From Hands-On to Hands-Off: Playbook for Serial Founders

Are you a founder tirelessly juggling the day-to-day of your business, wishing to break free from the operational chains that keep you desk-bound? Whether you're looking to shift gears towards a strategic role, ignite the launch of your next big idea, or just breathe a little easier, you'll find a blueprint here - the collection of insights from seasoned founders, CEOs, and fund managers.

The journey of a serial entrepreneur is very similar to the journey of a serial parent. Starting your first successful business is like raising and nurturing your first child. Creating multiple successful businesses is akin to raising a large family. When the first child comes along, all of the parent's time and attention goes to the baby. The arrival of the second, third, and fourth child makes the task more complicated and demands new approaches from parents. To cope with the increasing load, one needs to delegate: hiring a nanny at first, then a private tutor. Every new stage in a child's development, their transition to a new level of independence, typically comes with a crisis. Experienced parents help their children navigate these crises and become stronger.  So do experienced founders growing and managing multiple businesses.

At cyber.Fund, a private equity firm where I serve as the Head of Strategy, we manage a portfolio of pioneering WEB3 businesses, incubated by several visionary entrepreneurs. With a total capitalization of over $2 billion, this portfolio comprises multiple globally recognized DeFi companies.

When I joined the team in January 2023, the fund’s founder was deeply concerned regarding the management of the businesses he had created. Despite having a dedicated executive team in each of our portfolio companies, he was heavily involved in daily operations, which led to burnout and, most likely,  missed strategic opportunities. He sought a transition from a hands-on role to a more strategic position. The solution appeared simple at first - define an appropriate 'parenting strategy' for each portfolio company to reduce our day-to-day involvement. However, implementing this strategy was easier said than done. And just having a trustworthy CEO and/or C-level team was not enough.

In order to help this transition, I embarked on a research journey, engaging with founders, CEOs, and portfolio managers from various sectors. I'm excited to present findings and insights from this exercise, hoping they might resonate with other founders, entrepreneurs, and portfolio managers.

Parenting dilemma: You can't stay hands-on forever

Just as a parent is deeply involved in their child's formative years, the incubation phase of a business venture typically requires a hands-on approach from its founder. This intensive involvement offers several vital advantages:

1. Deep context understanding: Founders don't just understand their business; they feel its pulse. This deep dive into the company's inner workings and the market it plays in arms them with insights that are invaluable for both day-to-day and big-picture decisions. One of the reviewers of this piece mentioned: “I saw the clearest strategic vision from the founders that were deep in the trenches, very hands-on, and with a nuanced understanding of their businesses”.
2. Enhanced Business Traction: When founders roll up their sleeves and get stuck in, their direct actions can lead to faster and more visible milestones for the business.
3. Control over the risks: Being involved on the front lines means founders can spot a storm brewing and adjust the sails accordingly, managing risks in real-time before they become painful issues. One founder I had the privilege to interview remarked, "I love having full control over my businesses. Transitioning to a hands-off approach raises concerns that the business might lose its traction”.

Yet, staying too long in the trenches of daily operations has its pitfalls:

1. Founder Burnout: Constantly being in the thick of things can wear founders down, both mentally and physically. And when the founder is running on empty, the business feels it too.
2. Strategic Myopia: Knowing every minute detail is great, but it can tunnel your vision. Founders might miss the forest for the trees, overlooking key opportunities or looming challenges.
3. Business Vulnerability: As the business matures and a CEO steps in, too much dependence on the founder can leave the leadership team hesitant, creating a shaky reliance on just one person.
4. Biased Decision Making: Being too close to the business can make tough decisions regarding restructuring or optimization challenging. There's also a lack of diverse perspectives that come from external viewpoints.
5. Innovation Bandwidth Limit: When a founder is all-consumed by the current venture, where's the space to dream up the next big thing? Extended hands-on management can mean missed chances to innovate and grow something new.

All in all, in the early stages of a business, a hands-on approach is not just beneficial—it's often essential. But here's the thing: as your business grows, if you're still caught up in every little decision, you might miss out on big chances to expand or improve. That's why if you're a founder with your sights set on launching more ventures, it's crucial to plan your move into a big-picture role early on. Think of it as setting the GPS for your next big destination before you're stuck in traffic.

