way to get out of student debt. My motivation was to get out from underneath this pile of cash I owed somebody else.
I sold that company and thought I was pretty good at this whole entrepreneurship thing. So I tried two companies after that. They were both miserable, expensive failures. And I didn't understand why.
Since then I’ve been working with early-stage founders. My first role after that was working for an incubator helping to educate entrepreneurs. That’s where I got my taste of sitting on the other side of the table. Most notably, I think I was the first or second person at Techstars, depending on when you want to start counting. When I joined, there were only 10 companies in the portfolio. When I left in October of 2022, we’d invested in over 3,000 portfolio companies, growing at over 500 a year, and had $750 million – a quarter of a billion – under management. I held almost every single role in that progression. I’ve also deployed a lot of capital – I’ve made 100+ investments, have led a number of series A investments, and raised a couple of $150 million venture funds. So I'm this weird hybrid of entrepreneur meets scaling executive. When I left, we had 300 people that were at Techstars in 19 countries.
Prior to all that, I had a background in sports psychology. So I come with how do we help the humans that we're working with achieve their best? How do we help them put them in their best position and help build scaffolding around their weaknesses? I'd like to think that that's my secret weapon, one of the reasons why I've been, you know, such a successful investor.
I sit on a number of boards, and I work with a lot of early-stage founders through either a coaching capacity and run a performance program that's cohort-based. On the side, I'm trying to bring a women's professional soccer team to Colorado. So I've got my hands full, but it's all fun stuff, and I'm learning to push my own performance and what's possible for me.
There’s a lot of overlap between leaders, leadership teams, and sports. There are so many great things it brings to the startup world.
I graduated with a master's in sport psychology in ‘99, so I've had that insight for a while and it's fun to see it sort of come over now. Founders and athletes are so similar. There’s a lot of practices and methodologies that you can pull over from the sports psych world into startups and leadership
I’d love to hear the similarities you see between athletes and founders.
I think true founders are competitive. They want to win, They also recognize that even individual athletes usually have to function on a team. They recognize that they need people around them in order to help them achieve their goals. I also think that both of them, to reach their full potential, have to find where their limits are. It's true of every human but entrepreneurs and athletes will push up against that wall. If they're good, they're going to test their limits? They also learn about working hard and getting coaches to help them maximize performance. And both have a health orientation, how much attention they pay to their bodies and their recovery and what they put into it will absolutely impact their ability to perform. I think founders are still learning that last one, but when they learn it, it's like a gold mine for them.
Yeah, it also strikes me that they both have grit. They have to figure out when to stick in the race and when to call it. Trying to find that balance.
The really good founders, they will notice or they will figure out early on what they can be exceptional at. Then they will hire people around them to do the rest of it. Because as an athlete, you could be exceptional at soccer, and that doesn't mean you're going to be exceptional at basketball, right? Founders can learn what one thing they're going to be very, very good at and build a team around them of people who are exceptional in those things. It takes some founders a while -- first-time founders take a long time to figure that out because they have this misconception that they need to be good at all things. It’s one of the points I always try to make with founders – if you're good at all things, it means that you're great at nothing. To run an exceptional business, you have to be great at something. So what is it? Let's figure out what it is. And then let's help hire people for all of the other stuff, depending on where you are in your entrepreneurial journey, of course.
Thank you for going there with me. When I was developing my Leadership Archetypes, I looked at a lot of sports, athletes, and coaches so I’m glad we were able to talk about that. On to the main topic. How long were you at Techstars?
Almost 14 years.
So you got to see a whole bunch of founding teams especially working with early-stage companies. How do you look at founders when you’re investing? What do you think about it?
I get this question a lot. How do you evaluate founding teams? It's more art than science, although I've seen some really exciting developments coming through on the science side. So a couple of things I look for. Number one, this feels like a cliche to say because everybody repeats it over and over, but it’s passion for what they’re doing. The way I like to quantify that is – were they put on this planet to solve this problem? It’s very rare that the answer is yes but when it is yes, it’s magical. That just means a whole bunch of stuff happened in their lifetimes to have put them in this place to solve this problem. When they have that, they’re not going to stop. They’ve got the grit that you mentioned earlier – they’re going to push through to figure it out. It can be a beautiful thing. Versus someone who wanted to start a company and this one seemed like a good idea. When the going gets hard, they’re going to throw the towel in and I don’t blame them.
Thing two is their ability to execute. We have a saying, right, that your idea isn't worth a napkin that it's written on. The reason for that is because your idea is not original. I guarantee you there have been other people on this planet, the eight billion people on the planet that have had the same idea. It isn't the idea itself, it's the execution of the idea. So we're looking at their ability to execute through this company or through past demonstration of their ability to execute.
