Can an entrepreneur ruin her own company? Yes. Many have—and many probably will in the future. Look at Martha Stewart, says USA Today. Her company, Martha Stewart Living Omnimedia, has lost money four years in a row under her leadership, reports the newspaper. Because business owners can sometimes lose focus, it is best to know when to step away in order for the company to survive.
“A CEO can tell it is time to leave when they have reached their limit in terms of ability and skills to lead the company. If the company is not growing as in increasing revenue over time than it is time to either bring in new leadership or leave the company all together. There is nothing wrong with bringing in someone to lead the company,” says Anastasia Valentine, CEO of business consultancy firm Sandbox an Idea to Launch Company.
According to Deborah A. Osgood, president of entrepreneurial education and coaching firm Knowledge Institute, companies go through various stages—one of which might include a time when the founders need to step away and turn the reigns over to someone else.
There are three phases that every business goes through: Panic, which represents the start-up phase where everything is chaotic, decisions are made on the fly and the CEO thrives and is good at being the center of attention. Phase two is the “people” phase where business growth demands begin to exceed the CEOs capacity and it’s now time to add staff. And phase three is the “process” phase where growth continues and a whole new set of challenges require more formal business systems and an expanded management hierarchy. Not all CEOs are good at nor welcome moving from one phase to the other. A CEO needs to leave as soon as she realizes either through self-awareness or poor business performance, she is no longer working at her peak performance.
It’s time to quit your company if you’ve hit the wall and are not sure and don’t have the skills to grow the company beyond what it has already achieved, says Valentine. Or when you have lost the original passion you had for the business when you started it. And, if the company is not profitable or no longer profitable.
It is important for CEOs to have an exist plan in place. “Most business owners do not plan for their exit so only 5% actually achieve the exit they worked so hard for,” notes Kerri Salls of This Way Out Group LLC, an exit strategy firm. Start an exit an exit plan as soon as possible especially if you are planning to sell your company. “The longer you wait, as sales slide, the lower value,” she says.
Just because you have started a company you might not be the best leader for the firm.“Many CEOs are ‘accidental’ in that they started the company so they believe they should lead it,” explains Valentine. “Not all founders have the necessary skills to grow a company beyond a certain point. When the company loses focus, stops generating year-over-year growth or where there is no or little motivation to continue… it’s time for the CEO to embark on something new.”