How Long Should a Founder Remain CEO?

In the wake of Jack Dorsey’s resignation from Twitter, some have begun asking whether the move could herald a new era, in which founders voluntarily step aside rather than sticking around for decades or waiting to be ousted.

To explore the value added by a founder-CEO, an analyze of stock price and financial performance data from more than 2,000 publicly traded companies found that founder-led firms outperform those with non-founder-CEOs — but that the difference dwindles to zero just three years post-IPO, after which founder-CEOs actually start detracting from firm value.

While founders add the most value as CEOs in the early years of a firm’s development, by the six-year mark, they become more valuable in non-CEO positions, such as CTO or a board seat. Of course, six years is just an average — the optimal timing will vary substantially based on the specific situation.

But in general, encouraging a founder-CEO to transition to another role within the organization enables the firm to benefit from new top management while still leveraging the founder’s deep knowledge about the organization in an advisory capacity.