Once I get past those two things, then I start looking for how the founding team is interacting with each other. Are they interrupting each other? Are they talking over each other? Are they deferring to each other? Do they have mild contempt for one another? Or are they seeking each other's opinions and input? You're looking at communication patterns there. So how well do they communicate? It's going to indicate how well they're going to communicate in times of stress and crisis. Every startup goes through it. Every startup goes through it multiple times. Every startup that I know has multiple near-death experiences. Their ability to navigate crises together in a way that makes them stronger is crucial to their functioning.
There's a study that came out of Harvard by a professor named Noam Wasserman, Dr. Wasserman. He came up with this number 65% of all startups fail due to founding team issues.
If you ask a bunch of founders why their business failed, they're going to tell you, oh, we didn't have product market fit, or we didn't get enough capital…whatever it was, usually blame some external thing. What’s more likely is that the co-founders had struggles and couldn’t work it out. Or they had struggles with their board or lead investor.
So you're looking at these communication patterns. You're looking for clarity of communication. You're looking for the ability to motivate people. You're looking at your ability to hold people accountable but in a loving and supportive way. You're looking at their ability to express displeasure but in an exploratory format. Like, hey, what's going on here? Help me understand. You're looking for people who want to get to the right answer rather than be right. So people aren't sitting there defending their ego but rather they're asking questions, trying to get to the correct answer. So there's a bunch of stuff that you're looking for when you're talking to them, and that plays out into longer leadership ability too.
Once I get past those two things, then I start looking for how the founding team is interacting with each other. Are they interrupting each other? Are they talking over each other? Are they deferring to each other? Do they have mild contempt for one another? Or are they seeking each other's opinions and input? You're looking at communication patterns there. So how well do they communicate? It's going to indicate how well they're going to communicate in times of stress and crisis. Every startup goes through it. Every startup goes through it multiple times. Every startup that I know has multiple near-death experiences. Their ability to navigate crises together in a way that makes them stronger is crucial to their functioning.
So you start looking at the founder relationships early on.
First conversation.
I wonder how many founders think about this before they come together as a team. I think I know the answer to this but have there been times when you wouldn’t invest in a company because of the founding team?
All the time. All founders are on their own journey. If you're lucky enough that you know somebody and have been working with them for a decade, and you both come together, you’re both free at the same point in your lives, and you can come together with the same resources, it’s magical, but that's hard. It doesn't happen often. So what you're more looking for is what is the potential? What are the innate personality structures that are going to get in the way or support them? It’s not so much that I’m looking for reasons to say no. I’m looking for weaknesses but not reasons to say no. I'm looking for weaknesses so that I can understand what they are, and we can then build support structures around those things to help the companies grow from there. Every single founder, every single team has weaknesses, the problem is when we don't know what they are, so we can't address them and then they fester. The ones that I say no to all the time are the ones that I feel are in it for the wrong reasons or don't have any ability to execute or don't have the maturity or the emotional awareness to tackle those hard issues.
Those are the ones I say no to. It's not that they're disagreeing. In fact, I love it when founders disagree. I love it when they disagree in front of me because that shows me that they've got comfort with each other, that they're not afraid, and a confidence in each other that like this meeting them doesn't matter. I love that. It shows me that they can communicate. Now, can you help them move towards constructive conflict, hopefully. I did work with a founding team that used to throw punches at each other, and that was fun.
Metaphorical punches or literal ones?
Yeah, like fists. They would throw fists at each other. I had to throw water on them once because they literally broke out into a brawl in my office. And they were also wildly successful.
Oh wow. Let’s talk about team dynamics and the size of the founding team. Any thoughts you have about the difference in the size of the founding team and how it might impact things?
Yes, but they're loosely held. I think being a solo founder can be really hard, mostly because the weight of everything is on you, though there are so many examples of solo founders who have done a phenomenal job. So it's definitely not a deal breaker as long as that solo founder has the ability to recruit the right people around them and has the support that they need.
Two founders is common and I’ve seen up to five founders get very messy because nobody is sure what anybody else’s role is. I think it helps to know what everyone’s strengths are and weaknesses. I don't want to say having a lane, but rather having areas of responsibility that they are directly responsible for.
If you have two technical co-founders who are starting a company, that could be really fun in the early days because they're both coding alongside each other. But who's running the business? Who's running sales? Who's putting the finances together? It can get messy when there are conflicts over the product because who's responsible for the product decisions if you have two technical co-founders?
