If you have ever lifted your eyebrows at a startup that lists its young entrepreneur as CEO of the company, you are not alone.
There are many people walking around calling themselves CEOs, when they are merely the founder of a startup. But startups do have CEOs, so when is a person an entrepreneur, a founder, or a CEO?
One thing to understand is that the one doesn’t imply the other – an entrepreneur is not a CEO, although entrepreneurs can take on the role of CEO under certain circumstances. A CEO could have started out as an entrepreneur, but not necessarily.
What is an Entrepreneur?
To understand the difference between an entrepreneur and a CEO, we need to look at the definition for each.
An entrepreneur is a person who starts their own company based on their own novel idea. They have typically:
- spotted a gap in the market and came up with a novel solution
- found a way to drastically improve a product or service
- come up with a completely new service or product
- found a way to tackle societal problems in innovative ways
Since the emergence of new technologies like artificial intelligence, machine learning, robotic process automation (RPA), and others, many entrepreneurs have leveraged these technologies to create advanced products and services that never existed before.
The key element is a curious and inventive mind and the willingness to risk everything to achieve a desired goal.
A business started in this way is referred to as a startup, which in many cases has more than one founder, called co-founders. Founder and entrepreneur denote the same meaning.
In the process of establishing a startup, the founder undertakes the following roles:
- Assume financial risk for eventual profit
- Secure funding
- Acquire resources
- Create a business plan
- Build the product or service
- Do market research to determine the customer base, and to gain insight in the market, and competitors
- Market the brand
- Manage the venture and leads it
- Enlist the help and skills of others
Many entrepreneurs start their venture with dreams of being the next Jeff Bezos, or Mark Zuckerberg, or becoming famous and retiring with millions.
Those who enter entrepreneurship with this aim, experience considerable pressure from investors to scale the business as soon as possible so everyone can benefit handsomely from the success.
To be clear, not all entrepreneurs have such lofty aims. Many entrepreneurs run one-person ventures successfully and happily.
What is a CEO?
The CEO (Chief Executive Officer) is the highest-ranking executive manager in a company or organization. The CEO is responsible for the ultimate success of the business entity or organization and has the ultimate authority to make final decisions for a company.
The decisions a CEO makes account for 45 percent of a company’s performance.
The CEO is the public face of the organization or business entity, responsible for explaining company strategy, and articulating company values and justifying the role of the organization in society.
The CEO is answerable to the Board of Directors for the performance of a company. The Board of Directors represent the shareholders of the company, with the CEO often sitting on the board, or in some cases, chairing it.
As head of the organization, the CEO is responsible for leading it, steering and inspiring the workforce to realize company goals. In this capacity, the CEO is responsible for the development and execution of long-term strategies with the express aim of increasing shareholder value.
Roles and responsibilities of a CEO
The roles and responsibilities of a CEO vary from company to company, depending on the size and structure of the organization.
In a small company, a CEO may take on responsibilities that are normally delegated to heads of departments in large corporations.
Because companies and organizations differ so much, there isn’t a universally accepted list of roles and responsibilities that applies to CEOs. Generally, the following of duties and responsibilities apply to CEOs.
- Representing the organization in communications with the board, other organizations, government entities, and the public.
- Exhibiting unwavering leadership in times of uncertainty.
- Setting the direction for the company by developing and implementing the organization’s vision, and mission.
- Setting a long-term corporate strategy and short-term goals to achieve it.
- Monitoring the work of executive committee members and other executive leaders in the organization.
- Staying informed on market developments, competitor actions, industry developments, and business opportunities, etc.
- Overseeing the operation of the organization.
- Assessing risks to the company, including cybersecurity risks and putting measures in place to minimize these risks.
- Understanding the importance of social responsibility and taking measures to ensure that the company always acts responsibly.
The similarities
Some roles and responsibilities of CEOs and founders overlap.
Both serve as a figurehead for and lead their respective undertakings, both are responsible for the vision of their company, both must ensure its profitability, and both need to manage other people.
Analyzing the differences
While both CEOs and entrepreneurs are in charge, they are in control of different entities. An entrepreneur is in charge of building a business from scratch; a CEO is in charge of an established business or organization.
One of the core differences between the two is their risk tolerance. With the exception of successful serial entrepreneurs, most founders start their ventures with little capital, risking everything they have to realize their dream. And along the entrepreneurial journey, they are often faced with decisions that risk everything they have built up.
The most successful woman entrepreneur of all time, Oprah Winfrey, risked her career in television and her financial security to start her own television program. The Oprah Winfrey Show, unique in its kind, eventually led to her own television network and media empire.
Where risk-taking is a crucial component of launching a startup, leaders of established companies avoid risk. CEOs being accountable to board members, shareholders and employees can’t afford to take on too much risk. They tend to mitigate risk with thorough market research and by staying on top of industry trends.
