Member Exclusive   //   March 19, 2024

DTC Briefing: How to bring in a new CEO as a founder-led brand

This is the latest installment of the DTC Briefing, a weekly Modern Retail+ column about the biggest challenges and trends facing the volatile direct-to-consumer startup world. More from the series →

One of the biggest decisions a direct-to-consumer startup founder will ever have to make is when to bring in a new CEO. And, who they can trust to take over the reins of their business. 

Much of the upheaval that’s been reported in the retail world over the past week can be traced back to issues with new CEO appointments — or, the failure to make them in the first place. 

Last week, Under Armour founder Kevin Plank announced that he would once again take over the top job, after stepping down as the CEO at the end of 2019. It was an unexpected move, considering that Under Armour’s CEO, Stephanie Linnartz, had only been in the role for a year, and had laid out a three-year turnaround plan. Outdoor Voices, once a direct-to-consumer darling, announced plans to shutter all of its stores — the latest sign to fans that the brand had lost its magic since founder Ty Haney exited the company several years ago. Meanwhile, Allbirds announced a new chief executive, promoting its COO Joe Vernachio to the role and replacing co-founder Joey Zwillinger. 

While any CEO appointment is difficult, bringing in someone new to replace a founder can be challenging because of how wrapped up a business can sometimes be in the identity of that founder. If companies bring in a new CEO without fully getting the buy-in from a founder, they risk seeing a power struggle play out as the founder seeks to find a way back in, and employee loyalty can be divided between the old chief executive and the new one. But, if a company brings in a new CEO too late, the business risks being dragged down by the founder’s weaknesses. 

While there’s always a steady stream of companies announcing new CEOs, Anish Shah, CEO of executive recruiting firm Ruckus, said he does think there’s been an uptick in retail startups looking to bring in new CEOs at founder-led brands, “particularly among companies that raised money at the peak in 2021.”

“Those investors want to see faster growth and at a more profitable clip. And if they’re not seeing it from their founders, they are willing to swap out founders,” Shah said.

So the first step to successfully bringing in a new CEO to a founder-led brand is making sure the founder — not just investors — is on board with the change. 

“In a perfect world, you have founders that are self-aware, that want to elevate the business in some form [by bringing in a new CEO],” said Mike Jones, co-founder and managing director of venture fund and startup studio Science Inc.

“The founder needs to be honest with themselves — and everyone above them and below them — that X is what I’m good at, and Y is what I’m not good at,” Shah said. “And we’ve hit the point where X is no longer as important as Y.” Jones said that in an ideal world, a founder has a few people they have talked to over the years that they would entrust with running the company.

Getting the founder on board with the change is straightforward advice in practice, but of course, there are plenty of examples where that hasn’t been the case. Haney, for example, was reportedly pushed out at Outdoor Voices in 2020 after experiencing tension with the Chairman of the Board, Mickey Drexler. In the years after, she continued to make Instagram comments on Outdoor Voices’ official account about business decisions she disagreed with, making the fracture further apparent.

As such, Jones said that a successful CEO transition ultimately comes down to good communication between the founder and the board. 

“Often what I have found in boards is there are one or two board members that have a really close relationship with the founder, maybe because they’ve been on the board for the longest amount of time,” Jones said. So if a founder doesn’t see eye-to-eye with the board about bringing in a new CEO, the best thing a board can do, Jones said is to have a “heart-to-heart discussion” with the founder about what is needed for the overall success of the business. 

“Hopefully, that type of dialogue can resolve those issues,” he added. “Obviously, it really depends on the personalities.”

Shah said another option is to bring in a new executive as essentially a CEO-in-waiting for six months — perhaps as a chief commercial officer or chief business officer. That person is then trained to take over as CEO. But that’s also dependent upon the founder being willing to get out of the way once the new CEO takes over. “You’ll have the founder leave, bring in the new CEO, yet the founder is still on the side checking in with employees about what’s happening,” he said.

It can create confusion for current employees, he said, about where their loyalties should lie. From his perspective, Shah said, founders should only stay on in an advisory role, and being available when needed for a few phone calls here and there.

The biggest mistake both Shah and Jones said they often see founder-led companies make when bringing in new CEOs is picking people with experience at big companies that represent the type of business the founder one day hopes their business will grow to be. But, these people don’t have the operational experience needed to run a growing startup.

“Think about whether someone has operated [a company] at a similar stage,” Shah said. He also advises people to backchannel — and interview not only the board members who worked in tandem with this potential new CEO, but also people who worked below them.

That’s because at a startup, Shah said, it is critically important that a CEO has a vision for how the business can grow that gets people excited.It speaks to how bringing in a new CEO is only step one for startups hoping to one day become big companies. 

“People from massive companies rule with an iron fist,” Shah said. “And people from startups have to grow with the teams and be a little bit more congenial and understand that people have other options.” 

What I’m reading

  • Outdoor Voices shuttered all of its stores over the weekend, leaving the brand’s future in question. 
  • Quince, the restaurant, is suing Quince, the e-commerce startup over trademark infringement. 
  • Why DTC brands are cutting back on agencies. 

What we’ve covered 

  • Condiments are having a moment, and companies like Momofuku Goods, Frank’s RedHot and Haven’s Kitchen are increasingly releasing new versions of sauces, spreads and aiolis in the hopes of creating the next great accouterment. 
  • Could the proposed TikTok ban be for real this time? Brands like Milani Cosmetics and August sound off on what they think of the latest piece of legislation moving through Congress. 
  • Solo Stove recently ignited the age-old debate about brand versus performance marketing.