Founder dependency can hinder growth and strain teams

Before Elizabeth Holmes was convicted of defrauding investors at Theranos, she was celebrated by many in her role as the face of health-tech innovation in Silicon Valley. Holmes is a case study of what happens when a founder’s identity becomes inseparable from their company.

When that line blurs, the risks of a person are shared by their company. Like Holmes, well-known tech founders like Elon Musk and Sam Altman are often talked about—and criticized—for their larger-than-life personas, which can inadvertently wreak havoc on the businesses they built.

A survey by the National Bureau of Economic Research shows that 95% of VCs consider the founding team an important factor in investment decisions, underscoring how much a founder’s identity and leadership weigh in funding outcomes.

What happens when the visibility that drives early success begins to strain teams, slows decision-making, and complicates scaling?

Markus Baer, a professor of organizational behavior at the Olin Business School at Washington University in St. Louis, says the dynamic of startups being so closely linked with a founder’s identity is rooted in uncertainty: “The saying in entrepreneurship is ‘You’re betting on the jockey, not the horse.’ Confidence in a founder can attract attention, secure funding, and create a self-reinforcing cycle of early success.”

Those traits, often dismissed as narcissism or “founderitis,” can create structural challenges as a company scales.

“As a company scales, the founder can become a bottleneck,” Baer said. “They can’t consume all the information, decisions slow down, and team autonomy suffers. People defer upward instead of making decisions at lower levels.”

Beneath the surface

That relationship shows up rapidly inside companies.

“I realized pretty quickly that I had become the bottleneck,” said Rema Lolas, founder and CEO of Grozaic, a team dynamics and performance platform, and Unstoppable Leadership, a team dynamics consultancy and training platform.

If a founder doesn’t step back, all decisions start coming to them, Lolas explained. “What ends up happening is that teams start to orient around the founder, or orient around the leader, instead of orienting around the business.”

Silence can creep in as team members stop challenging ideas, and high performers may leave if they feel stifled. It’s expensive, both in talent and in opportunity, Lolas adds.

A 2019 McKinsey estimate based on a survey of 1,200 managers globally underscores the potential costs: Managers at a typical Fortune 500 company may waste roughly 530,000 workdays annually on ineffective decision-making—as much as $250 million in wages.

One way out? Build beyond the founder.

Baer shared a solution some founders implement: embedding culture and structure so the organization can thrive beyond their personal involvement. Baer pointed to founders who embed culture and structure early, so the company can scale independently. Steve Jobs did this at Apple, codifying values that endured as the company grew. That shift often requires founders to step back from day-to-day control—and trust the people they’ve hired.

“You have to hire smart people. You have to give them some authority,” Baer emphasized.

When the founder is the brand, they can be expected to be both the face and the force behind it. “But if you can’t let other smart people in, you don’t see your blind spots,” Lolas said.

The founders who navigate this successfully, she added, are the ones who learn to step back. And, as Elsa from Frozen likes to say, sometimes you just have to “let it go.”