How to Deal with Dysfunctional Entrepreneurs

Last Updated Mar 5, 2010 4:00 PM EST

Founders and EntrepreneursIn the vast ecosystem of the corporate world, startup companies are a strange animal indeed. They start with brilliant entrepreneurs, most of whom have no idea how to run a company. Investors provide some much-needed mentoring, and some founders actually learn and become good CEOs, like Bill Gates and Steve Jobs.

Many know it's not their forte and step aside in favor of "professional" CEOs like Eric Schmidt at Google. The rest manage to get the company to a certain point until, well, until they're no longer effective. Indeed, some become downright toxic to the company's progress.

That's actually fairly common and one of my pet peeves about startups, boards keeping the founding CEO in place for too long. I can site loads of examples of that phenomenon: Sun, LSI, Atmel, Silicon Graphics, Gateway, Digital Equipment, Novell, Krispy Kreme, it's a long, long list.
Sometimes, when the founder does step down, his often hand-picked successor doesn't fare so well either. Again, lots of examples: Sun, AMD, Dell, LSI, Atmel, Silicon Image. Funny how some are the same companies as before. Wonder what that says about their boards?

Apple actually brought back its founder, and Steve Jobs managed to turn a nearly bankrupt company into one of the greatest corporate success stories in American history. Starbucks is trying to do sort of the same thing with Howard Schultz. It didn't work out with Yahoo or Gateway. And Dell's not looking so hot either.

Now, here's a recent story that, I have to admit, sort of surprised me. The company and its players will remain nameless because it's an ongoing saga. Here's the setup:

While VCs are often comfortable bringing in a "professional" CEO to run the show, they typically like to keep the founders around because they're sort of the heart and soul of the company, not to mention that they're usually the technical brains behind it all.

As this particular story goes, a bunch of very experienced guys with a long history together formed a company and, with some venture funding, spent a few years developing a whole bunch of technology and patents. Everything's cool. They manage to pick up some top tier VCs and a lot more funding along the way, and they hire a pro CEO to run the show. You won't believe what happens next.

After some months, for whatever reason, the CEO fires all the founders except one, I think the primary inventor. I'm sure the other founders get to exercise their stock options, but otherwise, they're gone. Poof. Out on the street.

Now, admittedly, I have no idea what went down. Maybe the CEO tried to demote them and they revolted, forcing the VCs to choose between the CEO and the founders. I have no idea. But barring that, and I doubt that's what happened, it just doesn't make sense. Sure, there was some dysfunctionality among the founders, but I've seen way more toxic environments than that at other startups. This one was relatively benign.

You know folks, I thought I'd seen it all, but I've never seen anything like this. And frankly, I find it a bit disturbing. But that's just me. What do you think of what went down here? Do you find it at all disturbing? Thoughts?

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