How A Founder Can Do It Twice And Still Own Their First Company

It may be a feeling in the gut – or the heart. Or it could be part of a strategic plan. However, it comes, at some point the founder knows it’s time – time to move on. But when they’ve been deeply committed to the company, 24/7, for years if not decades, how to do this? What is the best way to disentangle the founder from their creation, and establish a positive pathway for both?

For most founders, their sense of self is mixed in with the business they founded. It’s personal, and departure may be difficult. The business may have outgrown the founder’s skill as CEO, but the founder won’t budge, limiting the business. Other founders are eager to go. Some may want to retire on the income from the business for a life of private or family pursuits they weren’t able enjoy before.

Yet some founders are not done creating. Their personal vision extends beyond their first company, and they want to lead another business. Not to be CEO of multiple companies, but rather to hire a replacement CEO at the current business so they can move to another sector, and another company, and realize a completely different goal.

“I learned a lot about new ventures from the existing company, Motivo, so I wanted to take an idea we had at Motivo and grow it,” says Praveen Penmetsa. Founder, Chairman and former CEO of the product design and development firm Motivo Engineering, he is now co-founder and CEO of Monarch Tractor. “We took a lot of care with the incubation of the new company, its spin-off, the leadership transition and changing my own role. Now both companies are thriving.”

Mapping the Exit

Shifting the founder is a delicate but critical move. Handled right, it can leave both sides with refreshed energy and renewed opportunity. Key components of the transition include:

• Get the business running well, ideally in a growth groove and with management, systems and other issues in form. Handing over a company in crisis to a new CEO is high risk. Reduce that risk by passing along a strong business not requiring major surgery.
• Establish a high-performing, cohesive senior management team, not heavily dependent on the CEO for day-to-day guidance. In the likelihood that the new CEO will come from the outside, ensure that the founder’s expertise, market knowledge and networks are transferred to management.
• Create an effective board of directors with outsiders to control the overall vision and hold the new CEO accountable for hitting agreed targets based on an annual plan. Build habits of planning and monitoring with the senior team before the transition – a learned skill and often a culture shift from a dominant founder functioning on instinct and passion.
• Take extreme care with the recruitment of the new CEO, who is likely to be more of a facilitator than an industry specialist. An extensive search based on detailed selection criteria is a must. Look under the hood of candidates, don’t be shy about prodding, referencing, taking time and requiring presentations. Pay close attention to culture and matching the candidate with the firm.
• Create a robust mentoring and transition plan. Support is essential during this time, but so too is a balanced approach, incrementally pulling back and allowing the new CEO to find their own way. This includes the founder distancing from the senior team. Set out and agree a structure for communications and stick to it. Resist the temptation to meddle.
• Once in place, the new CEO should create the first plan for board approval, and be held accountable for hitting it, demonstrating ability to coordinate and facilitate the senior team to achieve goals.
• Leaving is not enough. The exiting CEO must have a strong desire to do something different – something must lure them away. CEOs who are itching to pursue something new stand a much better chance of mellowing their passion for their previous firm and letting someone else lead it.

Many founders remain excellent leaders, evolving in their roles, growing in their knowledge, and successfully remaining in their roles until retirement. That’s great. In some instances, an internal candidate will emerge early, enabling a gradual and seamless transition. But where the founder (or the business) is getting restless, and an external candidate is expected, a planned transition is essential.

Finding a New Motivo

Perhaps it was inevitable. Bootstrapped with no external investors or debt, Motivo was founded in 2010 as a product-development outsourcing firm, based in Gardena, Los Angeles County, California.

The company works with start-ups and corporate innovation teams and likes to think of itself as a “bolt-on start-up team” for clients, bringing a wide range of expertise to design and realize new products on expedited and cost-effective timeframes in the areas of mobility, agtech, energy and robotics. This includes a full array of support from design to prototyping and low-volume production. Clients have ranged from start-ups to Fortune 500 companies and the U.S. military.

Developing and bringing new ideas to market is what they do, and Penmetsa has gained a strong grasp of what works and what doesn’t work in product development and product launch. So, it’s hardly surprising he would feel the urge to break out with his own new product.

Originally from India, he is from a long line of rice farmers. As he told Forbes in a 2016 interview, by then Motivo had developed ideas for electric agricultural vehicles, both to run on solar and to provide power in the field for other farming equipment. The applicability to both developing countries and North America was evident.