Serial Founder end-game: 3 possible tracks & outcomes

Our conversations revealed that there’s no universal playbook for founders looking to take a step back without stepping away. But to navigate this complex terrain, we’ve sketched out a two-part blueprint:

1. Parenting Agent (Who):

This axis is all about who's driving the business forward:

Founder-driven approach: a serial entrepreneur remains at the helm (often as CEO co-pilot), directly influencing decisions and guiding the course of each business. The founder's personal touch, experience, and vision serve as the guiding light.

Board-Driven Approach: the decision-making authority predominantly lies with a professional board, which may include independent directors with expertise in areas like finance, marketing, IT, and strategy.

Team-driven Approach: In this style, a dedicated portfolio management team, assigned by a founder, takes the reins. This specialized team often comprises professionals with expertise in strategy, finance, law, and other crucial areas. They work closely with the founder but enjoy a degree of autonomy to make decisions and oversee daily operations.

2. Parenting Mode (How)

Next, we consider how they lead:

Hands-On: The founder or dedicated team remains deeply involved in the fabric of daily operations.

Strategic Guide: Here, the focus shifts to mentorship and big-picture thinking. The leader offers direction and inspiration but resists the urge to micromanage.

Hands-Off: The founder or dedicated team steps back, overseeing from a distance.

Yet, our research indicates that successful founders seldom adopt a purely hands-off stance. They often maintain some level of engagement to preserve a meaningful connection with a business.

In the dance of shifting from doing to delegating, we've mapped out several transition types, like paths in a forest. Picture this: yellow flags marking the rest stops along the way – those critical moments where you pause and assess. Blue flags stand tall at the finish line, showing you where you could end up. And the paths? They're colored red, green, and blue, each one a potential route you might take toward your desired role.

For the third path (Track 3) – we see a fork in the road, leading to not one, but two distinct destinations.

Which way you'll go relies on a set of factors we're about to dive into. Stay tuned to see how these paths could unfold for you.

3. Serial Founder end-game options

“One day Alice came to a fork in the road and saw a Cheshire cat in a tree. ‘Which road do I take?’ she asked. ‘Where do you want to go?’ was his response. ‘I don’t know,’ Alice answered. ‘Then,’ said the cat, ‘it doesn’t matter.” (Lewis Carroll, Alice in Wonderland).

Just as Alice in Wonderland received sage advice from the enigmatic Cheshire Cat, founders too must consider their desired destination before embarking on the journey of transition. Drawing from our findings, three distinct end-game scenarios emerge for those looking to pivot from hands-on management:

1. Constructing a Robust Board

In this trajectory, the founder lays the foundation for a professional Board, allowing decision-making authority to naturally transition from the founder's hands to the Board's collective wisdom. Yet, a seat at the table can be retained, ensuring the founder's continued influence and vision remain woven into the venture's fabric.

However, as one of the reviewers mentioned: “Here, the ownership setup is important: whether the board is created by a single owner, or the board reflects the ownership structure. The dynamics of the two setups will be different. In the first case, the owner fully controls the board, and it essentially serves as his tool; in the second case, things are more complex, but there is a system of checks and balances.”

To add more color to the Board setup, here are some insights we’ve got from a serial CEO who has diverse experience in dealing with founders and professional boards:

“The role of a founder,  a family office, or a private equity fund is to build a strong board. The board needs diverse expertise, primarily with independent directors: sales, marketing, IT, security, HR, finance, strategy, etc.

Curators, assigned by shareholders, typically do not add value since they attempt to build duplicating management lines, misleading CEOs, and compromising a Board’s mandate.

The only thing a business needs from the Board - is a framework to operate. A Board provides relevant guidance and limits for the C-level team by approving a Strategy and a Budget. No additional micromanagement is needed. No decisions should be made besides the Board”

In addition, ex-CFO of a successful unicorn company (classified business) shared with us a story of how co-founders implemented a board-driven parenting strategy:

“The Board consisted of two founders and three external directors, assigned by the shareholders. During the Board meetings, the founders provided valuable guidance to the company by asking relevant and insightful questions about various business aspects. This had a significant impact on the C-level team and business development.

Board discussions were very open and inclusive, a culture that was cultivated by the founders. The founders' ideas were challenged just as the C-level's ideas were challenged.

