For a recruitment agency with multiple founders, the early years can be remarkably effective.
The founders know each other well. They have shared history, shared risk and usually a high level of trust. Decisions can be made quickly. Responsibilities are often divided informally. The founders are the executive team.
At a small scale, that can work very well. The difficulty is if the organisation keeps growing around them.
At some point, the informal arrangements that helped build the business begin to create ambiguity. The company now needs clearer leadership, clearer roles and clearer authority.
This is not necessarily a sign that anything has gone wrong. It is a natural consequence of growth.
The founders are the executive team – until they are not
In a business of ten to maybe twenty people, several founders can effectively operate as a committee.
They may all be involved in clients, staff, recruitment, finance, strategy and major decisions. They may pay themselves similarly. They may treat themselves differently from the rest of the organisation because, in practical terms, they are different.
They are the owners. They are the directors. They are the executive team. The Three Hats of Shareholder, Legal Director and Executive Leader are closely connected.
At this stage, the organisation usually understands that. But as the business moves beyond about twenty people, the arrangement starts to come under pressure.
There are now managers and emerging leaders. The organisation needs specialist capability. More decisions need to happen without the founders being directly involved. And the business begins to require an executive structure that is larger than the founder group.
That creates a different question. For a single founder, it is often: “when, or how, do I stop doing everything?”
For multiple founders, it becomes: “Who should be doing what?”
Design the organisation before allocating the founders
One useful exercise is to imagine designing the organisation from scratch at its current size. This is not just an academic activity, but ignore, for a moment, who founded the company.
- What executive roles would the organisation need?
- Who should be in charge?
- Would there be a COO, CFO, Sales Director or other functional leaders?
- What capabilities are required?
- Which decisions belong where?
Would all of those people need to be founders? Probably not. That is where the discussion becomes more difficult.
The founders may remain equal as shareholders while becoming quite different in their executive roles. One founder may be best suited to lead the company. Another may be strongest in business development. Another may be better in operations, client relationships or a specialist area. A founder may eventually be most valuable as a director and shareholder rather than as a senior executive.
And, in some organisations, the best person to lead the business may not be a founder at all.
The objective is not to diminish any founder. It is to match people to the work the organisation now requires.
Equality of ownership does not mean equality of role
This can be one of the more confronting consequences of growth.
Founders may own equal shares. They may have made similar sacrifices. They may have worked beside each other for many years. But equal ownership does not mean they must always have equal executive authority, equal job titles or equal remuneration.
Ownership and employment are different relationships. Once the organisation becomes more structured, founder executives should increasingly have the same clarity expected of other senior employees.
- What is the role?
- What decisions do they own?
- What results are they accountable for?
- Who do they report to?
- What is appropriate remuneration for that job?
One founder may earn more than another founder because the executive roles are different. This does not change the shareholding.
This should be extended to founders with executive roles being bound by the same employment agreement and employment policies that other executives have in place.
This is one reason separating the Three Hats becomes increasingly important as the organisation grows. The Shareholder conversation is about ownership. The Executive conversation is about the job. They should not be confused simply because the same people are involved in both.
The hardest issue is often status
On paper, organisational design can be straightforward. The harder discussion is usually about what the structure means for the founders themselves.
A founder may understand intellectually that another person should become CEO while still finding the change difficult personally. A founder may agree that their strongest contribution is in clients and business development while feeling that moving away from general management looks like a loss of status. Another may have a title that reflects history rather than the role the organisation now needs.
These are human issues. They should not be dismissed as ego, nor should the organisation be permanently designed around avoiding them.
A strong founder team is able to discuss the difference between: “Where can I contribute most?” and: “What position do I believe my founder status entitles me to hold?”
Those are very different questions.
The founders club can become visible
There is another consequence that founders do not always see from inside the group.
Emerging leaders notice how the founders operate. In a smaller organisation, staff usually accept that the founders are the leadership team. As the business grows, expectations change.
- Capable non-founders want to know whether they have genuine authority and whether there is a real pathway into senior leadership.
- If the important decisions are still made informally by the founders, the organisation sees it.
- If an executive meeting reaches one conclusion but the founders later decide something different among themselves, the organisation sees it.
If senior non-founders carry accountability but cannot genuinely challenge a founder, the organisation sees that too.
Eventually, the founders club can become a ceiling that nobody else can pass through. That has consequences. Emerging leaders may stop contributing fully because they learn that their influence has limits. Others leave for organisations where they believe they can take greater responsibility.
The problem is not that the founders remain close. The problem is when the organisation concludes that the real authority still sits somewhere it can never enter.
Founders can disagree. The organisation still needs clarity.
Multiple founders will not always agree. That is normal. They may have different strengths, different ambitions and different views about the future of the company.
The important point is that the organisation should not be required to operate inside unresolved founder ambiguity. Somebody needs executive authority. If one founder is clearly suited to lead the organisation, that may be the answer. If none of the founders is the obvious CEO, or if appointing one founder over the others would be difficult, a non-founder CEO may become the better solution.
That only works if the authority is genuine. There is little value in appointing a CEO while the founders continue to operate as a separate executive committee above or around that person.
In other circumstances, an Advisory Board, external chair or more formal board structure may help. An external forum can assist founders to separate shareholder questions from executive questions, clarify roles and work through disagreements without making the operating organisation carry the uncertainty.
These mechanisms are not evidence that the founder team has failed. They are ways of helping the organisation become larger than the founder relationship.
Role clarity strengthens the founder team
None of this is an argument for breaking up successful founder partnerships.
Quite the opposite. Strong founder teams recognise that the arrangements that worked at fifteen people will not necessarily work at thirty, fifty or one hundred.
- They address those questions before the organisation is forced to answer them.
- They clarify who leads and define the roles of the other founders.
- They allow non-founders to enter the executive team with real authority.
- They separate employment remuneration from shareholder returns.
- They create mechanisms for disagreement.
- They keep adjusting the structure as the business changes.
The founder relationship can remain important throughout. It simply cannot remain the entire management system.
Growth eventually makes the business bigger than the founders
Founders naturally have a special place in the history of a business.
They took the early risk. They created the original culture. They won the first clients and hired the first staff. That history does not disappear as the company grows. But neither should it prevent the organisation from developing the leadership structure it now needs.
At small scale, several founders operating as a close committee can be a great strength. Beyond that stage, role clarity becomes increasingly important.
The question is no longer whether the founders deserve to remain central to the business. The question is how each founder can contribute most effectively while allowing other leaders, and the organisation itself, to grow around them.
The objective is not to break up the founders’ club. It is to make sure the organisation is not trapped by it.
This article is part of HHMC’s Appropriately Corporate series for staffing and recruitment business owners, exploring growth, leadership, valuation and transaction readiness. If these issues are relevant to your business, we would be pleased to continue the conversation.