That's true of two up to four. I actually like the three co-founders dynamic because if one of them goes down for whatever reason, they get sick or they have some emergency at home, you've got two that are still supporting the company. If you only have two and one goes down, there’s only one supporting the whole weight. If you've got four, it's kind of better, but then it's a lot of people to keep in the room at the same time. So it's not so much about the number, it's more about how they support each other, what their areas of responsibility are, what their overlaps are, what the gaps are, and how well they know that and communicate.
If you ask a bunch of founders why their business failed, they're going to tell you, oh, we didn't have product market fit, or we didn't get enough capital…whatever it was, usually blame some external thing. What’s more likely is that the co-founders had struggles and couldn’t work it out. Or they had struggles with their board or lead investor.
I love that you talked through that. I interviewed Laura Del Beccaro on the series, a single founder who created a startup that she sold to ADP. She did exactly that – build a team of people around her. I also know teams that are five. I agree there’s a sweet spot around three but I love that you’re talking about how they interact and think about their work and roles that matter the most.
That's right. I've seen founding teams that are five people and it's usually not really five, it's one and four that have a little. When I look at founding teams, I always look at the cap table because I want to understand what the equity split is between them. That gives me an idea of the relationship between the founder and their orientation of themselves. It’s a clue how they’re thinking about it. But I think lots of different combos there can work and those same combos can fail. It just depends on the underlying structures that are in place.
That’s a great grounding for the topic. Let’s talk about a few reasons founders leave.
There are two that are coming most immediately to mind, and I think it's because of recency bias – these are things that I've had to deal with very recently. One is a founder who isn’t scaling with the business. They're acting like the junior engineer. They're not taking on responsibility and they're not really stepping up to the role. They’re waiting for someone to tell them what to do. In this instance, the founder is likely on his way out because he’s been given that feedback multiple times and has been either unable or unwilling to step up.
Yep, I’ve seen this too.
I like to think it's an inability to step up. I think they don't know what that means. There’s been an effort to put mentors and coaching around the person but they just want to sit in front of their computer and have somebody tell them what to do. So there’s a leader hired over them. The founder has a decision to make whether he wants to stay with the company. Most of the time the company wants the founders to stay.
The founders' DNA is in the business. It's really hard on a company when a founder leaves unless the founder is toxic.
A lot of founders' egos have a hard time with stepping aside or stepping out. On occasion, you find the ones that are like, thank you. This is amazing. I don't have to do the hard stuff anymore. And those can be beautiful. So that would be an example of when a founder is not scaling with the business.
An offshoot of that is the early days of companies where founders are really artists. They have this idea and they create and manifest this idea. As the business grows, that founder or the CEO founder now needs to stop creating as much and start thinking about things like board meetings and company culture and managing an executive leadership team. And usually, their happy place is in this creation mode. Not to say that a founder at all stages can't be creative, but if they're only creating and they're neglecting these other responsibilities, they're also not scaling with the business. What happens is a lot of founders think that they have to be the CEO, like I'm the idea guy or I'm the idea girl, and therefore I'm the CEO. That’s flawed logic.
There are different skill sets that are required at every different stage of the business. It's a very rare founder that can grow and shrink with those different stages in terms of their interests, their energy and their skills. We’ve seen a lot of founders leave over that.
Often they have to be forcefully removed which is not fun for anyone. Especially the board that is doing it. Removing a founder is the absolute last step. If it's an intelligent board, which usually they are, they have made every possible concession to try to get the founder the support they need before removing the founder from the seat. Those are the two most common.
Then you get the fighting. If there’s distrust early that continues to fester, that will never go well. That always results in somebody leaving. Usually, when they leave, it’s explosive. It usually involves lawsuits. So one of the things I always tell founders is, if you’re feeling seeds of distrust now, you need to address them. Address the elephant in the room. Do it as soon as you can, because there is a point of no return. It can get very antagonistic very quickly. So trying to help founders have those conversations and be rational actors through those conversations is tricky. If you can start that at a very early age inside of the company, then they build these habits and these patterns of healthy communication so it never gets to that point. Then of course we have the occasional founder who does nefarious activities like embezzling money, so don't do that.
The founders' DNA is in the business. It's really hard on a company when a founder leaves unless the founder is toxic.
A common one I see is when they’re just no longer a fit for the company. I see a lot of founders leave in Series A or B. It’s not surprising that some of them leave because they love the early building/creating part. And now this entity is totally different than the one they formed. It’s not where they’re best.
