Scaleup Challenges: Dealing with Founder-CEO Burnout

Philip Lay, December 2019 / 5-minute scan, 14-minute read

Synthesis: Startups are taking longer these days to become successful scaleups, and one informal survey reveals that founder-CEOs are experiencing burnout at a disturbing rate. More to the point, it can be alarming to the board and employees — and extremely risky to morale and growth— when the CEO suddenly reveals that they are tapped out and are unable or unwilling to continue. What can CEOs and companies do to prevent burnout or minimize the risks to all concerned?

Among the thirty founder-CEOs of tech scaleups with whom I have worked over the past year or so, I’ve noticed that a disturbingly high percentage are experiencing or exhibiting signs of burnout, sufficient in some cases to place the continued growth of their respective businesses at serious risk.

The companies in my informal “survey” range from $3m to $40m in ARR, with growth rates anywhere between 15% and 100% plus. The vast majority were founded in the 2009–2013 timeframe, so they are between six and ten years old. The majority have been financed through three or as many as four or five rounds of VC/PE funding. Many of them have developed a second and third product offering, and thus may already be veterans of more than one hazardous and nerve-wracking “chasm-crossing” experience, which can severely test the most resilient of founding and executive teams.

All of the CEOs in this cohort except two were founders or co-founders of their respective companies; of the two hired-in CEOs, they’ve been in the job for six years and seven years respectively. Most of these individuals are first-time CEOs who, in light of the instant gratification culture in tech these days, may have thought that they’d get to where they are today in half the time. So it is no surprise that six or more years later they feel either exhausted or frustrated .

Looking through the list, I counted six founder-CEOs who for all intents and purposes are either owning up to being burned out or showing clear signs of serious metal (and mental) fatigue. Another four chief executives — and their businesses — are clearly struggling, which cannot be much fun. The total of ten executives who are operating well below peak effectiveness amounts to no less than one third of my sample group, a worryingly high percentage no matter how you look at it. Let’s also keep in mind some concern for the well-being of these individuals. Even though you can argue that entrepreneurs tend to be pretty resilient to — and even stimulated by — the steep challenges they face, there is always a limit to what each person can take.

Actual Cases of CEO Burnout

For example, one of the founder-CEOs recently informed their board that they are completely tapped out and want to move on. After three years of 50%+ annual growth since 2016, the company’s growth has stalled at 15% and customer churn has spiked to 20% per annum. The CEO and his co-founders and executive team are at their wits end regarding how to regenerate growth within their current financial runway. Two of their institutional investors from earlier rounds are refusing to re-up, insisting that they either get back to growth in the next two quarters or put the company up for sale.

Two other CEOs have been somewhat distracted by potential acquisitions that fell through after many months of intense negotiations, each for different reasons. As an experienced CEO friend says, most CEOs go into these sale processes without a full set of cards, and with incredibly delusional expectations. This helps to set the stage for crushing disappointment, from which some never fully recover. Members of the executive team and even the board also suffer serious disappointment when they were previously counting on the company sale to allow them to put some money back in their pockets.

Another two of the burn-out cases are just physically and mentally drained after experiencing repeated ups and downs in the company’s revenue growth and long drawn-out fundraises over the past several years.

These days I’m summarizing this problem as the “The Seven-Year Glitch”, to acknowledge the exhaustion that being in the enormously challenging 24/7 role of founder-CEO (or hired-in CEO) can cause the occupants after several years, especially when they hit successive bumps in the road.

More importantly, in this age of enhanced awareness about the cost of neglecting mental as well as physical well-being at work, it’s imperative for boards, co-founders, and executives reporting to the CEO to be vigilant for warning signs of burnout in their leader. This can help them to head off the worst leadership crises and prevent the wheels from coming off the wagon.

Causes and Early Warning Signs of Burnout

As I’ve observed in earlier posts, the software business tends to be an unfolding crisis on a daily basis. This is true when your company is growing like gangbusters, not only when it is struggling. Among other challenges, there’s almost never enough reliable data on which entrepreneurs can base a critical decision. Consequently, they are forced to act on gut feel for much of the time. And the sheer number and speed of decisions required in an average day can stress or exhaust the most up-beat of founders.

According to Pete Daffern, a three-time CEO and now serving on various boards, burnout occurs because there are expectations from everywhere about how to take the business from $0 to $500m. Although there’s no lack of opinions from board members, executives, advisors, consultants, analysts, or customers, there’s no clear map of how to get there. Of the 5% of startups that manage to achieve product/market fit, 90% or more fail to achieve the first stage of scaleup — i.e., crossing the chasm rather than perishing inside it. Of course, CEOs can filter out the less credible advice they receive. But when they start feeling the pressure, they can also make the mistake of listening to too many opinions without making any decision, causing unhelpful paralysis.

