Surviving the startup founder-to-CEO transition

April 21, 2011: 11:04 AM ET

The founder who can accept his limitations as a manager has a much better chance of watching his business blossom into the next big thing.

By Ethan Rouen, contributor 

FORTUNE -- In 2007, Cyrus Massoumi, a former business consultant, had an idea for a business and two friends willing to take a risk with him.

His spark of inspiration came when he ruptured an eardrum and couldn't find a doctor to see him right away. Four years later, he is the CEO of ZocDoc, a fast-growing website that matches patients with doctors and has received rave reviews from all the constituents it serves.

Cyrus Massoumi, CEO and founder of ZocDoc

Cyrus Massoumi, CEO and founder of ZocDoc

But the company is not only being praised by its customers. It also is seen as a huge success by its employees, being voted in 2010 by Crain's New York Business as the best place to work in New York City.

"It's all about having the right people who add value to the culture and the business," Massoumi says. "We want everyone to behave like an owner of the company."

ZocDoc has nearly doubled its staff every six months, growing from three to 100 employees. While that kind of rapid growth is the entrepreneur's dream, it also creates problems and requires the difficult transition from being someone with a great idea to someone who can be a great manager.

Many startups approach this challenge improperly, with management terrified of giving up control of what they have devoted their lives to, but experts insist that the founder who gives up control, or who at least can accept his limitations as a manager, has a much better chance of watching his business blossom into the next big thing.

"I wish there was a formula, but there isn't," says Ethan Mollick, an assistant professor of management at Wharton. "It's a really hard line to walk. It's about letting go where you have the least value and holding on where you know best what you are doing."

Mollick said that a company whose founder stays in the CEO position as the business expands has a greater chance of failure, but there are several steps that can be taken to reduce this risk.

He suggests doing an honest, brutal assessment of early employees' strengths and weaknesses, cultivating knowledgeable advisors who aren't afraid to provide harsh criticism, and devoting significant time to hiring the right people.

"Oftentimes, hiring is the best use of time for the entrepreneur," he says.

Massoumi says that hiring is one of ZocDoc's most important tasks. About 10% of the staff is devoted to recruiting, and he readily chants the mantra "slow to hire, quick to fire."

"It's all about hiring the right people who add value and share our values," he says. "That's most of it. Add in the cultural elements, and the company will thrive."

But choosing to manage those people instead of stepping aside to let a seasoned manager take over is a risky decision that requires a steep learning curve.

Massoumi has found success in creating a casual work environment where employees know they are respected and are rewarded for hard work with lots of freedom. ZocDoc has no vacation policy -- employees work when they are needed -- and lunch is catered every day. Most importantly, at those lunches, managers wait until all their employees are served before they get their food.

"It's very important to be accessible," Massoumi says. "The best people can build their own great companies. We want to show them that they can do that better here, that they can thrive."

Darryl Rawlings is one of those exceptions who has made the transition from lone toiler with a great idea to CEO of a mature company. He started Trupanion, a pet insurance company, in 1999 with himself as the only employee. More than 10 years later, he has a staff of almost 200.

"As you grow as a manager, and start managing other managers, you need to develop a different skill set," Rawlings says. "It's much different from managing the doers."

Finding those managers in a startup environment can be one of an entrepreneur's greatest challenges, said Mollick, the Wharton professor. CEOs must be very careful to hire someone with managerial experience who also is comfortable in a startup environment.

"There are a lot of senior vice presidents, who are used to the corporate world, who aren't going to be happy sitting at a desk made out of a door surrounded by 20 other people," he says.

Rawlings recognized his own limitations and hired others to support those weaknesses. As he added staff that fit Trupanion's culture, he also looked for people who could free him to work on the parts of the business that he knows best. He now devotes most of his time to Trupanion's biggest problems and opportunities while letting other employees "deal with the middle."

Most importantly, Rawlings was aware from early on that no matter what happened to his idea, his personality would not change. He would always be good at what he did best, and the greatest task would be convincing others to share his dream.

"The definition of a good leader is somebody who can get people to believe in this person and their cause," he says. "That doesn't change if it's 10 people, 100 people or 1,000 people in the company."

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