Yeah. I was just going to say another is when a company hits series A and B. At series B you've got between 30 and 100 employees or something like that, depending on what size you are. Something else I've seen is the founder wakes up one day and doesn't know anybody in the company anymore.Who are all these people? I don't know these people. These people don't look like me. These people don't talk like me. These people don't act like me. I feel like it used to be this tight intimate group and now there's a bunch of people walking around that I don't identify with at all. That happens a lot because one founder is not involved in the hiring process and so their fingerprints aren't all over the sort of culture of the individuals as they expand.
That’s a great point. This is important because there can be a huge impact when founders leave. Can you talk about the impact on the organization or how we can manage it?
It always depends on the founder. I’ve seen toxic founders when they have left, the company has celebrated. That's not super common, but it does happen. That can be a positive thing. When founders leave who have been crucial to the organization, they've been the organization's lifeblood, you want to do whatever you can to hold on to that founder in any capacity – it can be a spokesperson, it can be head of product, it can be an innovations lab, it can be whatever it is to try to figure out a role. That’s the role of the board and also the CEO if the departing founder isn't the CEO. What is this person exceptionally good at? Can we just let them focus on that to keep them inside of the company as long as possible?
In the absence of that being successful, then I think what you're trying to figure out are the traits and what are the personality characteristics that have been positively impacting this company? Can you hire more people who look like them so that DNA still stays inside of the company? You need to do deliberate exercises around that. What are the things about this person that we love? How do we start hiring for those same traits so that we can keep that personality inside of the company even if that individual founder has left? And then I think it's appropriate to mourn a transition. Companies often get up and go, okay, that was it, we're done, next day. Sometimes I think it's okay to mourn.
I don't just say that for founders, but I say that for the whole company. Anytime you've got a pivotal person or large groups of people that leave, there's a mourning period. The more that we acknowledge that the easier it is for the humans inside of the company to move forward and create a new reality. The new future that the company will be.
I’m sure you’ve seen companies where the departure didn’t go well. What were some examples of when a beloved founder or one that was synonymous with the product left an impact?
It depends on why. If it’s a constructive reason that the founder has left, then the company can recover from it. But if it’s not, if you have a board that doesn’t think it’s the right person or there are mistakes made along the way it can be very destructive. It can take a company many, many years to recover from that.
I never got a chance to work with Apple, but you can imagine that was the early process of Steve Jobs. The board let Steve Jobs go, the company tanked, and they brought Steve Jobs back. Sometimes it's maybe making the wrong decision for the right reasons and then realizing the impact that that's having on the company. Then the board can try to fix it. Oftentimes it looks like trying to bring the founder back.
It just depends on the reasons why. There was a company that I worked with for a while and there was a founder who was massively important to the business and they left because he had a very sick person in his family that he needed to take care of. So the company had this sense of supporting the founder in their next step. Everybody wanted to see that person be successful. And the founder wanted to see the company succeed. Versus a situation where the board kicked a founder out that the company loved and the founder was performing. The other people inside the company got disengaged, angry, and confused. That’s one of the reasons why performance tanks are because people think these guys [the board] don’t know what’s going on. They don’t know what’s important so they disengage from their jobs. So the reason for the departure is really important.
We just saw that whole thing play out with OpenAI. That was a pretty dramatic example. It was a super high percentage of people who said bring back the CEO or we quit – something like 90 or 95% of the team.
Right.
I’m thinking about the role communication and how it’s handled plays in how it goes afterward. Assuming it’s not a toxic situation but someone who’s really beloved.
The communication piece is huge. The reason, how it’s communicated and the process for the transition plays a huge role. It’s almost like every single comms team on planet Earth right now needs a lesson in how to appropriately comms. Some attorneys somewhere are like dictating comms and this doesn't work.
(When a founder leaves) you have to address what people are thinking because if you don't, people create stories and usually the stories they spin are usually way worse than reality.
So it is very appropriate to say that, the founder, CEO, so-and-so is leaving. We want to let you know that it’s for personal reasons that they have chosen to leave. We don't feel like we can disclose those because the founder has asked for complete privacy… There are ways that you can do it rather than just saying nothing. A lot of comms teams are onto the next thing, and they just blow past it rather than address it. I think you have to address it, especially when it's negative because they’ll make up stories about the leadership team or company. They’re going to disengage, it’s going to be distrustful. You don’t get through this until you’ve had a turnover of talent because people have long memories so communication is massive.
(When a founder leaves) you have to address what people are thinking because if you don't, people create stories and usually the stories they spin are usually way worse than reality.
I think it is a tricky line but you’re right, we can see legal's fingerprints all over those kinds of announcements because it's sterile and there's no information. And you're right, in a vacuum, people are gonna fill in information.
