This Way Out: Why Founders Are Being Shown the Door at Many Startups
Startups have long been known as breeding grounds for innovation and disruption. However, recent trends show many startup founders being ousted from their own companies. This Mint primer aims to explore the reasons behind this trend and its impact on startups.
Why was OpenAI’s Sam Altman asked to step down?
Sam Altman, one of the founding team members and CEO of OpenAI, was recently asked to step down from his position. The company alleged that Altman was “not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.” However, industry reports claimed differences in opinions between OpenAI’s board members, many of whom are also founding members, and Altman were the key reason. Despite this, many key investors have backed Altman. Microsoft chairman Satya Nadella even announced that Altman would lead a new advanced AI research team in Microsoft.
Does a founder’s exit matter?
In any post-funding startup venture, a board of directors typically oversees the company, and the CEO becomes the face of the venture. The exit of founding executives, particularly public figures like Altman, is usually seen as a statement of intent in the industry that the company intends to take a different course of action, be it in policy, operating strategy, or any other way.
Who are the notable founders to leave their own ventures?
Steve Jobs was ousted by Apple’s board in 1985 but returned in 1997, and Apple is now the most valuable company in the world. Facebook founder Mark Zuckerberg has come under regulatory scrutiny. Ankiti Bose of Zilingo, Ashneer Grover of BharatPe, Adam Neumann of WeWork, and Travis Kalanick of Uber have also made controversial departures.
What are the regulations here?
A board of directors votes on who should stay and who should go, especially if the person is a co-founder. Much of the process is governed by the firm’s bylaws and the contract between the executive and the board. Usually, founders are made to relinquish their equity for million-dollar payouts. In 2021, WeWork founder Adam Neumann was awarded a $445-million severance after being pushed out. Misdemeanor-led issues are more complex. Uber founder Travis Kalanick was reported to have left his company without a severance package.
How does a founder’s exit impact the firm?
Uber continued to grow after Kalanick’s ouster in 2017, but other companies may take uncharted routes. Jack Dorsey’s exit from Twitter led to Elon Musk buying and privatizing the company. Despite this, Twitter is now worth less than what Musk paid for it, according to market data. Investors usually view a founder’s exit as a course correction. This corporate practice also seeks to limit singular control of operating decisions, thereby reducing potential losses investors may face.
Conclusion
Startups aren’t immune to internal power struggles, even when they seem to be the epitome of innovation. Ousting founding team members from their own companies is thus becoming increasingly common. However, these incidents need not spell disaster for startups. Proper governance and management structures can help these companies adjust, pivot and continue to succeed, even when the founder is no longer at the helm.
Disclaimer:
The material in this article was compiled using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. The completeness and correctness of the material ensured with due diligence. It is required of users of this material to consult the relevant, applicable legislation. The data given may change without prior notice and does not constitute professional advice. As a result, Estabizz Fintech disclaims all liability for the results of using such material.
