If you’re the owner of a small business, it’s very likely that you’re the CEO as well. The question is “Should you be?” There is a difference between the roles and responsibilities of the owner and the CEO. Owner vs CEO, which role fits you best? The most important question is “What’s best for the business?
Owner vs CEO – What’s The Difference?
Being an owner and being the CEO are two different things. Understanding the differences between these two roles is important to how the business is being run.
In the first place, ownership is foremost a legal status. It simply means that you hold most (or some) of the company shares. The business is in your name. But this does not necessarily mean that you’re also running the business operations.
On the other hand, CEO is a functional title, with a day-to-day role, short and long-term duties, and responsibilities.
Does a CEO own the company? The CEO may have company shares or stock options. But, they are typically not a majority owner. Think of a publicly-traded company. The people that own stock are the owners, and the CEO is an employee held accountable by the shareholders, represented by the Board of Directors.
On the other hand, think of a private equity investor. They own the business and often play an active role in developing strategy and setting a direction for the firm. But the CEO and the executive management team are charged with executing the strategy and running operations.
The key is to recognize is that you can own a business and not run it, or you can run a business and not own it, or you can be both.
Are You Wearing Two Hats?
If you own as well as run the business, you’re wearing two different hats. To make sense of each role, you have to be able to see yourself as two different personas.
One persona is that of the owner (the investor), and the other is the CEO (the person running the business). Each of these has a particular view of the business and the role to play.
Of course, it’s not easy to mentally switch back and forth between these personas, but it’s necessary to be clear about what each position entails and the roles and responsibilities.
An owner is just that, the owner – the person who holds (most of) the shares of the company. The owner is the investor who made the funds available to start the company or to keep it going.
As an investor, the “owner” is (hopefully) actively involved with the business, but does not work in the business. The owner has personal and financial goals in mind for the business. In other words, the business is the means to an end.
The “owner” is not an employee and does not receive a salary, but quarterly or annual profit distributions. In addition, the owner will benefit financially if the company is sold, assuming selling is part of the owner’s exit strategy.
Because the owner is not an employee, they cannot be fired. The owner only loses ownership by selling their company shares.
On the other hand, unlike the owner, the CEO is an employee of the firm. As such, the CEO draws a salary and can be fired by the owner(s) for poor performance. The compensation package may also include bonuses, profit distributions, and stock options. The CEO may hold (some) shares of the company, but that’s not a requirement.
Working closely together, the owner and CEO develop the longer-term strategy for the business, within the framework of the goals and objectives set by the owner.
The owner charges the CEO with the execution of the strategy and running the business. The CEO is accountable to the owner(s) and the company’s Board of Directors. If the CEO’s performance falls short, they can get fired and replaced.
If the owner sells the business the CEO may be out of a job, unless the new owner decides to keep them on in some managerial role.
- Owns the company
- Not an employee
- Active or passive investor
- Directs the CEO
- Receives profit distributions
- Profits from selling the company
- Sets long-term goals and objectives
- Does not own the company
- Runs the business
- Accountable to the owner(s)
- May receive profit distributions and/or stock options
- May lose their job if the company is sold
Is the Owner Asking the Right Questions?
First of all, the owner needs to be very clear about what he or she wants from the business. Is the company a wealth generator for themselves or the family? Or are they buying a job, for themselves and perhaps the next generation?
What is going to happen with the company when you’re in your 60s or 70s? Turn off the lights, lock the door and throw away the keys? Or will there be something of value to sell or pass on to the next generation?
Unfortunately, too many small business owners do not have an exit strategy or have done any succession planning.
Whether you plan to sell the company or transfer it to the next generation, you want the business to be worth something. This is usually determined through a business valuation.
If the exit strategy involves selling the business, increasing the valuation is an important objective in order to maximize the financial gain for the owners. This is where the CEO comes in. The CEO is charged by the owner(s) to grow the business and improve the company valuation.
Now, if you’re both the owner and the CEO, put on your “owner” hat and ask this question: “How is the CEO’s performance record? Is the CEO achieving my goals and objectives for the business?”
As the owner, are you able to objectively evaluate the CEO’s track record? Or are you going to give the CEO a passing grade, no matter how poorly the company is doing, just because, in the end, that CEO is you?
It’s very important to be able to objectively evaluate your roles as both owner and CEO to determine if running the business is really the right fit for you.
Are You the Right Person to Be the CEO?
Which skills, experience, training, and aptitudes are needed to take the company to the next level? Do you have what it takes? If you were interviewing candidates for the CEO position right now, what would be the job requirements? Would you hire yourself?
If you have the interest, qualifications, and experience, great – keep up the good work.
But, what if you’re totally honest with yourself, and you have to acknowledge that your performance as CEO has been lacking? Then it’s best for the business, and ultimately best for you as the investor (owner), for a professional manager to take the helm.
Owner vs CEO – What’s Best for the Business?
What if your company was headed up by a professional CEO with experience in your industry? How would that impact your organization’s growth path?
Keep in mind that hiring a professional manager for the top executive position does not mean that you’re giving up ownership. Nobody can take ownership away until you decide to sell your shares.
A professional CEO will take their fiduciary responsibility to the owner very seriously. They will run the company to the best of their abilities to meet the shareholders’ goals and objectives. And to prevent the CEO from going rogue, the owner(s) hold the CEO accountable.
Also, you don’t always have to hire an external candidate. Perhaps one of your top employees or a family member has the interest, training, skills, and experience to run the business.
Make a Decision
In the end, you have to make a decision. Are you the best person to lead the company? If so, great.
However, if you’re not, do what’s best for the business, get someone else to run it for you. The business will be better for it.