Creating a company is not the same as scaling one: As Daffern stresses, the skills it takes to create a company are quite different from the skills required to scale it. While many founder-CEOs relish the creation part — often to a fault — most do not handle the scaling part nearly as well. This is why U.S. VC firms will have no compunction about informing the founder-CEO that as a pre-condition of investing in, say, a Series B or C round, they should not expect to remain in the role for much longer — in fact, they may even be replaced before the round is finalized. Traditionally there is more deference to founders in European, Asian, and other regions but this is changing as companies attract investors from different countries.

Adjusting your sights and style to fit the demands of scaling up: Those CEOs who attempt to scale with the business have a choice to make, and most flunk it to some degree or other. Instead of morphing into able operators as the business grows into a sustainable revenue- and profit-generating enterprise, they tend to remain stuck in their earlier evangelist or super-salesperson persona. As such they remain fascinated by the new shiny object (for example, a brand-new product they wish to develop) instead of focusing on expanding their current business possibly because they have grown a bit bored by it. This can quickly cause the business to fall out of balance, jeopardizing the organization’s ability to make its quarterly numbers, which in turn creates pressure of the board and investors — which in turn piles pressure back onto the CEO.

The impossible job?: CEOs are responsible for championing the company’s vision, strategy and culture. They set the tone in the organization for the pursuit of excellence. They are responsible for growing the customer base and revenues, delivering on product and other commitments, building a strong executive team, attracting and developing talent throughout the organization, and ensuring the viability of the business. Of course, as the company scales up, they shouldn’t be expected to manage all of these activities. But they are ultimately accountable for these priorities being addressed effectively. Viewed from a certain perspective, it’s an impossible job. One founder recently admitted candidly: “If I applied for the job of CEO today, I wouldn’t stand a chance of getting it.” Keep in mind that there is still no effective boot camp for CEOs — it’s a high wire act without a safety net. Being practically an all-consuming 24/7 occupation, it demands depth and breadth of thought and discipline regarding execution. No matter how high-powered and enthusiastic a person you are, this can be both physically and mentally draining. As the saying goes, you don’t have to be a masochist, but it helps!

Limited experience equals limited pattern recognition: Another factor contributing to burnout includes the fact that many of these individuals had limited business/management experience before they embarked on their entrepreneurial journey. Not having seen many rodeos, they haven’t had time to build up sufficient pattern recognition to help them take the inevitable ups and downs in their stride. Alongside this inexperience is the preoccupation that some CEOs have with a dream exit. Everyone tends to remember the well-known outliers that achieved spectacular exits in five years or less, whereas most B2B SaaS businesses need the better part of a decade before they can claim to have built a sustainable growth business.

The board — effective support system or pain in the neck?: Behind the CEO is the board. A major issue here is that most Series B, C, and D boards are populated by venture investors. If you’re really lucky, one of the directors (most likely the chairperson) has done the CEO job before. Almost all the other directors and observers are inexperienced in the ins and outs of growing a business. Until you’ve done the job yourself, any CEO will tell you that you don’t really understand the ins and outs of it. So, board members — whose main duty apart from financial and legal oversight of the company is to set expectations on executive performance and compensation with the CEO and where necessary hire or fire the CEO, generally find it hard to see the warning signs that their CEO is about to crash and burn. Therefore, they don’t know how or when to help or intervene effectively. Even when boards of more mature scaleups recruit a couple of former CEOs, it’s usually too late for them to significantly influence the growth or direction of the business.

You’re the CEO: How Can You Spot the Early Warning Signs?

As a founder-CEO (and even as a co-founder or executive), so much stuff comes at you every day, that you can quickly feel overwhelmed. And at times the pressure just keeps accumulating. The “loneliness” factor means that you’re not always sure whom you can confide in. You might also find it tricky to articulate or share your most intimate concerns in a manner or forum that won’t come back to haunt you. At moments of greatest doubt, you may well not know what to do next. Pete Daffern talks about it feeling like snow blindness for a skier. One of the CEOs in our sample grouping, exhibiting incipient signs of extreme stress, has taken to asking a dozen of fifteen people for their opinion. And still they are unable to make a decision and stick to it. This is what thrashing looks like. It’s what happens when reliable data is lacking, and can be worst when the things you’re trying now aren’t working as they once did.

