Starting a company that survives beyond infancy is a lot like raising a child. Just as parents do, founders give it all they’ve got and rejoice when their progeny succeeds.
But, at some point, parents need to step back and stop running their kids’ lives in order for their children to grow up and reach their full potential. It’s much the same with founders and the companies they birth. In order for the company to keep growing and reach its full potential, founders often need to step back and pass the baton to a new CEO.
“Only a small percentage of founder-CEOs have the skills and experience needed to ensure company growth and shareholder value beyond a startup’s early stage,” wrote Suren Dutia, a former senior fellow with the Ewing Marion Kauffman Foundation, in a November 2015 paper entitled “CEO Evolution: Knowing When and How to Transition Founder Leadership to Growth Leadership.”
Dutia said founder-CEOs “commonly have a hard time asking themselves if their talents are best suited to lead their companies forward into the next stage of growth, and an even harder time admitting that it might be time to transition to new leadership. But this introspection and the ability to let go are critical if a maturing company is to continue creating maximum shareholder value.”
Two Kansas City-area founders spoke about their experiences with passing the baton.
Chris Costello, blooom
Costello co-founded Leawood-based Blooom with Kevin Conard and Randy AufDerHeide in 2013.
Blooom helps people manage their 401(k) and 403(b) retirement accounts. The founders were motivated by their perception that most professional investment advice is geared toward the wealthy, thereby ignoring the needs of most Americans who struggle to understand their employer-provided savings plans.
Costello took the helm as Blooom’s first CEO.
“It was just the three of us for the first year,” he said. “Nobody was drawing salaries. Our first paid employee was hired in May of 2014. We didn’t raise any outside venture capital until the fall of 2015. We bootstrapped the company out of our own pocketbooks. Then we closed a $4 million Series A (venture capital) round in the fall of 2015, and closed a $9 million venture capital round in January of 2017.”
Costello exudes passion for Blooom’s mission and potential.
“The big problem that Blooom is solving is providing investment advice to people who generally would not qualify to have a financial adviser. Today, there are about 90 million Americans who are participating in an employer-sponsored retirement account, predominantly a 401(k). For a lot of average, middle class Americans, it’s their single largest financial asset.”
And out of those 90 million participants, perhaps 5 million to 10 million have big enough portfolios to obtain advice from a qualified financial advisor, Costello said. Maybe another 5 million to 10 million have the ability and desire to manage their own accounts. That leaves roughly 70 million individuals who could benefit from a company such as Blooom, which has no minimum portfolio requirement.
Blooom today has about 30 employees, approximately $2.5 billion in assets under management and nearly 20,000 clients.
“We’ve had strong growth, but we’re not where we can get yet,” Costello said. “Even at 20,000 clients, there are still 70 million people who we think badly need something like this to help them have a shot at a dignified retirement someday.”
And while Bloom has raised $13 million in venture capital, Costello noted that some Silicon Valley or New York robo advisers who
work outside the 401(k) space have raised hundreds of millions of venture capital dollars.
“We’ve gotten so far on just a small amount of capital,” he said. “There’s so much more potential. I felt like the size and success of the company were getting to a point where we needed to take it to the next level.”
In November 2016, Blooom hired Matt Burgener as chief marketing officer.
“He had a very impressive background as CMO of an extremely large, publicly traded company,” Costello said. “He had been the CEO of a startup company. He had worked at companies like LendingTree, Dell and Bank of America. He has experienced a lot more than I have. When we hired him, I thought, ‘If I get hit by a bus, there is somebody right there in the company who could easily step in.’”
As Burgener built his marketing team, Costello pondered going out and raising a third round of venture capital.
“It didn’t feel right to me to go out and talk to investors if I knew in the back my head that I would be transitioning the (CEO) role to Matt at some point,” he said.
The transition occurred in February, when Burgener was promoted to CEO and Costello became chairman of the board.
Under the new management setup, Burgener runs Blooom’s day-to-day opertions, and Costello is freed up to focus on telling Blooom’s story externally.
“I get to do what I do best—evangelizing the Blooom mission—and Blooom gets a better CEO to lead it on a day-to-day basis,” Costello said. “In a way, Blooom can kind of get its cake and eat it too. I feel like this is a big positive for the company.”
Costello said there is no one-size-fits-all formula for when and how a founder-CEOs should step back.
“It’s a very personal decision. When you start a company, it becomes almost like a child. It’s a very emotional decision to think about not having the reins to that company.”
Nonetheless, he said founder-CEOs “need to be honest with themselves and do a little bit of self-reflection. In my case, given my level of awareness, I was willing to admit that there are people like Matt who are better and smarter than me at running the business at this critical stage.”
“I still own a decent sized chunk of the company, and obviously I want Blooom to be wildly successful, way beyond where it is today. This is a move towards making that happen.”