Another obvious difference between a CEO and an entrepreneur is the level of their training and experience.
An entrepreneur can feasibly start a business with no college degree and not much work experience, while a CEO is expected to have a business degree, or considerable business experience and proof of leadership ability. Individuals typically reach the position of CEO based on their reputation for leadership and making a success of companies that were failing.
While it’s not necessary to have a college degree to be an entrepreneur, many founders have tertiary qualifications.
Do entrepreneurs make good CEOs?
A person who starts out building a company, is an entrepreneur.
The entrepreneur is focused on building a viable product and finding a market for it. At a certain point, if everything has gone well and the company has grown in size, the entrepreneur starts moving into the role of CEO.
There are many examples of entrepreneurs who became successful CEOs. Many hugely successful companies were founded by entrepreneurs who eventually became the CEOs of their own companies.
Facebook CEO, Mark Zuckerberg, serial entrepreneur Elon Musk, Bill Gates, the co-founder of Microsoft, and Jack Dorsey, the co-founder of Twitter and Square, all dropped out of college to start their own companies, which they led to become the most successful companies in the world.
The abovementioned examples are the exception to the rule and research proves it. According to research by Noam Wasserman, 50 percent founders are no longer the CEO by the time the startup is three years into its existence.
After four years, only 40 percent are still involved. By the time a company files for IPO, fewer than 25 percent of the original founders are there to lead the company.
According to the writer, founders of successful startups are at some point faced with the dilemma of whether to continue as CEO and face possible failure, or to cede leadership to someone with more business experience.
Ultimately, entrepreneurs don’t necessarily make good CEOs. Just because they’ve had an innovative idea that they have executed, it doesn’t mean their skills, experience or mentality are suited to running a business.
Why are founders often forced to relinquish their leadership position?
Someone with a background in science or technology can found a company, but as it grows, the company will need a person at the helm with different skills.
Once the company has a viable product and an established user base, the next step is to scale operations, establish supply lines, sell large volumes of products, launch professional marketing campaigns, provide customer service and find new markets.
All these factors mean that the company’s finances now require the dedicated services of accountants and finance professionals.
The company itself becomes more formalized and more structured and processes have to be put into place to efficiently handle manufacturing, orders and more, all of which necessitates the appointment of professionals to take on these tasks.
Before you know it, the entrepreneur sits with an enterprise that looks completely different from the initial startup, one that now requires a set of skills that most entrepreneurs don’t have.
Why is it so hard for entrepreneurs to relinquish their role as CEO of their venture?
- They believe they are the only ones capable of leading the company
Founders simply don’t entertain the possibility that someone other than them can lead their startup to success. After all, it’s the founder who had the idea in the first place and the initiative to get the venture started.
The idea for the business was born in the mind of the founder. It’s the founder that saw the gap in the market and dreamed up a way to fill it.
The founder then proceeds to find people who buy into that vision and they work together toward a common goal they all fervently believe in.
A unique culture develops that every member is proud of. The culture of the startup often mirrors the unique preferences and style of the founder.
The whole business becomes an extension of the founder and all parties involved with it associate the brand with the founder as its leader. Under these circumstances, a founder may rightly believe that the brand would suffer without them.
- Emotional attachment
For entrepreneurs, giving life to their business idea is like giving birth. It’s a deeply personal experience that they value above almost anything else.
They devote their time, energy and love to it, year in and year out, working to turn the venture into a successful business, hoping to charm the world with their unique solution. The time and dedication result in a strong attachment that’s hard to step away from.
- Overconfidence
Many entrepreneurs, especially young, inexperienced founders, tend to be overconfident in the eventual success of their venture, too naive to foresee the challenges they may encounter, or too confident in their ability to overcome them.
This indelible confidence is necessary to get a startup off the ground, but it doesn’t serve a useful purpose when running an established business.
- Success in confusing
Startups need a CEO to lead the company when it has already reached a certain level of success and has a high potential for success.
Since the founder has successfully led the company to that point, they believe that they are the right person to take the company to the next level.
They believe their success up to this point should convince investors that they are the right person for the job. It’s their very success that makes it hard for them to understand that it’s time to go.
The implied message from investors is: “Thanks for your great work up to now, but it’s time to go”.
Final thoughts
Entrepreneurs and CEOs are not the same. All founders are not CEOs. As a venture grows, the leadership role of the entrepreneur becomes that of a CEO, but as soon as the company reaches a certain stage, it needs a professional CEO to guide it to an IPO and the skills of the founder are no longer sufficient.
This is true for the majority of startups. The entrepreneur that also becomes the CEO of his multi-dollar company is the exception.