Besides the board participation, for one week per month, the founders worked on-site with the management team. One founder curated marketing and HR (essential budget items), while the second founder contributed to organizational development”.

Here are the Pros and Cons of the board-driven approach.

• Pros:
  • Diverse Expertise: Boards often bring a myriad of experiences and perspectives, enriching decision-making processes.
  • Shared Responsibility: The weight of critical decisions is dispersed among several seasoned professionals, reducing individual pressures.
  • Safeguarded Legacy: Founders can retain influence, ensuring their original vision stays integral to the venture's path.
• Cons:
  • Potential for Conflict: Different board members might have differing views, leading to potential decision-making delays.
  • Loss of Control: While founders retain influence, the absolute control once wielded diminishes.
  • Reduced traction: Boards, by nature, can be deliberative, which might slow down decision-making and traction.

If the ownership structure becomes distributed, the Board-driven setup becomes inevitable. However, it is still at the founder’s discretion whether to step aside or keep control at the operational level, limiting the actual Board’s involvement and mandate.

2. Embracing the Strategic Guide role

Here, the founder retains a bird's-eye view of the business, gracefully transitioning from hands-on intricacies to a strategic guiding light.

One resonating insight we got came from a founder of a renowned Unicorn venture. He delineated business management into a trinity: Money, People, and Vision. As a strategic guide, the reins of Money and People are entrusted to a CEO, while Vision remains the founder's beacon. He reflected, “Transition into a strategic position took me two years (when I entirely delegated "People" and "Money". During this time, I gradually delegated more and more authority to a CEO, allowing him to make independent decisions and never criticizing his decisions in public (to help a CEO build his own power, authority, and trust with his team)”.

Another founder we interviewed focuses on maximizing his contribution to incubated businesses: “Key question - which businesses require my personal attention? Initially, I focused on new immature businesses. But it worked poorly: CEOs became dependent, couldn’t make decisions by themselves, and got used to relying on external advice and support. If I see that a project grows, and has good traction - I invest much more time in that project. Because my involvement during the growing and scaling phases adds much more value.”

According to our own experience, the transition from hands-on to a strategic guide mode requires a certain maturity level of a venture. Based on our insights, here's what's imperative for such a transition:

1. Competent CEO and C-level Team: We've developed a dedicated framework to gauge the capabilities of CEOs within our portfolio companies. This framework evaluates proficiency in areas like Leadership, General Management, Entrepreneurship and Innovation, Community Management, and Domain Knowledge. This assessment relies on comprehensive 360-degree reviews, meticulously coordinated by our portfolio management team.
2. Solid Management Practices: The foundation of a venture's success often rests on streamlined practices. This includes precise target-setting, effective budgeting, rigorous performance management, adept people management, comprehensive controlling, and consistent commitment tracking.
3. Clear Vision and Strategy: A business should be crystal clear on its strategic direction. It needs definitive answers to pivotal questions such as: Where is our competitive arena? What distinct value do we offer to our customers? Which resources and capabilities are pivotal for our success? And, how do we maintain our edge in the market?

Reflecting on these imperatives, one of the reviewers remarked: “In my view, the key issue here is having transparent rules of the game that are clear to everyone. Who makes what decisions and how, as well as how this boundary is established between the founder or Board and the CEO”.

Below is the list of Pros and Cons of moving towards a Strategic guide position:

• Pros:
  • Focus on Vision: Founders can emphasize long-term strategic goals without daily operational distractions.
  • Flexibility: This role allows founders to pivot and adapt as the industry and venture landscapes shift.
  • Empowerment: By entrusting the CEO, founders nurture leadership growth and organizational trust.
• Cons:
  • Dependency on CEO: The success of this transition heavily hinges on the CEO's competence and alignment with the founder's vision.
  • Balancing Act: Straddling between guiding and not micromanaging can be challenging.
  • Detachment Risks: Too much distance might lead to a founder feeling disconnected from the venture's pulse.
  • One of the reviewers remarked in reflection on this scenario: “From my experience, I would also say that it can be difficult to develop and maintain a high-confidence strategy when you're no longer soaking up all the industry context”.

