People often say that entrepreneurs who start out as CEO will need to be replaced at some point with a “professional” CEO. The thought is that the entrepreneur won’t be able to scale as the business grows. I think this is the wrong way to think about the situation. Yes, there are many entrepreneurs who do not make good long-term CEOs, but that probably means they weren’t good short-term CEOs either.
I view the CEO job as not starting until there are more than 20 employees in the organization. Prior to 20 employees, the job is more like a product management role of building an initial product and trying to generate a little revenue. The real job of a CEO starts when there is a complete organization with all the major functions in place. This transition typically starts at 20 to 30 people and by 50 people there is a distinct full-time CEO role.
If an entrepreneur has the right skills to be a really good CEO at 50-100 people, there is no reason he can’t grow with the company and remain as CEO. Many founders have led their companies to Fortune 500 status. Just look at Facebook, Microsoft, Amazon, and Oracle.
To me the single biggest factor that determines whether a given founder can make the transition to permanent CEO is whether they are interested in the business as a whole or mostly in a particular part of the business. The two most common backgrounds for early stage CEOs are sales or technology. To make the transition into an effective CEO, these specialists must learn to be generalists and care just as much about HR and finance as they care about sales or the technology.
If you want to tell whether a particular CEO is making the transition, just observe where their time and effort is being spent. If most of their focus is on the one area they are most comfortable with instead of a balanced approach across the whole business, you will know that they probably won’t be able to scale as the business grows.