Jeff Blackwood, Pathfinder Health Innovations
Blackwood founded Kansas City-based Pathfinder Health Innovations in 2010 to provide software for therapists and educators who work with children and adults on the autism spectrum.
Amid growing demand for autism therapy, the company took off like a rocket.
“We grew on average 270 percent year-over-year (in revenue),” Blackwood said.
The company’s first institutional investor was Omaha-based Dundee Venture Capital in late 2012, who closed a $400,000 round. Since then, it has raised about $8 million from other venture firms.
Blackwood said raising money from outside sources sends a company founder down a different path because the investors typically are “not giving you that money to do the same thing over and over again.”
So Blackwood hired more software developers and expanded the company nationwide. Founded as ABPathfinder, the company acquired Phoenix-based Ensure Billing (EBI) in 2016 and became Pathfinder Health Innovations, which is currently based in Kansas City’s Crossroads Arts District.
Blackwood took yet another path in February, when Pathfinder hired Tina Youngblood as CEO, and Blackwood became executive vice president for corporate development.
Why did Pathfinder realign its executive suite?
“The last couple of years, we had some challenges that required I shift my focus away from being the industry ambassador, meeting people, being creative and creating opportunities for us, to more of an operational role. And that’s not what I really wanted to do,” Blackwood said.
Blackwood explained companies move through different stages, and that “it takes a unique set of people at the startup phase of a company.”
“I have a very creative set of skills. The way I approach problems, the way I use resources to attack those problems, puts me in a position where I could create something for this company and help it grow,” he said.
And for Pathfinder Health Innovations, growth is about more than just bringing in more revenue.
“We’re getting into research initiatives more heavily now,” Blackwood said. “I think our company could actually be part of the overall solution to breaking down autism to into smaller sub-types that could result in different treatments.”
Genetic differences point to the need for individualized medicines to help treat autism, Blackwood said.
“The more help we can give these kiddos when they’re young, the higher the likelihood that their brain plasticity will allow them to achieve some of the skills and reduce some of the behaviors that have been challenging for them.”
As Pathfinder grew and autism therapies advanced, the operational aspects of the CEO position weighed heavier and heavier on Blackwood. In July 2017, he told his board it was time to look at how to move Pathfinder to the next level.
Blackwood told the board he wanted to go out and use his industry contacts to help Pathfinder accomplish great things. “But I can’t do that when I’m in the office all the time, trying to make sure the coffee maker is running and there’s no non-staff cars taking up our parking spaces and stuff like that. We decided to see what we could get from a CEO search.”
Pathfinder placed a confidential CEO search on LinkedIn and was overwhelmed with the response, Blackwood said. “We got 733 applicants in a four-week period. We immediately cut out about half of those. We got down to 40 people, and we got down to 12. We ended up with the best of the best, and we decided that Tina was the one for us.”
Youngblood most recently had served as chief executive of reinsurance company Spencer Re for two years.
“In the very early conversations Tina and I had, we said we were not going to be co-CEOs,” Blackwood said. “That was not going to be the best use of her time or mine, and it wasn’t going to allow us to get the most out of the company. But I can focus on innovation and our relationships in the autism industry, and she has the ability to make the company operationally her own and help us move forward, as she has done with previous companies. That’s why we hired her.”
Like Costello, Blackwood said emotions come into play when a company founder contemplates letting go of the reins.
“To some degree there is the thought of ‘Oh my God, it’s my baby. What’s going to happen to my baby?’ But if you hire the right people, there’s no concern for what happens to the company at that point. It will only get better and continue to grow.”
Mindy Corporon, Boyer & Corporon
Mindy Corporon announced in March that she would hand off the role of CEO to her co-founder of Boyer & Corporon Wealth Management, Richard Boyer.
When they started the firm in 2007, Corporon expected to be in that role for the rest of her career, she said. But a tragedy in 2014 changed her trajectory: Her father, son and another woman were killed by a gunman at the Jewish Community Center in Overland Park.
“When we started the company and before the shooting, we had always expected that I would be there longer than (Boyer) would and that I would carry everything on through to the next generation,” she said. “But when the shooting happened, my path just changed, and really was changed for me.”
A year later, the firm began planning for a transition. With new leaders in place, Corporon said it was the right time for her to shift her focus to the Faith Always Wins Foundation, a nonprofit she founded in 2015.
But it wasn’t easy.
“It’s like giving my baby up for adoption—I became really not the right parent for it, and Richard and the other people in leadership are going to be better stewards of it because my attention has become more focused on the foundation,” she said. “So I’m very grateful to them that they allowed me to walk that path and to be able to leave. It’s been hard on all of us—it’s been a process, for sure. But they are totally committed.”
Corporon remains an “interested shareholder” and ambassador for the firm.