As early as 2017, he considered creating a new company to market the innovative concept, thinking he could either do dual duty as CEO of both companies or hand over management to existing leadership. But ultimately, after trying for a year, he decided to change course and hire from the outside.

“This was no reflection on the team. But I realized that the engineering and technical expertise of the senior group would work best with fresh, outside leadership that was strong in coordinating the functions and enabling the talented people to work at their best,” Penmetsa says.

Stepping Aside in Steps

At this point, Penmetsa brought Motivo’s Head of People Chris Dunham into the process. Dunham knew the existing company’s strengths and weaknesses. Together they engaged an executive recruiting firm and carefully outlined what they were looking for and the key success factors in a new hire.

Penmetsa wanted a professional CEO with a certain set of broad experiences. He also put down clear expectations along with a pathway for the new CEO to start as President reporting to him, before transitioning to CEO with full management authority.

As the candidates came in, they were whittled down to the finalist, who took a full battery of assessments including compatibility tests, as did Penmetsa, to minimize any surprises. While they had wanted someone with product-development experience, the best candidate, Allen Goad, had manufacturing experience across several firms but also very highly developed organizational growth and people skills. It looked like a good match.

Goad was hired as President, with Penmetsa holding the title CEO and Chairman. Penmetsa had started to scale his new start-up, Monarch Tractor, based in Livermore, California, which by then had attracted venture capital for its fast-growth strategy.

But Penmetsa was also excited by the challenge of seeing both companies develop to the next level. He understood that Motivo had become a more mature business and needed a different leadership mindset to take its own next step.

“I wanted both companies to be successful, and realized that to forge ahead, I had to let Motivo operate on its own, with its own leadership,” says Penmetsa.

Penmetsa worked hard to stay out of the way of the new President, sending those who still came to him for decisions back to Goad. He held back on overriding many decisions, realizing that the new leader and team needed to find their own ways of working together and learn some lessons on their own. It was also insightful for Penmetsa to see how an experienced operator like Goad interfaced with the team, built trust and relationships, and took ownership and overall accountability for the organization.

As a member of a Vistage group – the executive coaching network – Penmetsa had many groupmates who were hired CEOs and heard their frustrations in dealing with an interfering founder who was constantly second guessing the new leader. Penmetsa resolved not to be that guy.

Critically, Penmetsa and Goad agreed on key strategic principles, which allowed them to monitor progress along an agreed approach. For example, they agreed that acquisitions would be a key part of the growth strategy, with Goad driving the process and Penmetsa ensuring that the company’s cash position was made available as needed when acquisitions arose.

For the first three months, Penmetsa and Goad worked together in showcasing a united front. Then for the next three months, Penmetsa stepped back and made himself available to oversee or support the new President once a week. Subsequently, for the next year, he pulled this back to every other week, before pulling back further.

After two years, Goad was made Motivo CEO. Today, Penmetsa oversees the firm as Chairman of the Board and majority shareholder, providing strategy and business development support, with monthly meetings.

Letting Go for Growth

Motivo had a number of operating challenges in the first year of the transition due to Covid, which emerged the same month Goad joined Motivo. Penmetsa and Goad rolled up their sleeves and worked through the Covid-related challenges with a united front. As things started to settle down into a rhythm, Penmetsa resisted diving in when issues arose, and Goad, with his extensive engineering experience and organizational skills, worked with the team to resolve them.

Now the company has started to thrive, growing faster and in a more managed way than before. Acquisitions are being reviewed in a planned manner, and retention and recruitment are also positive indicators. Following an initial 30% drop in revenue due to COVID in the first year, the company has seen constant growth, now showcasing a 76% increase in revenue from the first year of the transition, a testament to the successful transition and Goads expertise at growth.

Monarch Tractor, Penmetsa’s new startup, is now getting his full attention, marketing what they bill as the world’s “smartest, 100% electric, data-driven, autonomous tractor.” In just three years they’ve had three rounds of fundraising, bringing in more than $110 million in investment and starting to generate revenue. The company has received several awards for innovation and design, including CNBC’s 2022 Disruptor 50 List.

Penmetsa’s experience highlights the importance of a transition plan, and the upside potential if it’s done right.

“Letting go at Motivo took time, mind-set shift and a lot of thought,” says Penmetsa. “But now they have been able to find their own feet and really build momentum, while I’ve been able to focus on building the exiting opportunities at Monarch and pursue a new venture that is very impactful for farmers and food-ecosystem profitability. These are really important to me. It’s been a true win-win.”