Time to replace yourself

Sooner or later, most founders will need to hire a CEO to take their place. Here are four who did it right - and one who blew it.

By Carlye Adler, FSB contributor

(FSB Magazine) -- Heidi Albert can perfectly recall the moment she knew her time was up. It was late 2006, and business was booming at Doctor Bobby, a children's allergen-free skin-care company she had co-founded three years earlier with pediatric dermatologist Dr. Robert Buka. (He's known to his pint-sized patients as "Dr. Bobby.") Nearly 200 stores across the country were selling the irritant-free creams, soaps and shampoos.

Doctor Bobby (drbobby.com), headquartered in Chicago, wasn't profitable, and Albert hadn't yet drawn a paycheck, but the future looked promising. Then she received a call from a big marketing company that wanted to invest in Doctor Bobby, create an infomercial (ginzu knives, anyone?) for the line, and introduce Albert to its contacts at bigbox stores. The CEO was torn. While the opportunity might boost sales, wouldn't it also dilute the cachet of her brand?

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Heidi Albert, 37, owner, Doctor Bobby, Chicago
How smart owners find the right CEO
Know what you are looking for.
"Have a clear description of what you want in a CEO," says recruiter Charley Polachi, who says he sees too many entrepreneurs waver from what they really need.
Give to get.
Robin Gregory, the former CEO of Bolo Systems, says offering an equity stake helps attract top talent. "I gave up ownership and control," he says. "But my net value is considerably larger than when I had control."
Avoid a clone of yourself.
Look for someone who has different skills from yours. As Sara Blakely, founder of hosiery maker Spanx, describes the CEO she hired in 2003, "She makes up for my weaknesses."
Use metrics.
Create goals to monitor the success of the new hire. And "cut your losses early if it doesn't work out," says Brian Gast, founder of Quadrant, a coaching firm in Littleton, Colo., who once fired a CEO eight months after hiring him.

Albert spent the next few weeks calling business colleagues and friends for advice and eventually decided not to partner with the marketing company. More revolutionary, though, was her realization that while she was great at developing products, setting the company's long-term growth strategy was beyond her.

"There were so many paths to growth - the infomercial company, high-end department stores and pharmaceutical companies - but I didn't have the tools to make the right decision," says Albert, 37. "Suddenly I felt as if I was out of my league. I had to put my ego aside and ask, 'Who do I need to help me?' "

At that moment Albert - a control freak who once prided herself on managing everything from keeping the books to sweeping the floors - decided she needed a boss.

An entrepreneur's decision to step down is a hard and humbling one. After all, who wants to face up to her limitations? But that day almost inevitably comes. Some business owners find themselves unable to drive their company to the next level. Others discover that they simply don't enjoy the complexities of running a larger company. Another factor: Boomer business owners are now reaching retirement age, and many are seeking a new CEO to lighten the workload or polish up the company for sale.

In some cases the decision to change leadership is forced on an entrepreneur. Some two-thirds of venture-backed startups find it necessary to replace founding CEOs with more seasoned outside management, says Pascal Levensohn, founder of Levensohn Venture Partners (levp.com) in San Francisco, which has backed several successful tech startups, including BigFix, Rapt and Veraz Networks (two of the three are now run by a different CEO). Although that kind of high turnover is less likely at companies not backed by VCs, Levensohn argues that the factors that necessitate a change in leadership affect all companies.

"The skills associated with building and managing a company differ from those it took to start the company and build the products or technology," says Levensohn. "Very few are best at both." Historically only a tiny fraction of entrepreneurs - legends such as Gert Boyle of Columbia Sportswear (Charts), Michael Dell of Dell (Charts, Fortune 500), and Fred Smith of FedEx (Charts, Fortune 500) - have steered their companies from the early days all the way to greatness.

Experts say company founders can be blinded by their passion and overly attached to their dream and are therefore more likely to stick with business plans they've created or products they've launched or people they've hired - long after the outside world can identify the need for change.

