Abstract

The success of a growing business is inextricably intertwined with the leadership

capability of its chief executive. The purpose of this paper is to empirically test
whether there are managerial differences between founder and non-founder chief
executive officers (CEOs) of small and medium-sized enterprises. We report
preliminary findings of a study of 151 chief executives and their firms, examining
measures of proactive behavior, strategic posture, and organization structure. The
findings indicate that founder CEOs are significantly more likely than non-founder
chief executives to have a proactive disposition and point to the possibility of an
indirect effect of that disposition on managerial style

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 1. Introduction

Small businesses, often considered the rising stars of the economy, play a crucial
role in economic growth and job creation. In this context, founders occupy a central
place. They are the visionaries, the builders, and the guardians of the soul of these
nascent enterprises.

Small and medium-sized enterprises (SMEs) constitute the backbone of the

economic fabric in many low-income countries. They are not only job creators but
also catalysts for change. Their agility, adaptability, and spirit of innovation set
them apart. SMEs provide practical solutions to issues related to energy access,
clean water, healthcare services, and education.

The founder of a small business is much more than a mere actor. They are the
architect who lays the foundations, draws up the plans, and infuses the vision. Their
role goes beyond operational management. They embody the company’s soul,
culture, values, and DNA. It is the founder who takes risks, dreams big, and
inspires others. Their passion and determination are contagious, propelling the
company toward new horizons. They are the architect who lays the foundations,
draws up the plans, and infuses the vision. Their role goes beyond operational
management. They embody the company’s soul, culture, values, and DNA. It is the
founder who takes risks, dreams big, and inspires others. Their passion and
determination are contagious, propelling the company toward new horizons. In this
article, we will delve deeply into the role of founders in small businesses. We will
analyze their impact on growth, innovation, and the sustainability of these
structures. By understanding the importance of being a founder, we can better
appreciate the dynamism and vitality of SMEs that shape our economy.

Why is it so crucial to be a founder? Because the founder brings a unique

perspective. They know every detail, every nuance of the business. Their long-term
vision guides strategic decisions.

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Their passion and commitment serve as powerful motivators that galvanize the
team. Without a founder, a small business risks losing its essence, becoming an
empty shell devoid of the spark that makes it unique.

In this essay, we will delve deeply into the role of founders in small
businesses. We will analyze their impact on growth, innovation, and the
sustainability of these structures. By understanding the importance of being a
founder.

Small and medium-sized enterprises (SMEs) constitute the backbone of the

economic fabric in many low-income countries. They provide over half of the
formal jobs worldwide. Moreover, they offer practical solutions to issues related to
energy access, clean water, healthcare services, and education."

The style of senior managers dictates the strategic posture or competitive

orientation of firms, ranging from entrepreneurial to conservation, and is reflected
in the firm’s operating management philosophy and in its strategic decision-making
(Covin and Slevin, 1989). If entrepreneurs have distinguishing traits, as many of
the aforementioned studies have found, then we might expect that the founder
status of chief executives would manifest itself as differences in management style
and behavior between company chief executives who are also entrepreneurs and
those who are not. This is the central focus of this paper. Specifically, are there
differences in the proactive behavior or entrepreneurial orientation of chief
executives who are founders compared with those who are not? This study
contributes to understanding the firm leadership capabilities of founders by
providing empirical evidence to test this question. Hypothesis Development In their
response to Davis-Blake and Pfeffer (1989), House, Shane and Herold (1996) point
to the impact that personal characteristics may have on firm practice and behavior
and the potential predictive validity of dispositions. Thus, this research sought to
understand whether the behavioral disposition of small business leaders might
differ based upon founder status.

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Following Bateman and Crant (1993: 105), proactive leaders are those who “scan
for opportunities, show initiative, take action, and persevere until they reach
closure by bringing about change.” Since founders are entrepreneurs who have
engaged in the process by which “opportunities to create future goods and services
are discovered, evaluated and exploited” (Shane and Venkataraman, 2000: 218), we
may expect that these leaders have a pronounced proactive disposition through their
search for opportunity, and a bias for action in evaluating and exploiting their
discovery to create a business. “How does the founder’s role influence
leadership within small businesses, and how does this influence impact
organizational performance, creativity, and adaptability?”

