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, its spirit.

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 than before.

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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