This "founderitis" phenomenon can alienate staff and stunt growth, says Charley Polachi, a partner at Polachi & Co. (polachi.com), an executive-search firm in Framingham, Mass. Polachi says that it takes an enlightened entrepreneur to see the need to seek out more experienced management.

Stepping down can be a "heart-wrenching experience," says Dora Vell, the founder of Vell & Associates (vell.com), an executive-search firm in Waltham, Mass. One entrepreneur said it was as if he had spent years building a Ferrari, and then, when it was ready, he wasn't allowed to drive it. What worried Albert was hiring someone who didn't care about the company as deeply as she did. Says she: "Would someone else think about it when on the chairlift on a ski vacation? "

Albert's first step was to write a job description for a candidate with a marketing background and experience in operations. She wanted someone who had run a big consumer brand but who was creative and comfortable enough to work with her limited budget. The candidate also had to fit into the culture of her ten-person startup. That meant no suits, no help desk and no company car. No huge salary either, although Albert would offer a 10 to 20 percent equity stake in the firm.

Unable to afford an expensive executive-search firm, which can cost anywhere from $100,000 to more than $200,000, Albert headed the search herself. Recruiters, predictably, and some entrepreneurs say that's not the way to go. ("You wouldn't have an ex-wife picking out a new wife," argues recruiter Vell.)

Albert contacted everyone she knew in marketing and came up with a list of about 20 people. After a series of phone calls, about half of them emerged as promising enough to meet. Rather than use a formal interviewing process, Albert gauged how much each candidate knew about her company and how much passion he displayed. As she reasoned, "If they didn't do any homework for the interview, what kind of work are they going to do when they get the job?"

The search, Albert recalls, was uncannily like blind-dating. She quickly dismissed "Mr. Arrogant," a savvy executive who promised to do wonders with the company but who Albert felt cut her off and didn't listen to her. She was outraged by "Mr. Out of Work," who seemed interested in Doctor Bobby only so that he could get back in the game and be more attractive to other employers.

Then, as in dating, Albert met someone, and she "just knew." Two of her contacts had recommended Dee Fortson, 36, a brand-strategy consultant working on Tropicana at PepsiCo and a marketing whiz who formerly ran Sara Lee's coffee brands. Fortson also happened to mirror Doctor Bobby's customer demographic - "an educated mother who wanted the best for her kids" - and she immediately related to the product. After several meetings Albert learned that Fortson was methodical and detail-oriented and knew how to work with big retailers. "Dee was exactly what I was looking for," says Albert. "She knows what I don't."

Albert, who had spent six months looking for a CEO, was finally ready to let go. It turned out, however, that her ideal candidate wasn't ready to take over. Fortson was pregnant with her second child and felt she couldn't commit to becoming CEO just yet. Albert asked Fortson to join as the head of marketing, with the possibility of becoming CEO if their collaboration proved a good fit.

Sometimes it's wise to take things this slowly. "Hiring your replacement is the single most important decision a founder makes for the company," says Verne Harnish, founder and CEO of Gazelles (gazelles.com), a corporate university in Ashburn, Va., which helps founders grow their companies. "We see that in about 80 percent of these situations where the transition is successful, the founder already knew the replacement."

While Albert remains CEO and has no formal timeline for moving Fortson to the top management spot, it is clear that her arrival has brought substantial changes. "For Heidi, Doctor Bobby is a labor of love," says Fortson. "For me it's an opportunity to make a difference and take the business to the next level."

With that mindset, Albert and Fortson plan to raise $1 million to expand sales in the U.S. and to enter foreign markets, such as Korea and New Zealand. They are busy developing new product lines (sunscreen, for example) and hope to reach profitability by next year.

The biggest change at Doctor Bobby is not what is happening to the company but what has happened to Albert. Never one to ask for help - she broke her foot three years ago and lost ten pounds because she wouldn't let anyone bring her food - she now admits her weaknesses. "I felt as if I had a choice," says Albert. "I could have a company that continued as it was and I could say I did it all myself - or I could have a super-successful company that I could say I helped grow."

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.