Along with these symptoms, direct reports start to show some resentment or puzzlement when you do start selectively micro-managing activities in their functional areas such as sales pipeline management, or product development prioritization; before long, if you’re not careful you start to work on everything but what you’re supposed to be doing, focusing on contextual activities instead of strategic priorities.

This tendency to intervene everywhere becomes particularly acute — although to some degree understandable — when there are critical gaps on the executive team. One CEO in my sample set recently let their CRO go, and is now interim CRO as well as continuing to perform their normal duties. This can be stressful for everyone in the sales team, in fact for others in the field organization such as systems engineering, professional services, and customer success. However, for a short period of time it can actually be enormously beneficial for the CEO to find out how customer engagement has been being (mis)handled under the now-departed leader, but this is a topic for another article.

Having been co-founder and CEO of a security software company for eight years in the dim and distant past, I’ve found that the more you take time to listen to your thoughts and feelings and think about the consequences of your words and actions, the earlier you will notice that you’re losing your edge along with some of your enthusiasm and effectiveness. Although this point must sound obvious, it can often be outweighed by the tendency of many CEOs to deny to themselves that they aren’t coping as well as they’d like to think. After all, they are the coper-in-chief, so how can they not be coping?

Furthermore, many CEOs fear that if they show vulnerability, they’ll sacrifice their leadership cred. As the old saying goes, “Denial ain’t just the name of a river in Egypt”. Most often these days especially, your executive colleagues and employees will respect for owning up to vulnerability in certain areas and at certain times. It’s actually okay to say “I don’t know” or “I’m nervous about our ability to keep growing in the current environment, we must figure out what to do about it”.

What Can You Do to Prevent or Combat Burnout?

Discourage “heroism” in order to scale your business: There are some basic hygiene factors for CEOs and those around them to keep in mind to minimize stress. Besides confronting the considerable challenge of building your business, the biggest internal challenge for scaleups is to transition from the normal heroism of the startup to a more methodical model for growth. Many founders and early employees get left behind where the company needs them to be in this regard, remaining stuck in their entrepreneurial mindset. The inability to embrace collective, systematic processes to replace individual heroism — for example, continuing to deliver one-off custom projects when your customers are pleading for repeatable, standardized solutions — causes untold stress on everyone, impacting customers, partners, your entire team, and other third parties.

Be quite clear to yourself and your staff about your strengths and weaknesses. Are you an entrepreneur or an operator? Are you comfortable starting with a blank sheet to conceive a new business or design a new product, or is your main talent related to take a technology or product that already exists and build a sustainable business around it? It’s important to know what your strengths and what they are not. My rule of thumb for CEOs is to double-down on your strengths and hire to fill your gaps, rather than trying to become an accomplished all-rounder. This is why I believe it to be better to bring in a COO before you really need it than after you’ve entered an operational crisis.

Do you have a skills balance between the founders? Let’s face it, most CEOs rise to the job from experience in one or at most two disciplines such as sales or product and they aren’t comfortable in the areas they are least familiar with. In my case, I had deep experience in enterprise sales but I was a net zero in product development and engineering. So I made sure to partner with co-founder who had deep technology and engineering experience., which was crucial in enabling us to build a successful enterprise software business.

Impostor syndrome: At times you may even feel that you’re just not quite up to the job — a form of what people sometimes refer to as impostor syndrome. You might be afflicted with doubt, wondering when you are going to be found out for the fraud you are? Once you realize that most other CEOs are learning on the job and have their own weaknesses, you learn to calm down, trust yourself, and focus on learning from every experience. Almost every successful leader has experienced the feelings of not quite being up to the job at certain times.

Change gears: My most basic recommendation to founders who are concerned about their decreasing effectiveness is to find a way to switch gears and get out of the rut that you are in. Almost invariably it’s beneficial to review your vision and strategy, and apply fixes to critical execution problems that have been creating a drag on the organization for a while.

Below are some additional ideas in how to get out of a malaise and onto a new growth path. No need to adopt all of these measures, but maybe run your eye down the list to see which ones might apply to your situation.

1. Is your inner circle functioning effectively? Every CEO has an inner circle of one or two confidants. The key role of this small group is to provide you with a safe zone in which to delve into sensitive issues and brainstorm approaches to solving them. The inner circle should avoid being a clique because that can alienate other executives and impact employees too. But it does have a definite role to play and as CEO you owe it to yourself to try out ideas in this small forum.