We posit that founder CEOs will be more proactive in disposition according

to Bateman and Crant’s construct (1993) than non-founder CEOs. Thus, the
following hypothesis:

H1: CEOs who are also founders will have a higher level of proactive behavior
than CEOs who are not founders of their firms.

As firm leaders, chief executives influence the strategic posture or

competitive orientation of their companies. Depending upon the extent to which top
managers take business risks, favor innovation and change, and are willing to
compete aggressively, the firm’s strategic posture may range along an
entrepreneurial-to-conservation orientation (Miller, 1983). Miller (1983) delineated
strategic posture in terms of the firm’s reliance on risk-taking, innovation, and
proactiveness, establishing the roots for Covin and Slevin’s (1989) work on small
business and strategic posture. (The proactiveness subcomponent in this construct
captures the degree of aggressive response to competitors. It is distinct from the
notion of proactive behavior measured by Bateman and Crant (1993)). Thus, firms
with an entrepreneurial orientation would have leaders who accepted higher
business risk, favored innovation and change, and competed aggressively.

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Given the role of the leader in influencing the organization (Bandura, 1986), we
wondered whether there would be differences in strategic posture due to the
founder status of the chief executive. According to the findings of entrepreneur
personality trait research, we might expect that founder CEOs will favor a more
entrepreneurial orientation—greater risk-taking, innovativeness, and bias for
action—than non-founder CEOs. Thus, the following hypothesis:

H2: Firms with founder chief executives will exhibit a higher level of
entrepreneurial orientation than firms with non-founder chief executives.

Chief executives also carry responsibility for the organization structure of

the firm. Creating an organization structure to accommodate the growing
“administrative complexity” of a small firm may depend on the chief executive’s
ability (Miller and Tolouse, 1986: 48). If founders bring different characteristics to
firm management than non-founders, particularly greater tolerance for ambiguity
(Begley and Boyd, 1987) and risk-taking (Lefebvre and Lefebvre, 1992), we might
expect to see this manifested in differences in organization structure; founder CEOs
might be expected to enact more organic structures than non-founder CEOs. Thus,
the following hypothesis:

H3: Firms with founder chief executives will exhibit different organization
structures than those with non-founder chief executives.

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 Conclusions and Implications:

As demonstrated by a recent study, the performance of companies led by

founders declines after approximately three years following their initial public
offering (IPO)1. It would be interesting to delve deeper into this question by
examining the factors that influence the optimal duration for which a founder
should remain at the helm of the company. How can founders effectively pass the
torch to other members of the leadership team? What are the best practices to
ensure a smooth transition while preserving the company’s vision and culture?

Explore how founders’ leadership styles impact innovation within small businesses.
What leadership characteristics foster creativity and the pursuit of new
opportunities? Small businesses often grapple with growth, adaptation, and
transformation challenges. How can founders play a key role in change
management, especially during significant transitions such as mergers, acquisitions,
or restructurings

. The study results may be particularly important to both founders and venture
funders when thinking about leadership transition. Founders looking for growth and
higher performance as they consider an exit strategy may wish to retain their
ownership while transitioning firm leadership. Venture capitalists and private
equity investors may be wise to contemplate how a change in firm leadership might
enhance the future value of their investments. While founders may bring an
essential set of skills to opportunity recognition and business resource assembly, it
may be that non-founder CEOs bring important managerial experience and skills to
the long-term health of a small, growing firm. Although this study was not
designed to examine or test that possibility, our results point to a potentially rich
avenue of study for other researchers. Further work in the territory of this study will
help us better understand its initial findings.

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A more robust test of our hypotheses might be possible by fully replicating the
strategic posture measure. Specifically modeling the possible indirect effect of
proactive behavioral disposition on strategic posture and organizational structure
would be another fruitful avenue for future work. Finally, it is important to consider
the possibility that gender may play a role in these results. Since our sample
consisted solely of women chief executives, it is possible that founder status may
manifest itself differently among male chief executives. While recent research
argues against pure sex-based comparisons (Ely and Padavic, 2007), future research
might use a large enough sample of small- and medium-size growing businesses in
order to test for differences by gender as well as founder status.