Yep, they're so afraid of lawsuits. I’m always reminding CEOs and leadership teams that they used to call attorneys counselors because they’re counseling you. They’re not telling you what to do; they’re counseling you. It’s up to you to make the decision. Yes, there’s some risk doing it this way but let’s calculate what the risk is. If you handle it well, the risk is probably pretty damn low. Most people, not everyone, but most people are rational. If the people that are irrational are just looking for a reason they're just going to find another reason in the future. So don't undermine your entire business for a couple of bad eggs in the basket.
Yeah, that’s wise. I want to talk about the role the process plays in the successful exit of a founder.
I think, again, it depends on why the founder is exiting. Let’s take a founder not doing their job as well as the person in that role could be. I think that starts with a conversation. In an ideal spot, the founder is asking those questions. What am I falling down on? I want a 360. What areas am I weak on? How can I address those issues? How do I build a staff around me that has strength in those areas? What mentorship can I get? What coaching can I get?
In an ideal world, that's what the founder's doing. Often founders don't do that because there's this weird ego thing that says that as a CEO/founder, you have to be good at all things, which is completely asinine. If the founder isn’t recognizing the weaknesses then it looks something like this: You've got somebody who is trusted by the founder/CEO who says, “Hey, listen, there are a couple of areas that we need to work on that you're falling down on. Here are the areas, and here are the things that we need to see improve. Here are a couple of ideas on how to address them. You probably have some ideas too. How would you like to proceed?”
It's being really clear with the founder about what's not working, but also providing them the support that they need to give them a chance to improve. I think you have to say, okay, the company is not performing or the sales are not there, founder, and you have tried, you've had three different sales executives in there. You've had two different heads of products in there. What else are we going to try? What other, what other reasons could there be?
So clear dialogue with the founder about what's not working and then giving them support; a real partnership with the founder to work it out.
If that still doesn't work, then there’s a conversation of, all right, it's still not working. As a company, this is the change that we need to make. This change is in your favor because the business isn't working and because you are a significant owner of the business, if we get somebody in here that is working well, all of the hard work and shares and money that you've put into this time will not go to zero. So here's a couple of different paths for you. You can step into product, you can step into innovation, you can become a board member, what would you like to do? We’d like you to partner with us and we want you to control the process.
So if you have the right conversation with the founder in that way, and there have been many conversations leading up to it, it's not a surprise, it’s usually very collaborative, and when it's all said and done, the founder's like, “Thank God”.
Right, if the process has been adversarial or there’s a lot of friction the company feels that. It can misalign the org and undermine trust and your culture. We’re wondering, what are they saying? What are they not saying? What happened? It can really be a culture killer.
Yep. As I said, it takes a turnover of the entire staff before that feeling goes away. That could be five, six, eight years, or nine years before that feeling goes away. So it's really easy to lose trust in those scenarios.
Yeah, it’s not a “nice retreat/offsite” length of time. It’s years and years of hard work. So it’s better to be preventative and build it into the process rather than trying to clean it up afterwards.
Yep.
Assuming Wasserman’s studies are correct, 60% of companies fail, how much capital and resources are you putting into marketing? How much capital and resources are you putting into engineering and product? How much capital and resources are you putting into your relationship with your co-founder? The really easy, inexpensive, low-hanging fruit is to get a coach or facilitator who works with the founders.
Any last advice would you give to companies when someone is leaving or something isn’t quite working?
Assuming Wasserman’s studies are correct, 60% of companies fail, how much capital and resources are you putting into marketing? How much capital and resources are you putting into engineering and product? How much capital and resources are you putting into your relationship with your co-founder? The really easy, inexpensive, low-hanging fruit is to get a coach or facilitator who works with the founders.
Where you sit down once a month and have a conversation with a coach or facilitator – a person that you both trust and who can pull out of you the things that you are not saying. That can be a neutral party, reflect on any potential mild, annoyed commentary so that they can help pull those elephants into the rooms and give you a constructive way to talk about them before they become these absolute deal killers. A good coach is not expensive in the grand scheme of things, it’s way less expensive than losing your business. So that’s a really easy thing.
And then every co-founder and founding team should spend time with their co-founder once a month, once a week, whatever your rhythm is. It should be frequent though, where you are checking in like, how's it going? How are you? How are you feeling? Do you feel energized? Are you feeling drained? Are you feeling lost? Are you struggling? How can we support each other as a real partnership rather than just co-founders? That's the lowest-hanging fruit and it’s not that expensive.
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