3. Cultivating a Portfolio Management Team

This approach sees the founder empowering a seasoned manager, bolstered by a dynamic team spanning various disciplines—from finance and law to sales and marketing. The precise mix of skills is tailored to the businesses in focus. The challenge here? Identifying a manager who embodies 100% trust, and is capable of mirroring the founder's role in enabling business success, controlling and supporting portfolio ventures. As a possible fork of the approach, one can integrate both a portfolio management team and a professional board. This practice, notably, was highlighted by the private equity funds we interviewed.

Where can we find an experienced portfolio team leader whom a founder can trust to manage his promising, yet demanding ventures? One of the private equity fund’s managers shared his practice: “Generally, the fund focuses on developing portfolio team leaders internally. This is achieved by selecting successful leaders from within existing portfolio businesses, or by temporarily assigning fund managers to senior roles within portfolio businesses. Typically, 75% of these appointments are successful. A curator monitors a business's performance against its KPIs and becomes more hands-on if the business struggles to meet its objectives. However, they also challenge successful businesses with good track records to uncover additional growth opportunities”.

A quite similar approach was shared by a serial entrepreneur who incubated many successful ventures: “It usually takes 3 years to grow a partner skilled enough to oversee a business in our portfolio. Successful curators typically grow from our existing businesses. We use the same approach as Big-3 consultancy companies who grow their Partners”.

However, one of the serial entrepreneurs opposes the necessity of a dedicated curator for his ventures: “I don’t have people who curate or oversee our portfolio businesses: they never have enough expertise, they don’t understand how I think, and they don’t see business opportunities and managerial leverages.”   Meanwhile, he still has a dedicated team that helps him grow his businesses: “My HQ team consists of financial guys, analysts, IT, legal, and BI experts. They act as enablers and advisors to portfolio businesses”.

Below is a list of the Pros and Cons worth considering when building a dedicated portfolio-management team:

• Pros:
  • Specialized Expertise: Each team member brings a unique skill set tailored to specific business needs.
  • Scalability: As businesses grow and diversify, a robust team can adapt to varying requirements.
  • Consistency: A dedicated team ensures consistent oversight and direction across portfolio ventures.
• Cons:
  • Trust Issues: Finding and retaining managers with full alignment to the founder's vision can be arduous.
  • Overhead Costs: Building and maintaining a specialized team might increase operational expenses.
  • Complexity: Managing a multifaceted team can introduce additional layers of communication and potential bureaucracy.

Selecting a parenting strategy

Choosing the right approach to overseeing your businesses is like picking a parenting style—it's deeply personal and has to fit with your unique situation. Here's what to consider:

1. Portfolio Strategy: Just like a family, every business is unique. If you've got a lot of them and they're all different, you'll likely need to take a step back and let them do their thing. The more they vary, and the more of them there are, the less you'll want to be in the weeds.
2. Industry Context and Business Profile: Every business plays in a different sandbox. Some industries move fast and need quick decisions without someone hovering over them—think tech startups. Others, like those in finance or healthcare, might need a closer eye and a steadying hand due to strict rules and regulations. Also, think about what they're trying to win at: cutting costs or being the next big thing? That'll help you decide how close to stay.
3. Founders’ Resources and capabilities: Your own toolbox of skills and time also matters. If you're great with numbers and big-picture thinking, maybe you don't need to be involved day-to-day. But if you've got the know-how to dive deep into market trends and daily operations, then being a hands-on guide could be your sweet spot.

Conclusion

Stepping back from the hands-on mode to a more strategic role is a bold move that promises great rewards. But it's not just about finding the right CEO to take the helm; the real magic happens when there's a harmonious dynamic between the business, the Founder, and the Board. This delicate dance involves setting up a management system that steers the ship with a careful mix of guidance, independence, and strategic oversight.

As you map out this new territory, it's essential to pinpoint your desired role and how you'll shape the transition. Will it be led by the founder, steered by the board, or driven by a stellar team? Each path has its own set of signals and milestones.

Ultimately, stepping back isn't about disengaging. It's a strategic shift to empower your ventures with robust teams, sharper tools, and forward-thinking strategies. This is how you ensure that your businesses don't just continue—they soar, reflecting the new heights you're aiming for.

#Founders #SerialEnterpeneurs #ManagingMultipleBusinesses #HandsOff