2. Make changes to your executive team. Before reviewing the company’s vision and strategy — a critical priority when things feel a bit stale — it’s important to be sure that you have a management team fit for the business going forward. Do you have the right people on your team? More often than not, there are one or two key gaps to fill. The point is that making just one significant change in your executive team — bringing a new executive on board or switching responsibilities between yourself and other executives — can change the atmosphere and dynamic on the team, and significantly enhance its effectiveness.

3. Transition from CEO to Chief Evangelist or another operational role: Agree with the board that you’re going to assume a new role, help them to recruit a new CEO, and become the chief evangelist for the company — or the CTO or CSO, or just operate as a board member. It can be a great relief and a breath of fresh air for you to take on a role where your span of control is no longer the company’s employees; instead your target audience becomes the marketplace — customers, partners, analysts, luminaries.

4. Make a change to the board: Many Seven-Year Glitch situations have boards that most likely would benefit from a new chairman, director, or observer. Boards are notorious for forming (bad) habits, becoming stale and unproductive. Bringing in a new chairman or director will inevitably change the dynamic — the new person may have some interesting ideas, including critical industry or other expertise, prior experience as a CEO, and/or a new personal network to leverage for business or for talent.

5. Consider hiring (or promoting) a fast-track MBA type to be your eyes and ears. If, as is often the case, you have become the main decision-making bottleneck in the growing company, you might want to consider this step, at least for a period of time. The job of this fast-tracker will be to shadow you in key meetings, follow up promptly on commitments you make to avoid delayed action, assist you with key communications, and even sub for you at meetings that you are unable to attend. Apart from accelerating responsiveness to customer and employees requests, this can free up some of your time for activities that you find more rewarding. And you’ll be providing a powerful learning experience to a possible future executive.

6. Take a sabbatical. No, the company won’t crash and burn without you around. If you’ve been operating close to burnout, chances are you’ve been hurting the business in some way or other. Make no mistake, everyone who comes into contact with you will have noticed your crankiness or lower than usual enthusiasm for the business. Best to get out of the way for a while in order to recharge your batteries. Besides a straightforward vacation, I recommend an actual sabbatical where you go off and do something educational or some public service. Besides the direct benefit to you, when you put some interim responsibilities on the shoulders of one or more of your co-founders, or the COO, or the CFO, CMO or CRO, you’ll be able to see who steps up while you’re gone, and even who might have the nous to replace you when you’re ready to definitively exit the running of the business.

7. Write a blog or teach a business-school class: This can be one way of refreshing your mind, and indirectly provide you with a new burst of energy and enthusiasm for when you return to your day-to-day activities. Expressing your point of view and sharing your experience with a readership can also enrich your company’s image and identity in the broader community. Teaching a course at business school can be enormously beneficial even to help recruit future employees.

In summary, for one reason or another most founder-CEOs and executives in scaleups experience measurable fatigue and staleness by the seven year mark — the Seven Year Glitch. It can be quite alarming to the board when the CEO suddenly announces that they have nothing more to give, that they need to hand off to a new CEO and leave the company. And it’s also alarming to the CEO if the board abruptly calls time on them because they’re seeing a sustained loss of the leader’s effectiveness and have decided that enough is enough. Everyone is better off if you can avoid either or both of these “ultimatum” scenarios. As everyone knows, looking for a new CEO takes time and is best done with some strategic thought rather than on the rebound.

Recognizing that the vast majority of startups don’t manage to scale up successfully, and a similar majority of scaleups fail to achieve their objectives, I see this burnout problem as something we need to address in a more open and effective way than typically happens.

Co-founders who are in challenging functional management roles, as well as other executives (COO, CTO, CRO, CMO, and CHRO) and managers and staff in the organization can also experience burnout. I’ve focused my remarks here on the founder-CEO here because their risk of burnout is likely to have the greatest impact on the company’s growth and viability if it goes unchecked.

By way of a footnote, one or two of the founders in the group I cited here as experiencing burnout are doing a creditable job of getting out of the jam they found themselves in. They have taken steps to reorganize their executive team or another part of the company, and are now in the process of redefining their vision and strategy for the business.

Another has gained a jolt of new enthusiasm for the business by fixing a couple of critical problems in their customer engagement process and have noted a sharp reduction in churn and also higher NPS scores. Provided that you remain vigilant to the risk of burnout, and don’t kid yourself that it can’t happen to you, then you can mitigate the effects of any such stress.

TAGs: Burnout, Scaleup, Founder, CEO, 7-Year Glitch

Strategy Advisor, London, England