Just Managing: Swell.com CEO Escapes Founder's Trap
Nicholas Nathanson, CEO of the surfing Web site Swell.com,
has spent so much time during the past two years building his company,
which provides information and resources about action sports, that
he's had to practically eliminate one of his life's passions: surfing.
No complaints from Nathanson, however, who has few regrets about
devoting just about every waking minute to his nascent company.
In the process of raising more than $22 million, developing sites
for surfing and other action sports, and hiring a seasoned staff
of hip individuals off the beach, he's has enjoyed support and approval
of everyone from venture capitalists to surfing aficionados.
He's also had a lot fun. And Nathanson, who doesn't have an MBA,
says he's learned more than he ever thought he would from the experience
of running the company. Nathanson has learned to make - and stick
to - decisions even when he isn't certain they are correct. He's
learned that bosses can't be everybody's best friend. He's learned
how to hire key people and let them make their own decisions. And
now Nathanson is taking what might be the wisest move in growing
his company: He's stepping aside as CEO. Jeff Berg, a member of
the advisory board with relevant experience, will take over while
Nathanson focuses on business development.
In so doing, Nathanson and Swell.com seem poised to navigate through
what one expert calls the founder's trap: the moment when the growth
of the company exceeds the growth of the person in charge.
This crossroad is normal and healthy, according to consultant
Ichak Adizes, whose books Corporate Lifecycles and Managing
Corporate Lifecycles are among the most insightful on the evolution
of companies from startups to established concerns. Adizes describes
the founder's trap as the conflict that owners face when they understand
that the company needs seasoned leadership but they still have the
natural tendency to want to manage on their own.
"From courtship through the go-go stages of the life cycle, founders
are their companies and the companies are their founders. They are
inseparable," says Adizes.
"Companies outgrow the founder's capabilities to implant their
personal leadership styles and philosophies," he adds. "They can
no longer act as one-person shows. That's when founders attempting
to delegate authority and responsibility end up decentralizing and
losing control. It usually does not work well."
Fast-growing startups eventually need formal controls, systems
and procedures, and yet founders are often accustomed to solving
problems and meeting new challenges intuitively and on the fly.
However, the logical, simple solution of establishing controls and
systems through bringing in experienced management is rarely simple.
Adizes says founders don't give up control easily, even when they
concede the need for professional leadership. "It doesn't take long
to discover that the 'hired guns' are not like them. The paradox
is that the founder is looking for 'someone like us,' who will 'do
the things we do not do.' Inconsistent demand, right?" Adizes says.
"The founders are looking for pilots who can fly submarines. For
this critical transition, companies don't need leaders like their
founders; the new leaders need to complement the founders' style."
What happens if the founder can't make the transition? The organization
decentralizes, but the founder retains control, undermining the
authority and effectiveness of other managers. A phantom bureaucracy
sets in as the leader. The founder is unable to handle all the responsibilities
he feels compelled to do, fails to act on key opportunities and
hoards information by inertia. Morale sinks, complacency sets in
and the company loses its sense of urgency, its momentum and, ultimately,
Such a transition is rarely easy, yet it is essential for companies
to become sustainable organizations that can grow and adapt under
any circumstances. What's interesting is the way that hyper-growth
Net firms hit the founder's trap earlier and harder than ever.
"Any time you grow a business organically, it becomes easier to
grow personally as the company grows," Nathanson says. But at a
time when you go from zero to $50 million in an absurdly short time,
the notion of natural growth must be re-examined. Swell.com hired
its first employee in November 1999 and just hit the $50 million
mark; other Internet founders are confronting the challenges of
a $50 million war chest, or $50 million in revenue, far quicker
There's one mitigating factor that can lessen the founder' trap,
however: the earlier participation of "professional" managers like
venture capitalists who lend a professional approach early or who
help make founders more open to the idea of giving up control as
the company grows.
For Nathanson, who has worked on Wall Street and understands the
value of growing a company, the decision wasn't as tortured as it
might be for somebody who has grown a company for years.
"A large part of my starting the business was to have a chance
to participate in the surfing lifestyle rather than working in a
Wall Street cubicle," he says.
Now that he's sharing the leadership of his company, he just might
get to ride the waves.
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