Every great company has at least one founder and likely several CEOs over its lifespan. Even the most revered CEOs and founders often find themselves removed from the organization they started or led for a period of time. Famously, Steve Jobs was once pushed out of Apple. When money and leadership style is at stake, no one is immune to firing. Legally, it’s a perfectly viable option when the right elements are in place.

How It Happens

Founders or CEOs are often fired by a vote of the company’s board. If the individual at the center of the drama does not own a controlling share of the company, there is little they can do to prevent themselves from being ousted. Michael L.F. Slavin wrote that he once fired his own co-founder. Each of them owned 46.75 percent of the company, but Slavin was able to convince their four investors, who owned the remaining 6.5 percent, to give him a proxy to vote their shares. Now controlling 53.25 percent, he presented his partner with a buyout offer.

Ownership share ultimately leads to a loss of control over the company. As companies bring in outside investors, their shares are diluted. Founders often end up owning less than 50 percent of the company’s shares, leaving them vulnerable to being fired. Similarly, CEOs that have contracts might find themselves fired once that contract is concluded due to new ownership or change in company direction.

Why It Happens

Founders may be the inspiration behind a great entrepreneurial idea, but they may fail at execution. Alternatively, companies may simply outgrow their founders. Don Smith writes that companies may simply let the founder go when they no longer provide value. CEOs are often fired when the company has a period of low financial performance. Differences in leadership styles also make people vulnerable, as do internal company politics.

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Sometimes, founders and boards disagree on strategy. Sramana Mitra offers the example of founders wanting to build a consumer-focused company while the board wants to have a business-to-business approach. If the board has the votes to oust the founder or a similarly contradictory CEO, its members may take that step. Mitra was fired from the company she founded by a CEO she had previously hired: He called a board meeting and had her fired while she was out of town.

Entrepreneur magazine contributor Susan Solovic sums it up this way: If a firing occurs, it means that investors no longer have confidence in the founder to either establish profitability or, if the company is already profitable, to help it adapt to changing market conditions.

How to Prevent It

Tech Crunch tells executives to work the key players and to always be on the defensive. Personal relationships with shareholders and board members are essential for staving off an attack from within. It is important for CEOs and founders to always know they are dispensable and recognize their own vulnerabilities. That means knowing what it takes to get fired: For example, whether a simple vote of the board is sufficient or if allegations of wrongdoing are also necessary. Keep antenna tuned to rumblings of discontent and be careful of the contracts you sign. By the same token, make sure you get promises in writing — you need to protect yourself and can’t trust anyone who claims to have your back.

Moving On

Mitra went on to start another company of her own, backed by the same funders who were behind her previous venture. Tech Crunch says founder firings are the rule, not the exception. If CEOs or founders are creative and continue to be entrepreneurial, they can go on to do bigger and better things — perhaps having gained some wisdom along the way.

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Plugg 2010: Start-ups rally by Robin Wauters is licensed under Attribution License

Isabelle Daigle
Isabelle Daigle

Isabelle Daigle runs all content marketing for Hello Focus. She's an avid writer and loves long Netflix binge sessions!