7 Reasons to Resign as CEO After Selling Your Startup

7 Reasons to Resign as CEO After Selling Your Startup

Do I regret staying the CEO after our acquisition?

7 Reasons to Resign as CEO After Selling Your Startup
Photo by Tima Miroshnichenko

You’ve proven to the world that you can generate value large enough that someone else wants to have your entire company — including you.

Champagne, party, and a brand new Lambo Huracan are just a signature away from you.

Yet, as I negotiated our acquisition, our buyer stressed his terms: “Remain the CEO, or there is no deal.”

Leading a company that isn’t yours anymore is a jump in cold water. After the acquisition, your company’s culture, people, and speed will change. Like me, you may even fall prey to the emotional “founder’s crisis” if you stay a CEO without a single share.

Selling a company is a major landmark in your entrepreneur’s journey. A potential buyer might knock on your door tomorrow. They’ll demand an answer on whether you’ll remain CEO.

So here are a few reasons why you might want to say no.

Typically, buyers don’t hand you a paycheck across the table after you sign a deal: “Here are ten million dollars, sir.

This happens in Hollywood movies, but not inside the M&A lawyer’s office handling a typical startup acquisition.

Founders have a massive amount of know-how engraved in their minds. They know their company inside out and what makes it produce and sell great products.

The buyer wants what’s inside your head.

So the buyer will typically vest his payout for your company shares over a period stretching one or more years. She will bind you to the company until she siphons all your founder’s knowledge.

But there are other ways to skin the cat. Becoming a member of the advisory board or a part-time co-CEO are secondary roles that let you support the buyer with their new toy — without you having to run the show wearing handcuffs.

This way, you can negotiate a payout scheme that gives you enough time to pursue your next goals.

But what is your next goal?

Why did you start your company in the first place?

I started mine because I love tinkering and building widgets. I could stay for nights in my workshop soldering electronic boards (I still do). Besides, I had nightmares about someday having a dictatorial boss who would make me do idiotic things. So I became my own boss. Even if that meant making mistakes. I didn’t care.

I also wanted to get rich. That’s right: I was one of the 8% of entrepreneurs whose motivation when they started their companies was to earn loads of cash (I am sure it’s over 8%). Probably my parents traumatized me by giving me too little lunch money in school.

Why you became an entrepreneur will be the same question you’ll have to ask yourself when you sell your company.

Does the buyer offer you creative freedom, the potential to grow your wealth, and the immunity from pea-brained or narcissistic supervisors calling the shots above you?

Every founder is an investor.

If I solve a technical problem, I’ll have a better product, generating more revenue and eventually increasing my company’s value. Every minute I spent for my company was an investment in my (hopefully) wealthy future.

When I signed the deal, I sold all my shares to the new owner.

My scribbled signature at the bottom of endless acquisition paperwork ended ten years of entrepreneurship and mutated me into a hired CEO — an employee.

Today, I get a salary at the end of each month (unless I get fired). The annual bonus adds some entrepreneurial flavor to your efforts, but it doesn’t replace the thrill of astronomical payouts for your extraordinary performance that the free market can offer. The biggest paycheck always goes to the shareholder.

My transition from founder to employee resulted in months of emotional ebb I call my “founder’s crisis,” robbing me of the entrepreneurial fire I had when I founded my company.

Becoming an employee has its perks. It feels like a safe harbor after years of storms and struggles. But the big future rewards, exponentially larger than whatever time you spent today, will not be yours to own anymore.

Two companies merging feels like one family marrying into another.

Every company has its culture and believes it to be amazing. Companies develop their cultures over the years: into complex organisms with their own DNAs. One culture is not better or worse than the other — they are simply different.

Big companies have complex, intricate processes and a large bureaucratic apparatus. Founders, who are used to blasting speeds and simple decisions, hate this.

After our company was acquired, I rolled my eyes during our first meetings with a team from the parent company. As someone obsessed with productivity, I hate meetings in general. I want to make them short and effective. But your parent company may meet your attempts to improve things with a canned reply: “We always did it like that, and it works.

Gargantuan international corporations complicate things even more. Political intrigues among departments, non-transparent decisions, and a ceremonial tight-neck hierarchy aren’t every founder’s cup of tea. Consider yourself lucky if they don’t put narcissistic management consultants on your team.

As a startup, you learn to keep things simple. But will they remain this way?

Who in the world would invest all their savings and spend years eating frozen pizza and pie into a venture with a 10% chance of succeeding?

Entrepreneurs have a distorted perception of risk. Our belief in our success makes us think that we’ll beat all odds. And sometimes it actually works.

Big companies evaluate risks differently from us.

When we developed a new product together with our parent company, we spent countless hours discussing the product’s features. As a startup, we used to make such decisions quickly, create a prototype, and deliver a product. But the big guys want watertight decisions, hedging their risks with whatever means possible.

I am not saying it is wrong to make careful and well-weighted decisions. But your time spent creating products may get replaced with time spent creating Excel sheets. Decisions will take weeks instead of days.

Entrepreneurs will miss the thrill of speed and risk once they enter the corporate world.

When you get acquired, the people around you will change.

The teammates you love may be pushed out. New people come in, including your new bosses.

I am in a very lucky position. The board members of our parent company are incredibly friendly, intelligent, and understanding human beings. We share common values and get along well despite disagreeing on several things now and then (well, who doesn’t).

But things weren’t always like that for me.

One of my former investors was a stunningly wise and supportive business angel. I am grateful for his mentorship and empathy during our startup’s turmoils. But another investor was someone I’d never wish to get stranded with alone on an island.

So my advice is to get to know the people before jumping into bed with them.

There are plenty of reasons someone wants to buy your company: good and bad.

The most common one is access to your customers. With your customer base, the buyer will artificially boost their sales overnight and can push their products to your customers. Others will want to have your tech. Maybe you own the patents, or they just don’t want to bother and spend time and money on R&D — so they take the shortcut: money can indeed buy time.

But other buyers will crave your baby for diabolic reasons.

I know a company that bought a startup and immediately shut them down a few weeks later, firing all staff and salvaging its assets. The startup was a competitor to the company’s clients and endangered their business if kept alive.

Give your baby to someone else and watch them slit its throat in public. If you are on the sidelines, you can blame them in your next blog post, calling them tech-killers. But if you remain the CEO, they’ll make you do the dirty job: “Here is the knife, do it.”

So be clear with your future owner: what will happen to your startup? They might not tell you the full truth, but you have ten pounds on your neck to figure it out yourself.

Staying the CEO after the acquisition can be super exciting and depressing at the same time.

Some founders keep a few shares and voting rights to stay motivated to increase their future wealth. Some hired CEOs see their employment as a “pause” from their entrepreneurial journey, enjoying the corporate perks like flying business class. Others will quit and start a new venture without wasting time on “corporate bullshit” because this is who they are.

Now, two years after our acquisition, do I regret staying the CEO?

I wanted a safe harbor, and I am happy to continue working with my team without being afraid I can’t pay their salaries tomorrow. I spend more time with my family; my mental and physical health improved. I have hobbies.

But I am paying the price for this safety every day: the incentive for astronomical future rewards, the thrill of risk, and speed.

Some say all entrepreneurs want the same things. That’s wrong. We all have our own goals, ambitions, cravings, and desires.

You built a company that someone wants to buy — this is an incredible achievement — and you can pat on your shoulder with full pride. You’ve proven that you can achieve tough goals and create real value.

So ask yourself when you negotiate your deal with the buyer: Will your employment as a CEO help you achieve your next goals?

Go to Publisher:

Entrepreneur's Handbook – Medium

Author: Andrei Neboian, Dr